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.
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.
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.
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.
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.
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?
enough confidence is gained to start blowing up the next bubble?
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.
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.
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.
FDIC just took over Indymac Bancorp, the second largest financial institution to close in U.S. history. http://www.reuters.com/article.../idUSWAO00014120080711
Seems like the bailout and closures are just getting cranked up. I wondering who is next?
Seems like the bailout and closures are just getting cranked up. I wondering who is next?
Citigroup, JP Morgan, Morgan Stanley, Goldman Sachs, Merrill Lynch, Bank of America, Wachovia, etc.
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.
HeXploiT
Diamond Member
- Jun 11, 2004
- 4,359
- 1
- 76
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?
Slew Foot
Lifer
- Sep 22, 2005
- 12,381
- 96
- 86
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?
"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?
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.
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.
Yeah if Fannie Mae and Freddie Mac die then people might be able to start affording houses again.
Slew Foot
Lifer
- Sep 22, 2005
- 12,381
- 96
- 86
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
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
fleshconsumed
Diamond Member
- Feb 21, 2002
- 6,483
- 2,352
- 136
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...
Slew Foot
Lifer
- Sep 22, 2005
- 12,381
- 96
- 86
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.
TRENDING THREADS
-
Discussion Intel current and future Lakes & Rapids thread- Started by TheF34RChannel
- Replies: 23K
-
Discussion Zen 5 Speculation (EPYC Turin and Strix Point/Granite Ridge - Ryzen 9000)- Started by DisEnchantment
- Replies: 10K
-
Discussion Speculation: Zen 4 (EPYC 4 "Genoa", Ryzen 7000, etc.)- Started by Vattila
- Replies: 13K
-
Discussion Intel Meteor, Arrow, Lunar & Panther Lakes Discussion Threads
- Started by Tigerick
- Replies: 7K
-
Facebook
Twitter