Anybody surprised by this, stand on your head.
Much worse. Because when I’ve thought about this, there is nothing short of a massive de-leveraging operation going on in the markets now. No one wants to loan to anyone else.
Trouble is, putting all of this leverage onto Uncle Sammy’s shoulders would make our deficits and national debt balloon to sizes seen only in nightmare scenarios.
People in high places (eg, inside the Fed, and Poole isn’t the only guy) have been saying for 10 years and FNM/FRE are unsustainable. In 2005, it was clear that their books were a shambles. And Congress’ idea of a “housing bailout” has been to allow Fannie to take on ever-larger “conforming” loans from places where housing is overly inflated.
Right now, the pay-option ARM’s are starting to reset. The foreclosure rate is going up and now we see the effects of reduces tax revenues on states and counties.
All the people who kept saying “Oh, sub-prime is overblown, this is all a media conspiracy” better think hard about what happened to the GOP the last time we went through this. The GOP was out in the cold for an entire generation, until the 50’s.
Thinking about the rational being given for the above statement (too big and important to the economy to be allowed to fail -- so they will nationalize them and put them in a constant state of failure and taxpayer support). Maxine Waters must be correct about the need to nationalize big oil. How about GM, GE, Wal-Mart, Big Pharmaceuticals, etc.? For that matter, The New York Times has an editorial policy that is so important to the soon to be rulers that it must be guaranteed against failure.
How accountants change where they post numbers to Income Statements and Balance Sheets makes no difference to the economics of the underlying business.
If the business is the same under new and old accounting methods, then economic value of the business has not changed.
The point is that cash flow is king. Only actual changes to the current and prospective cash flow of the organization change its value.
None of which is to say that Freddie and Fannie are smart, politically neutral, or low risk. They are probably stupid risky political hacks.
Freddie and Fannie are constantly betting Trillions of your dollars with all the upside privatized to themselves and all the downside socialized to you.
They win, you lose.
Get it?
I’m beginning to think that a big part of our problem is the Lehman Brothers.
Are we really that stupid? Does anybody not realize that the federal government has NO Constitutional authority to do this? This is not a socialist country for Christ sake!
The moral of this morass: eliminate the mortgage interest deduction once and for all.
More to do with the likelihood Congress will come up with a bailout plan to go with the takeover of bad paper.
Fannie and Freddie are great lobbyists so soon something will be done short of an outright “nationalization”.
socialized housing, owned by the masses for the masses, how nice. :)
Everyone on FR should be reading Minyanville daily, it’s the best financial site on the net.
I’m still waiting for Franklin Raines to be perp walked. Notice that no one is talking about the greedy CEO during the period when this company went bad.
Wouldn’t have to do with Raines being a Clinton insider?
No difference between him and Ken Lay. Both profited greatly for leading their organizations to disaster.
This was predicted numerous places some time ago.
Alexander Hamilton, the first U.S. Treasurer comes to mind. He knew and stated when government and banks collude American would wake up homeless and penniless. He knew this because after the Revolution, our American currency was worth little when it was backed by little. He had to conduct controlled experiments and came to this conclusion by 1790. Our culture did not learn from the Great Depression but I sure did because I love history. My grandmother who passed five years ago gave me a simple but powerful thing to remember: “Never trust bankers, they love foreclosures”.
Socialist ‘fairness policies’ promoted by cheap money by ‘too big to fail’ banks in real-estate was the same cause of the Great Depression. Now here we are again, the socialists are going to bail us out just like the Great Depression right? Thank Emporer Hirohito and Adolph Hitler for ending the Great Depression.
But the good news is by the end of it all in 1946, the Roaring Twenties crowd (my grandmother was one of them!) had become the Greatest Generation and we had 50 years of wonderful leadership.
Doesn’t mean I look forward to rebuilding and especially knowing the top 1% of the nations selfish got to fleece us, force us to do the heavy lifting while chuckling in there indoor tennis courts, but it does mean we get to throw the bums out and start a new era of prosperity.
Running a business to try and make a living these days and seeing this repeat of history is like Chinese water torture. Let’s get this over with, stop trying to fund the inevitable U.S. government and get the hell out of the way for the innovators and responsible to step up!!!! As a sidenote, as a data guy I am keeping some historical names and law passage/repeals, money guys and others directly involved in this fleecing, so they get know where to run and hide globally to avoid culpability by the stupid masses with short memories.
Then, their Creator demanded that they provide home loans (including multifamily rental housing) to people who had no possibility or likelihood to pay.
This is a giant social engineering project meeting its inevitable end.
Too bad.
Back in the day when their clients were responsible lenders, it was a good thing.
When they were forced under political pressure to become something else, I predicted their downfall.
I saw this coming as early as 1985.