Another weekend, another bailout...

[BoberFett]

Originally posted by: Evan Lieb
Congress has little incentive to accrue more debt limitlessly without end, the Fed is quite aware of this.

Typo?

Congress has lots of incentive to accrue endless debt. Voters are more concerned about retarded babies than debt.

 

[BoberFett]

Originally posted by: Evan Lieb

Originally posted by: BoberFett
So what's the incentive for large institutions not to gamble on risky investments? If they get lucky, great, they'll be wiping their asses with hundred dollar bills. If they get unlucky, it's not their problem. They're "too big to fail" so the taxpayer will eat the losses.

That is unsustainable.

It is extraordinarily rare for the Fed to bail out firms on this level, so it's not a problem. Your point would be absolutely legitimate if it weren't for this simple fact; it just doesn't happen often, the Fed isn't anywhere near capable of bailing out a significant portion of financial institutions.

You don't consider recent bailouts to be approaching "often" territory? How many more will it take? Define "often."

 

[Thump553]

Treasury Secretary Paulson is scheduled to hold a news conference today (Sunday) at 11:00 AM Eastern Time to outline the specifics of the government takeover.

 

[dmcowen674]

Originally posted by: LegendKiller

Originally posted by: PC Surgeon
Letting the banks fall would cause economic hardships. That I am not debating. What I am debating is that allowing them to fail now would be easier to recover from than to allow them to fail later. Do you think these steps by the FED will forgo any depression we would have seen if they had let them fail? How much worse will the depression be with a weaker dollar and MORE debt? From what I get from your posts is, you want the easy fix right now, just like the easy credit that was handed out in the first place. The buy it now pay for it later crowd.

You obviously think the recent moves by the FED were not only needed, but necessary. IMO this is not so. These actions only further on the irresponsible actions (loans to those that don't deserve it).

When a child steals, do you laugh and say its ok? Or do you make them take it back into the store and apologize? You and your FED agree with the former.

You honestly think having the world go into a depression, would be better than taking the Japan solution? How great that you're more than willing to destroy the world's economy, force the whole thing into depression, have hundreds of millions lose jobs, all to satiate your desire to see a different system in place.

It's nice to know you're such a well-rounded thinker.

A better solution would be to allow the system to absorb the problems, then fix it so it can't happen again, followed by better proactive measures.

Yes, the enablers need to have their balls snipped.

Why do you support such corruption?

Why do you hate America?

 

[GrGr]

Originally posted by: Evan Lieb

Originally posted by: PC Surgeon

Originally posted by: LegendKiller

Originally posted by: PC Surgeon
Letting the banks fall would cause economic hardships. That I am not debating. What I am debating is that allowing them to fail now would be easier to recover from than to allow them to fail later. Do you think these steps by the FED will forgo any depression we would have seen if they had let them fail? How much worse will the depression be with a weaker dollar and MORE debt? From what I get from your posts is, you want the easy fix right now, just like the easy credit that was handed out in the first place. The buy it now pay for it later crowd.

You obviously think the recent moves by the FED were not only needed, but necessary. IMO this is not so. These actions only further on the irresponsible actions (loans to those that don't deserve it).

When a child steals, do you laugh and say its ok? Or do you make them take it back into the store and apologize? You and your FED agree with the former.

You honestly think having the world go into a depression, would be better than taking the Japan solution? How great that you're more than willing to destroy the world's economy, force the whole thing into depression, have hundreds of millions lose jobs, all to satiate your desire to see a different system in place.

It's nice to know you're such a well-rounded thinker.

A better solution would be to allow the system to absorb the problems, then fix it so it can't happen again, followed by better proactive measures.

LK, lets go your way then. We bailout the banks, the market slows down, the currency weakens, accrue more debt, then we have a depression anyways. Which depression is easier to recover from? The one with bank bailouts? Or the one with bank bailouts, weaker currency and a massive amount more of debt?

No, we don't have a depression and haven't had one in over 70 years, so I'm not sure why you continue to parrot this line. Again, this stuff about delaying the inevitable has no factual basis in macro or micro economic principles. You're making multiple assumptions that make little sense; Congress has little incentive to accrue more debt limitlessly without end, the Fed is quite aware of this. Secondly, who says the dollar will continue to weaken? We know for a fact that interest rate cuts have stopped until the Fed feels out where the market is headed before they raise them to stop inflation. And again, this notion that debt is bad is overwhelming stupid; deficit spending and negative trade balance isn't a bad thing if it is achieved in moderation. Welcome to the New Economy.

This "new economy" is about to be gobbled up by some very old forces.

Old dead British dude Sir John Templeton said the four most expensive words in the English language are "it's different this time...". The second most expensive words, he said, are "something must be done!"

 

[Engineer]

AP
Officials announce takeover of mortgage giants
Sunday September 7, 12:34 pm ET
By Alan Zibel and Martin Crutsinger, AP Business Writers
Government assumes control over mortgage giants Fannie Mae and Freddie Mac


WASHINGTON (AP) -- The Bush administration, acting to avert the potential for major financial turmoil, announced Sunday that the federal government was taking control of mortgage giants Fannie Mae and Freddie Mac.
ADVERTISEMENT


Officials announced that the executives and board of directors of both institutions had been replaced. Herb Allison, a former vice chairman of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.

Treasury Secretary Henry Paulson says the historic actions were being taken because "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe."

The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.

"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance," Paulson said.

Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.

The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans."

The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.

Paulson said that it would be up to Congress and the next president to figure out the two companies' ultimate structure.

"There is a consensus today ... that they cannot continue in their current form," he said.

Paulson and James Lockhart, director of the Federal Housing Finance Agency, stressed that their actions were designed to strengthen the role of the two mortgage giants in supporting the nation's housing market. Both companies do that by buying mortgage loans from banks and packaging those loans into securities that they either hold or sell to U.S. and foreign investors.

The companies own or guarantee about $5 trillion in home loans, about half the nation's total.

Lockhart said that both Fannie and Freddie would be allowed to increase the size of their holdings of mortgage-backed securities to bolster the housing industry as it undergoes its worst downturn in decades.

Lockhart said in order to conserve about $2 billion in capital the dividend payments on both common and preferred stock would be eliminated. He said that all lobbying activities of both companies would stop immediately. Both companies over the years made extensive efforts to lobby members of Congress in an effort to keep the benefits they enjoyed as government-sponsored enterprises.

Both Paulson and Lockhart were careful not to blame Daniel Mudd, the CEO of Fannie Mae, or Freddie Mac CEO Richard Syron for the companies' current problems. While both men are being removed as the top executives, they have been asked to remain for an unspecified period to help with the transition.

 

[LegendKiller]

Originally posted by: smack Down

Cry me a fucking river, some body call the whambulance how about the so successfully company try not being 3 billion dollars in the hole.

The company isn't "in the hole" by $3BN, the company would normally have no problem at all financing that, cheaply. However, given where the credit markets are now, where nobody is lending, it's not having as much luck.

This is what I mean. If they can't even refinance 3bn in a bad environment, how are any companies going to do it in a depression environment?

People who have no idea how to manage the treasury function of a company, nor have any idea how to manage corporate finances, nor have any idea how the financial markets work, shouldn't be wontonly giving advice on how to deal with this crisis.

 

[LegendKiller]

Originally posted by: PC Surgeon
LK, lets go your way then. We bailout the banks, the market slows down, the currency weakens, accrue more debt, then we have a depression anyways. Which depression is easier to recover from? The one with bank bailouts? Or the one with bank bailouts, weaker currency and a massive amount more of debt?

WHat's the difference? There really is none, it wouldn't be any more difficult to recover.

As far as a "weaker currency", you keep carping on this, but you really have provided no support as to why it's so much better. Manufacturing is surging.

If anything, a weaker currency, in this situation, is better. However, the dollar is surging. It was only "weaker" when people had the idiotic idea that the US economic problem was an island.

 

[Thump553]

Well I listened to Paulson's news conference (ironically NONE of the so-called cable news channels carried it-probably one of the most newsworthy events to occur this month, if not this year). Paulson explicitly said that FNMA had met all of its financing benchmarks (Freddie Mac has not), that it was striving hard to meet its goals but that it couldn't both restore its financial condition and met the original goals of promoting affordable housing loans without government intervention. That's right-he didn't point to any immediate criss but instead basically said last week's horrible foreclosure figures prompted them into action, that FNMA and Freddie Mac would not be able to bail themselves out the way this economy is going.

In short, this takeover was not so much because of the bad state of FNMA or Freddie Mac, but the bad state of the economy. That may what worries me most about this whole affair-the explicit recognition by the US Treasury (and presumably GWB) that the economy is on the verge of going down the tubes and that immediate, huge action is needed to stop that from happening. Quite a different picture given by the stewards of our economy than PJ's pollyannish threads posted here.

The press conference was very sparse on the details of the plan. Some basics:

1) FNMA and Freddie Mac will open for business on Monday and do business as regular going forward.

2) The US Treasury is going to stand behind the debt instruments issued by FNMA and Freddie Mac (China will be happy). The Treasury will buy new debt instruments if necessary to keep up liquidity.

3) Paulson wants this active conservatorship to last until approximately the end of 2009 (at a minimum) and he wants Congress to revamp the entire FNMA and Freddie Mac structure.

4) A shrinking of their mortgage business by approximately 10% per year starting in 2009/2010, didn't say how long.

5) Top management being replaced ASAP, new CEOs already named. Rest of staff staying.

6) No dividends for preferred or common stock (huge impact on preferred stock, much of which is owned by banks).

Stock mavens are predicting a pretty wild day in the stock market Monday generally, with the basic premise that other banks and insurers will rise a lot. I'm not sure I buy that at all.

 

[BoberFett]

Government in the mortgage business. This should end well. :roll:

 

[smack Down]

Originally posted by: Thump553
Well I listened to Paulson's news conference (ironically NONE of the so-called cable news channels carried it-probably one of the most newsworthy events to occur this month, if not this year). Paulson explicitly said that FNMA had met all of its financing benchmarks (Freddie Mac has not), that it was striving hard to meet its goals but that it couldn't both restore its financial condition and met the original goals of promoting affordable housing loans without government intervention. That's right-he didn't point to any immediate criss but instead basically said last week's horrible foreclosure figures prompted them into action, that FNMA and Freddie Mac would not be able to bail themselves out the way this economy is going.

In short, this takeover was not so much because of the bad state of FNMA or Freddie Mac, but the bad state of the economy. That may what worries me most about this whole affair-the explicit recognition by the US Treasury (and presumably GWB) that the economy is on the verge of going down the tubes and that immediate, huge action is needed to stop that from happening. Quite a different picture given by the stewards of our economy than PJ's pollyannish threads posted here.

The press conference was very sparse on the details of the plan. Some basics:

1) FNMA and Freddie Mac will open for business on Monday and do business as regular going forward.

2) The US Treasury is going to stand behind the debt instruments issued by FNMA and Freddie Mac (China will be happy). The Treasury will buy new debt instruments if necessary to keep up liquidity.

3) Paulson wants this active conservatorship to last until approximately the end of 2009 (at a minimum) and he wants Congress to revamp the entire FNMA and Freddie Mac structure.

4) A shrinking of their mortgage business by approximately 10% per year starting in 2009/2010, didn't say how long.

5) Top management being replaced ASAP, new CEOs already named. Rest of staff staying.

6) No dividends for preferred or common stock (huge impact on preferred stock, much of which is owned by banks).

Stock mavens are predicting a pretty wild day in the stock market Monday generally, with the basic premise that other banks and insurers will rise a lot. I'm not sure I buy that at all.

So the tax payers get to take a bath and paulson gets to keep his pals on wall street happy.
Heck of a job, Paulson

 

[First]

Originally posted by: BoberFett

Originally posted by: Evan Lieb
Congress has little incentive to accrue more debt limitlessly without end, the Fed is quite aware of this.

Typo?

Congress has lots of incentive to accrue endless debt. Voters are more concerned about retarded babies than debt.

Wrong.

Originally posted by: BoberFett

You don't consider recent bailouts to be approaching "often" territory? How many more will it take? Define "often."

The total amount of bailouts in the last quarter century approaches nowhere near the amount of banks and financial institutions that have gone insolvent; i.e. on the order of significantly less than 1% of all failed institutions have been bailed out by the Fed. It's pretty simple mathematics

So these big bailouts are nowhere near the norm. The Fed has stated as such, explicitly stated in one of their minutes releases a few months back where they said this sort of extraordinary debt financing should not be expected in the future. The U.S. financial system is well aware of that, so it would be extraordinarily stupid of those financial institutions (i.e. against their interests) to depend on a Fed bailout when the overwhelming probability says they won't get one.

 

[First]

Originally posted by: GrGr

This "new economy" is about to be gobbled up by some very old forces.

Old dead British dude Sir John Templeton said the four most expensive words in the English language are "it's different this time...". The second most expensive words, he said, are "something must be done!"

Let me know when it happens. And when it doesn't, let me know when it's about to happen. Rinse and repeat.

 

[First]

Originally posted by: BoberFett
Government in the mortgage business. This should end well. :roll:

The last quarter century says "Hi, where the hell have you been".

 

[Chunkee]

Nothing is going to change if some sort of discipline is not enforced. This shit is really quite simple. It is like an out of control child...keep bailing it out, throwing money at it, making everyone else pay...you will never set an example nor teach or change anything. Screw em. Let them go down and let the fallout occur....it is effing high time we had a huge shake down of this thing...maybe then only then can the road back to being greedy and selfish prevail. You guys just do not fucking get it. Over and over again...without even a reach around. I am over it. This is not a case of some divorced parent or small business owner who tried very hard and lost everything or got bought out or pushed out by bigger business. THIS IS BIG BUSINESS, thinking they can do whatever they want, without the consequences. They will do it again...just wait.

 

[Thump553]

Originally posted by: smack Down
So the tax payers get to take a bath and paulson gets to keep his pals on wall street happy.
Heck of a job, Paulson

No one has even ventured a guess as to the total cost of these takeovers. It is pretty dependent on what happening in the housing market-if prices continue to slide and foreclosures continue to increase, the taxpayer is going to take a real beating. But if there is a recovery in prices and a lessening in the rate of foreclosure, it's possible the government could even make money off the deal. What the government is getting as collateral, so to speak, is mortgages on a large percentage of US homes (I think something like 50%). These aren't junk subprimes for the most part-good verified borrowers-but they are highly leveraged (no 20% down ones, for the most part).

I don't think think should be characterized as a bailout of Wall Street-there is going to be tons and tons of pain there. More correctly it is an attempted jumpstart/bailout of the US housing market and calming the jitters of outseas megainvestors who currently hold lots of FNM/FRE debt instruments.

 

[smack Down]

Originally posted by: Thump553

Originally posted by: smack Down
So the tax payers get to take a bath and paulson gets to keep his pals on wall street happy.
Heck of a job, Paulson

No one has even ventured a guess as to the total cost of these takeovers. It is pretty dependent on what happening in the housing market-if prices continue to slide and foreclosures continue to increase, the taxpayer is going to take a real beating. But if there is a recovery in prices and a lessening in the rate of foreclosure, it's possible the government could even make money off the deal. What the government is getting as collateral, so to speak, is mortgages on a large percentage of US homes (I think something like 50%). These aren't junk subprimes for the most part-good verified borrowers-but they are highly leveraged (no 20% down ones, for the most part).

I don't think think should be characterized as a bailout of Wall Street-there is going to be tons and tons of pain there. More correctly it is an attempted jumpstart/bailout of the US housing market and calming the jitters of outseas megainvestors who currently hold lots of FNM/FRE debt instruments.

No it is a bailout of wall street, and china. Has nothing to do with the housing market which will and should continue to have falling prices and high foreclosures.

 

[mshan]

Regular Sunday night free streaming of CNBC Asia at their website for anyone interested in seeing initial financial market reaction to the bailout before US markets open tomorrow.

http://www.cnbc.com

 

[Jhhnn]

A little perspective on the how and why of Fannie and Freddie's involvement in and exposure to subprime-

http://www.washingtonpost.com/...9/AR2008060902626.html

What started out as a do-gooder initiative in the Clinton era turned into a looting spree under Bush... why am I not surprised?

Yeh, mix govt guarantees with free market speculators, giveaway rates from the FRB, banking deregulation, political machinations, and some very creative financing and accounting measures..

"Let the Market (the Holy Market, remember) decide" Well, until the market demands blood sacrifice, and then it's time for a whole new ballgame, called "Bailout!"

 

[WhipperSnapper]

Originally posted by: PC SurgeonYep, there are two sides to it. Let them fail and possibly suffer major economy slowdowns *or* have the taxpayers pay for a banking institutions bad loan investments. It's a moral clusterfuck either way you look at it. But I am of the group that would let the fuckers drown. Now these banks have government backing by way of taxpayer bailout. I guess I'm in the wrong business....

It's an awful problem. Somehow the people responsible for this mess need to be made to suffer and to pay for it in order to prevent from creating a moral hazard. Maybe the best thing to do would be to let the banks fail and go bankrupt with whatever economic turmoil it creates in order to reestablish rationality in the markets.

Perhaps we're better off feeling pain now and getting it over with than suffering for decades. Our nation's economy is so fucked up now that at some point we're going to feel a tremendous amount of pain, it's just a question of when and how much and for how long. Of course you guys know my prediction--we're going to become an overpopulated, impoverished third world country.

 

[nergee]

Hanky Paulson set himself and his wall street banksta buddies up good with this one.
In 4 months he's gone from the treasury and goes back to Wall Street to suck the
billions out of j6pack....nice......

 

[WhipperSnapper]

Originally posted by: mshan0.5% change in mortgage rate is supposed to be equivalent to 5% change in price (monthly carrying costs), so affordability should improve (Fannie / Freddie 0.5% surcharge anyone with less than stellar say 720 - 740 credit score so that homes aren't affordable even with all of the price drops reported on tv), but if people can't sell their current home, I guess point may be mute.

People can sell their homes but they just have to be willing to lower the prices back down to where they should be, which might mean having to take losses. Given inflation in food, gas, and other goods and services, people have less money to spend on homes and land (not to mention the depression in the job market) so the prices will have to drop eventually.

 

[Jhhnn]

Originally posted by: WhipperSnapper

Originally posted by: mshan0.5% change in mortgage rate is supposed to be equivalent to 5% change in price (monthly carrying costs), so affordability should improve (Fannie / Freddie 0.5% surcharge anyone with less than stellar say 720 - 740 credit score so that homes aren't affordable even with all of the price drops reported on tv), but if people can't sell their current home, I guess point may be mute.

People can sell their homes but they just have to be willing to lower the prices back down to where they should be, which might mean having to take losses. Given inflation in food, gas, and other goods and services, people have less money to spend on homes and land (not to mention the depression in the job market) so the prices will have to drop eventually.

Take losses... sounds peachy, but the people most in trouble can't take any losses and remain solvent... If they had the $50K (or whatever amount is required) in cash it would take to get out of being upside down, they wouldn't be in trouble... The widespread use of refi cashouts in recent years puts more people than is readily apparent into the upside down category...

Mostly, the lot of them get to bite the pillow and pray... If they can hold out, keep paying, they'll eventually get to a break even point... and would often be money ahead to have been renting the whole time...

 

[theeedude]

So basically Fannie was seized because the government thought it should continue issuing more bad loans to promote home ownership even though it was in danger of losing its shirt on the ones it already issued? So the government is not just in the mortgage business, it is subsidizing mortgages with taxpayer money when it is so imprudent that private company won't do it, and it's seizing that private company to put a capitalist face on this socialist exercise.

 

[sportage]

No no no
You realize why this happened NOW?
I think I posted it before back some time.

The banks own all these foreclosed homes. BUT...but... these banks STILL have to pay state taxes on those properties. The states sure dont give a pass to the Fanny's or banks holding these homes. The states want their $$$$$
So as Sept property tax time nears, as with last March, the Fanny's and banks freak out.
And now you see what they have been so hoping for, for some time... a gov bailout.
Or should I say, a tax payer bailout.

Welcome to greed America...
Soooo, U still goina to vote Mccain? hehehe (Sucker!!!)