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Bailouts To Continue

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Originally posted by: Golgatha
Originally posted by: emfiend
Originally posted by: LegendKiller
Originally posted by: emfiend


Yeah. This is absolutely correct. Should the government take over Fannie and Freddie, they would likely be rolled up under the FHA. You can't hold stock in government institutions.
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You can't, but they can pay the shareholders.
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Yeah, but I think that would be egregious misuse of gov funds. Bailing out of individual shareholders wouldn't be taken lightly by most voters, IMHO.
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Especially since Freddie and Fannie are each 95% institutionally owned. Really, only corporations, hedge funds, and folks like Warren Buffet stand to lose much. I know I'm going to be pissed if they transfer the working man's dollars to the corporations and ultra rich.
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Do you even know what "institutionally owned" means?

 
Originally posted by: Golgatha
Originally posted by: Perry404
Originally posted by: Golgatha
Originally posted by: Perry404
Originally posted by: Engineer
Originally posted by: child of wonder
Originally posted by: mxyzptlk
or is this "bailout" just for CEO's and investors??
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This.

Politicians jerk off execs, execs jerk off politicians... one big circle jerk. That's how the world works. The rich and powerful take care of each other to make sure they stay that way.
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From the looks of this. the government is looking at taking over Fannie/Freddie in which case the stock would be WORTHLESS. Of course, the government would then be responsible for trillions of debt in case of default by those having a mortgage.
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I've never thought about that before!:Q
What happens to the stock if the government takes them over?
Interesting.
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It will become a government ran conservatorship and the stock will become a penny stock.
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Are you being serious?
I've never heard of this before. Are there any examples of this in the market today?
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http://www.bloomberg.com/apps/...g.ckVnwp9b8&refer=home

Bush administration officials are considering putting at least one company under the full control, or conservatorship, of government regulators, Rosner said.

Under a conservatorship, the companies would be run by their regulator, the Office of Federal Housing Enterprise Oversight, which could require them to raise capital ``through any means,'' New York-based Fox-Pitt analyst Howard Shapiro said in a report yesterday. ``This is the situation that would put common shareholders at risk of complete dilution,'' Shapiro wrote.
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Read the whole article though. This situation is very unlikely for a number of reasons. However, I don't think it is fair to the taxpaying public to have to bail out a private corporation. Freddie Mac and Fannie Mae aren't explicity (only implicitly...this is news to me too if you didn't know this BTW) government backed securities, and IMHO shouldn't be treated differently than other lenders. If they're mismanaged into bankruptcy, so be it IMO.
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The taxpaying public will arguably be in a much worse situation if they are allowed to go belly up. Fannie Mae and Freddie Mac touch 70% of home mortgages made in this country in some way or another. Their collapse would turn the already tumultuous home mortgage industry completely upside down. Who knows what would happen, except that mortgages would probably be harder to get and more expensive, which would only exacerbate the housing slump which is already leading to major economic woe in just about every industry.
 
Originally posted by: LegendKiller
Originally posted by: Slew Foot
Originally posted by: ggnl
Originally posted by: Fern
Originally posted by: Slew Foot
Told you the taxpayers were going to be on the hook for it, but noooooooo one would listen to me.

Rumors are that Freddie and Fannie are leveraged 50-1, all it takes is a 2% loss to completely wipe them out.
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If those levegae numbers are anywhere near accurate, thy're fvcked.

I suppose that's what's hammering the NYSE today.

Fern
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From WSJ:

One big problem is that the companies never have been required to hold much capital, partly because regulators and Congress used to believe that there wasn't much risk of wide-spread defaults on home mortgages. As of March 31, the companies reported combined capital of $81 billion, only about 1.6% of the mortgages they own or guarantee.
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Hmm March 31 they had 81 bill, and last week been noted as needing upwards of 70 billion in capital. They blew through their almost entire capital in 4 months? Wow, and these guys back half of the home value in the US?
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$70Bl was *ONLY* if FAS140 structures were brought completely on-BS and only then if they aren't grandfathered *AND* aren't covered under FIN46.

So, in other words, it's highly unlikely that they have to raise that much.
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Yeah, the $70B was additional capitalization that might have been required because of an accounting rule that is currently being revised. And even that number is a worst case scenario that is extremely unlikely to happen. The FASB doesn't operate in a vacuum, they're fully aware of the effect their rules have on the market, and they are probably not going to throw the entire mortgage industry into turmoil just to add a little clarity to some companies' balance sheets.

Basically, to me, it boils down to: Fannie Mae and Freddie Mac were already in bad shape. They had $11 billion in losses in the 9 months ending Mar 31. This was on top of an already poor capitalization. Then some analysts pulled a chicken little concerning the FAS 140 rule change and the stocks of both companies plunged, which made their capitalization problem much more serious. Now the federal government might have to clean up.
 
Originally posted by: Taejin
Originally posted by: BoberFett
Originally posted by: Taejin
Originally posted by: NaughtyGeek
Link to NYTimes

WASHINGTON ? Alarmed by the growing financial stress at the nation?s two largest mortgage finance companies, senior Bush administration officials are considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, people briefed about the plan said on Thursday.

The companies, Fannie Mae and Freddie Mac, have been hit hard by the mortgage foreclosure crisis. Their shares are plummeting and their borrowing costs are rising as investors worry that the companies will suffer losses far larger than the $11 billion they have already lost in recent months. Now, as housing prices decline further and foreclosures grow, the markets are worried that Fannie and Freddie themselves may default on their debt.

Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee ? which could be staggering ? would be paid by taxpayers.
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Why, oh freaking why does this come back on us? I didn't make a poor lending decision. I didn't borrow more than I could afford. So why in the name of all that is capitalist do I have to pay these freaking people's bills? How can this BS even be considered? Does it not fly in the face of our entire economic system? Where is the price for failure on the folks that got these companies into this position? Are they going to prison and having all their assets seized? When does it end?
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Let's see...bail them out or watch our financial institutions crumble..

I don't think this is a matter of what SHOULD happen but rather what we want to happen.
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Here we go again. :roll:

If banks are too big to fail, they need to be nationalized and opened up so that everyone can see every loan. Log into a website and see how much your neighbor borrowed to buy his house, and what his credit rating and income are. How else are you supposed to protect yourself from shady buyers and lenders swooping in and destroying your property value with foreclosures.

If our nation is so dependent on banks that we will prop them up no matter how poor their decision making process is, then they can't be allowed to exist without absolute transparency and they need to answer directly to the taxpayer, since that seems to be who is funding their misadventures anyway.
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Yes, change the banks etc blah blah (insert solution here) but to let them CRUMBLE?
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What difference does it make if a bank crumbles if they aren't doing anything positive? Let them crumble and then the government can get into the loan business. Cut out the middleman, since they're clearly not doing anything right anyway.
 
Originally posted by: ggnl
Yeah, the $70B was additional capitalization that might have been required because of an accounting rule that is currently being revised. And even that number is a worst case scenario that is extremely unlikely to happen. The FASB doesn't operate in a vacuum, they're fully aware of the effect their rules have on the market, and they are probably not going to throw the entire mortgage industry into turmoil just to add a little clarity to some companies' balance sheets.

Basically, to me, it boils down to: Fannie Mae and Freddie Mac were already in bad shape. They had $11 billion in losses in the 9 months ending Mar 31. This was on top of an already poor capitalization. Then some analysts pulled a chicken little concerning the FAS 140 rule change and the stocks of both companies plunged, which made their capitalization problem much more serious. Now the federal government might have to clean up.
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That's pretty much exactly as you say. People are freaking out, the Fed is giving them back window access to shore up confidence.

If FASB completely eliminated off-bs structures I would say more than $100-150bn in capital would need to be raised by companies other than the GSEs.

It would essentially force every credit card company to consolidate and capitalize CC master trusts. That's another 1-1.5TR in assets, maybe another 50bn in capitalization, if not more.

FASB isn't stupid.

 
What bail out are you people talking about. Can't you guys read? If the government take over either company, the stock of the company would be worthless. This move is done to stabilize the mortgage market, not to bail people out. You people need to understand both Fannie and Freddie and what they do are central to the mortgage process and the real estate market. If they fail, the US real estate, both residential and commercial, as well as many major financial market would be in a mess. That would cause us tax payer, and the economy, much more problem then spending the money to stabilize those two companies.

Plus you also need to understand there are many reason a company fails. The problem with Freddie and Fannie is not because they are running empty. It is because their short term cash flow/asset isn't enough to pay for their short term liability. They have tons of money in those good mortgages, 90+% of which won't default. But those are long term asset, and those money will go to Freddie and Fannie over a long period of time. They need money right now to pay for the guarantees for all the defaulted mortgages. And because the credit market is tight and borrowing is expensive, they are having a huge problem meeting those short term liability.

What government take over can do is first, make money available to them to cover the short term liabilities, and reduce the borrowing cost. That may cost us tax payer initially, but if the company is run properly, it would not be so bad in the long run. In addition, this will help stabilize the real estate and the mortgage market, so business can continue to buy buildings, land, plants, and people can continue to buy and sell their home.
 
Originally posted by: rchiu
Plus you also need to understand there are many reason a company fails. The problem with Freddie and Fannie is not because they are running empty. It is because their short term cash flow/asset isn't enough to pay for their short term liability. They have tons of money in those good mortgages, 90+% of which won't default. But those are long term asset, and those money will go to Freddie and Fannie over a long period of time. They need money right now to pay for the guarantees for all the defaulted mortgages. And because the credit market is tight and borrowing is expensive, they are having a huge problem meeting those short term liability.
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Wait wait wait, when normal people make loans they do so out of the money in their pockets. You can't loan somebody something you don't have. So when big banks do this, its somehow acceptable? Is it our faults that banks made checks their asses couldn't cash?

Fuck em. You can call it whatever you want, but I call it irresponsibility. If they want to lend out money they don't have then they have to face the consequences. And sometimes that means failure.
 
Fannie/Freddie secure about $5 trillion worth of mortgages. They would never be allowed to fail at any cost.
 
Okay, so how much garbage does the FED need to put on its balance sheet before
enough confidence is gained to start blowing up the next bubble?
 
Originally posted by: SleepWalkerX
Originally posted by: rchiu
Plus you also need to understand there are many reason a company fails. The problem with Freddie and Fannie is not because they are running empty. It is because their short term cash flow/asset isn't enough to pay for their short term liability. They have tons of money in those good mortgages, 90+% of which won't default. But those are long term asset, and those money will go to Freddie and Fannie over a long period of time. They need money right now to pay for the guarantees for all the defaulted mortgages. And because the credit market is tight and borrowing is expensive, they are having a huge problem meeting those short term liability.
Click to expand...

Wait wait wait, when normal people make loans they do so out of the money in their pockets. You can't loan somebody something you don't have. So when big banks do this, its somehow acceptable? Is it our faults that banks made checks their asses couldn't cash?

Fuck em. You can call it whatever you want, but I call it irresponsibility. If they want to lend out money they don't have then they have to face the consequences. And sometimes that means failure.
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Fannie Mae and Freddie Mac are pretty much essential to the operation of the home mortgage industry in the US. That's why the govenrment has the option to assume control in the first place. It would be pretty much disasterous to our economy if they were to go insolvent and cease operations.

To put is shortly, letting them go bankrupt is about the most irresponsible thing the government could do in this situation.
 
Originally posted by: ggnl


Fannie Mae and Freddie Mac are pretty much essential to the operation of the home mortgage industry in the US. That's why the govenrment has the option to assume control in the first place. It would be pretty much disasterous to our economy if they were to go insolvent and cease operations.

To put is shortly, letting them go bankrupt is about the most irresponsible thing the government could do in this situation.
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So says you and several other "analysts" but it doesn't necessarily make it so. The economy is in tough shape any way you shake it. Perhaps letting some of the "created" money dry up is exactly what we need to get things back on track.
 
Originally posted by: sammyunltd
USA is finally paying for all the troubles it caused in the last 8 years or so.
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The thing is, a few in the USA are profiting hugely from it, and most are paying. Ignoring the few profiting hugely makes you not understand why the policies were passed.
 
Im just glad I have no debt and can live on what the wife makes easily. I hope most people here are right, and that things will not get ugly.
 
Originally posted by: scttgrd
Im just glad I have no debt and can live on what the wife makes easily. I hope most people here are right, and that things will not get ugly.
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The personal debt can hurt but doesn't starve people. It's possible to not pay the bills and get by. It's the inflation that causes people to lose their homes and not afford groceries. How will you be doing if gas, dairy and grains(80% of the food market) all double from where they're at now?
 
I cant believe how stupid the government is

"To make it more palatable to Republicans, the Senate measure would take responsibility for any losses away from taxpayers and instead cover them by diverting a newly created affordable housing fund drawn from Fannie Mae and Freddie Mac profits."

Fannie/Freddie profits? You mean the 4-5 billion a quarter they're losing?
 
Originally posted by: Perry404
Originally posted by: scttgrd
Im just glad I have no debt and can live on what the wife makes easily. I hope most people here are right, and that things will not get ugly.
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The personal debt can hurt but doesn't starve people. It's possible to not pay the bills and get by. It's the inflation that causes people to lose their homes and not afford groceries. How will you be doing if gas, dairy and grains(80% of the food market) all double from where they're at now?
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Actually we will be fine. We live less than 6 miles from work and really have only the electric and internet for bills. Food and rent are the biggest expense and I could cover that with a part time job.
 
What bail out are you people talking about. Can't you guys read? If the government take over either company, the stock of the company would be worthless. This move is done to stabilize the mortgage market, not to bail people out. You people need to understand both Fannie and Freddie and what they do are central to the mortgage process and the real estate market. If they fail, the US real estate, both residential and commercial, as well as many major financial market would be in a mess. That would cause us tax payer, and the economy, much more problem then spending the money to stabilize those two companies.
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Just like with a bear Stearns bail out it isn't about the people who own the stock. They are bailing out all the super rich that own the bonds or derivatives based on their bonds. If the FED wants to take over Fannie and Freddie but invalidate any outstanding bonds that would be fine with me.
 
Originally posted by: ggnl
Originally posted by: Golgatha
Originally posted by: Perry404
Originally posted by: Golgatha
Originally posted by: Perry404
Originally posted by: Engineer
Originally posted by: child of wonder
Originally posted by: mxyzptlk
or is this "bailout" just for CEO's and investors??
Click to expand...

This.

Politicians jerk off execs, execs jerk off politicians... one big circle jerk. That's how the world works. The rich and powerful take care of each other to make sure they stay that way.
Click to expand...

From the looks of this. the government is looking at taking over Fannie/Freddie in which case the stock would be WORTHLESS. Of course, the government would then be responsible for trillions of debt in case of default by those having a mortgage.
Click to expand...

I've never thought about that before!:Q
What happens to the stock if the government takes them over?
Interesting.
Click to expand...

It will become a government ran conservatorship and the stock will become a penny stock.
Click to expand...

Are you being serious?
I've never heard of this before. Are there any examples of this in the market today?
Click to expand...

http://www.bloomberg.com/apps/...g.ckVnwp9b8&refer=home

Bush administration officials are considering putting at least one company under the full control, or conservatorship, of government regulators, Rosner said.

Under a conservatorship, the companies would be run by their regulator, the Office of Federal Housing Enterprise Oversight, which could require them to raise capital ``through any means,'' New York-based Fox-Pitt analyst Howard Shapiro said in a report yesterday. ``This is the situation that would put common shareholders at risk of complete dilution,'' Shapiro wrote.
Click to expand...

Read the whole article though. This situation is very unlikely for a number of reasons. However, I don't think it is fair to the taxpaying public to have to bail out a private corporation. Freddie Mac and Fannie Mae aren't explicity (only implicitly...this is news to me too if you didn't know this BTW) government backed securities, and IMHO shouldn't be treated differently than other lenders. If they're mismanaged into bankruptcy, so be it IMO.
Click to expand...


The taxpaying public will arguably be in a much worse situation if they are allowed to go belly up. Fannie Mae and Freddie Mac touch 70% of home mortgages made in this country in some way or another. Their collapse would turn the already tumultuous home mortgage industry completely upside down. Who knows what would happen, except that mortgages would probably be harder to get and more expensive, which would only exacerbate the housing slump which is already leading to major economic woe in just about every industry.
Click to expand...

Yeah if Fannie Mae and Freddie Mac die then people might be able to start affording houses again.
 
Originally posted by: fleshconsumed
Originally posted by: Slew Foot
Hmmm this is interesting.

You know that stock market spike this afternoon when the rumor that the Fed was going to offer the discount window to the Freddie/Fannie?

Apparently, the Feds never made that offer.

http://www.bloomberg.com/apps/...efer=&sid=aHRDpoqZEtmg
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What's this then?

http://money.cnn.com/2008/07/1...postversion=2008071118

I'm a little lost in the sea of these "bail out" proposals...
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Those are two different proposals. The one you linked to is the 300 billion plan for the FHA to insure more loans assuming the banks are willing to take a loss and write off principle. Taxpayers would be sheltered since Freddie and Fannie would cover any losses with their profits (haha, assuming they're still around).

The other one was The Fed attempting to give short term loans to Freddie and Fannie to keep them temporarily solvent. It cause a pretty sharp spike in the market around 3pm ET that quickly evaporated. Apparently though, that meeting never occurred, it was just a rumor.
 
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