Posted on 09/05/2008 6:22:39 PM PDT by John W
The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives, and use government funds to prop them up, government officials told the two companies yesterday, according to sources familiar with the conversations.
Under the plan, the federal government would place the firms in a legal state known as conservatorship, the sources said. The value of the company's common stock would be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, would be protected by the government.
As the pace of discussions accelerated today, Treasury officials contacted senior congressional leaders, telling them they might be briefed on the plan this weekend and asking for telephone numbers at which they could be reached.
(Excerpt) Read more at washingtonpost.com ...
sh*t
Nothing good can come of this.
The loans being backed are 1 trillion dollars. The government is in effect creating 1 trillion dollars of money entity.
How is it conceivable that this does not dilute the value of every dollar in existence? And if that happens, given that oil is priced in dollars, what happens to its price — denominated in dollars.
You’ve said it, very well.
The reason for the failure is the Democrat Congress who have opened the companies up to major risks, but you will never hear that said by anyone with authority to say it.
Socialism, pure and simple.
These institutions were run poorly, the managers taking risks knowing that the citizens would be forced to pay the bill for their recklessness.
GOP: party of fiscal responsibility? Dear God, when will this end? Time for conservatives to rise up. This is crazy. I’m tired of paying and paying for the greed and mistakes of others.
Oh, what a surprise that a professional Washington flunkie like Gorelick is involved and cashes in. Folks in Washington don’t represent the public or the public interest, they represent themselves.
Very much like the present Federal government. Taking action to correct the problem it created.
Why is it the government never gets blamed for these failures?
>>... dismiss their top executives, ...
> That’s a good first step — and down go some more Community Organizers from their perches.
The executives should have their entire finances stripped from them to help pay for their mistakes. What do you want to bet these guys are still millionaires, while the government picks OUR pocket to fix their mess?
I have an idea. Why doesn’t the government stop forcing lenders to make risky loans? Why doesn’t the government encourage people to stop getting into debt over their heads? I guess it wouldn’t be “fair”.
Things could start getting really dicy with Freddie, Fannie, Lehman going.
Thanks very much for the link, Moonman62. Fantastic background and analysis on the “mortgage crisis,”
Right out of Hugo’s playbook?
Huh.
Ain’t that funny?
It was about a year ago we had all sorts of people on FR yelling about how the sub-prime debt problem was contained and wouldn’t spread. How it was being “overblown” and was a MSM fabrication to take down this wonderful Bush economy...
This must be a figment of the MSM’s imagination!
Unless you are a banker with preferred stock who the government "will make whole" on our backs. They make our stock worthless and then tax us to make the other banks stock whole. People should be going to jail over this (yeah right).
I’m not sure what you mean “arguing with bankers”...arguing contra them or arguing FOR them. Regardless, I have no direct dog in this fight; I would really like to have been short these stocks from their highs when almost anyone could have seen how extended they were. But that would have required some serious staying power and is furthermore a worthless “coulda shoulda” exercise.
Very simply: I am a firm believer in the standalone concept of “making money for oneself”. I am concurrently a firm believer in the reverse side of that coin, to wit, “taking your own losses when your own bets go sour”.
I am a total non-believer in the idea that someone else should bail you out of your blunders. If, in the midst of your own blunderdom, you borrow money and fix yourself and then pay back your loans, I have zero problem with that.
This bailout concept goes against any and all of my own priciples, for at least 4 reasons.
The FNM/FRE wholesale mortgage operation was used for many years since inception in the late 30’s (FNM) and somewhat later (FRE) to facilitate a win-win situation for all concerned parties: It created a secondary mortgage market which provided mortgage liquidity, thus lowering interest rates for borrowers, permitting widespread homeownership. Generally, I think that’s a societal good. FNM & FRE also provided institutions (mutual funds, ins. cos., college endowments, municipalities, unions, etc; even foreign investors) a good market in which to lend excess funds and to earn investment interest thereby.
Because the underlying mortgages were vetted and rated per longstanding performance/default and loan-to-value characteristics, (the correct term being; they “conformed” to creditworthiness and servicing and collateralization standards that were based upon long established banker experience) they had a very low (sub-3/4 of 1%) default rate and thus reliable long term performance. And finally, common stock investors who believed the US housing market was on a long term growth trajectory had a nice vehicle to invest in. As I see it, all parties benefitted.
When the standards for loans-able-to-be-bought by the FNM/FRE entities declined to sub-dogbreath quality, though, the game changed, and hedge funds and money center banks jumped in with all tentacles. In the very low ROI environment created by Alan Greenspan post 9/11, banks took advantage, brilliantly, of several market dynamics: 1: They began to use the “cloaking” aspect of hiding horrible loans inside bundles of “lower than average” loans. 2: They took this approach even further with the “tranching” concept of horizontally slicing giant bundles of loans into quality hierarchies 3: They realized that the fast and big money was from originating loans, not holding or servicing them. 4: They used their marketing reach to engage investors in their mortgage divisions. 5: They realized that the ratings agencies would be quite loath to act against their own interests by downgrading the credit offerings of the very entities whose businesses they were in the business of seeking. At least the ratings agys would be very slow to wake up to the overall dynamic. 6: They kept for themselves the cream of their tranching operations while offloading the riskiest assets to others, again, using their reputations as financial gurus.
Well, it all worked great until a collision occurred between the last buyer who could fog a mirror, the diminishing affordability of home prices artificially pumped up by speculators, and the rapid onset of higher defaults among the worst of the worst last-to-the-party marginal borrowers.
So, with apologies for the long winded epic which is really quite abbreviated; here’s my point. A semi-government entity (The Fed) enabled the housing bubble by lowering rates far below the natural rate of inflation. Semi-government entities (FNM/FRE) fed the bubble by lowering their conforming standards to the point of utter absurdity. The Wall St. banks gamed this system into a perpetual motion cash machine that drove a worldwide housing price bubble to extremes very few would have imagined. As these banks were in the main ORIGINATORS (writers and fee collectors) of the underlying loans and not HOLDERS (riskbearers) of same, they benefitted with very little risk. Because the US taxpayer was implicitly AND NOT EXPLICITY at risk for their boo boos.
Now that the bubble has burst and the collateral underlying even the best of what the banks were able to gin up and keep for themselves has deteriorated, these beneficiaries will again be rescued out of the seemingly infinite pool of taxpayer funds: The guarantees are now EXPLICIT. Hundreds of billions and now trillions of dollars of taxpayer funds are now to be made available in the name of “rescuing the mortgage market” and “preserving the financial system” and “reliquifying the banking system” and plenty of other high-sounding slogans.
And now that the US Government owns essentialy HALF of all outstanding residential mortgages in the US, the process of weeding out the garbage the banks will inevitable dump into this cesspool they themselves created will involve either the sale of the bad loans (at a nickel or dime on the dollar) or the sale of the underlying collateral.
So, this action reliquifies the banks so they can cherry-pick the distressed assets that they themselves created. On the taxpayer’s dime, the banks are indemnified against their own excesses. Also on the taxpayer’s dime shall these same banks be enabled to vulture buy the assets at fire sale prices. I only wish I had such a deal.
Basically I meant those disagreeing with you on here could very well be doing so because they have or will somehow benefit from this mess. In my opinion, yours would be the proper conservative view-”I am a total non-believer in the idea that someone else should bail you out of your blunders.”
Anyone who still has shares in either entities shouldn't be trusted with a wooden nickel...
disgusting.
" We do not support government bailouts of private institutions. Government interference in the markets exacerbates problems in the marketplace and causes the free market to take longer to correct itself."
Took them less than a week to break that one.
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