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U.S. seizes Fannie and Freddie
CNN ^ | 9/7/2008 | David Ellis

Posted on 09/07/2008 9:02:41 AM PDT by CodeToad

NEW YORK (CNNMoney.com) -- Federal officials unveiled an extraordinary takeover on Sunday of troubled mortgage giants Fannie Mae and Freddie Mac, signaling the most dramatic move to date aimed at shoring up the nation's housing market.

(Excerpt) Read more at money.cnn.com ...


TOPICS: Breaking News; Business/Economy; Front Page News; Government
KEYWORDS: fanniemae; freddiemac; govwatch; housingbubble; lp; mortgage; rino
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1 posted on 09/07/2008 9:02:41 AM PDT by CodeToad
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To: CodeToad

So when can we expect to see Jaime Gorelick going to jail?


2 posted on 09/07/2008 9:05:46 AM PDT by Virginia Ridgerunner (Sarah Palin is a smart missile aimed at the heart of the left!)
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To: CodeToad

It should be noted that Clinton signed the 1999 bill that allowed for bank deregulation, resulting in the subprime mess.


3 posted on 09/07/2008 9:06:48 AM PDT by aimhigh
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To: CodeToad

What an outrage. It’s about time but I don’t expect to see the truth revealed about appointed administrators helping themselves to performance bonuses based on meeting ridiculously low goals. These people should be convicted of their crimes and spend time in prison.


4 posted on 09/07/2008 9:09:55 AM PDT by BatGuano (Go John and Sarah!)
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To: aimhigh

Bank degregulation is not the problem. Fannie and Freddie were undercapitalized. A banks operating as they did would have been closed or at least closely watched. Gorelick and Raines owe some money back to their shareholders.


5 posted on 09/07/2008 9:10:26 AM PDT by jimfree (Dems beat up girls who don't toe the line.)
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To: aimhigh

Deregulation is not to blame. Permitting banks to go into differennt financial businesses, like banks in Europe, was conditioned upon providing high risk loans to fist time home buyers.


6 posted on 09/07/2008 9:10:40 AM PDT by frithguild (Can I drill your head now?)
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To: Virginia Ridgerunner

What’s the scoop with Gorelick?


7 posted on 09/07/2008 9:11:16 AM PDT by navyguy (Some days you are the pigeon, some days you are the statue.)
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To: Virginia Ridgerunner
So when can we expect to see Jaime Gorelick going to jail?

Uh, never (but, of course, that doesn't mean she's a good person).
8 posted on 09/07/2008 9:12:22 AM PDT by TheLawyerFormerlyKnownAsAl
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To: CodeToad

So when can we expect the $20 M paid to the CEO of Freddie Mac returned to the taxpayers?


9 posted on 09/07/2008 9:12:47 AM PDT by Red in Blue PA (Now you know why the needles on compasses point north - Sarah Palin.)
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To: Virginia Ridgerunner

Too bad Obama hadn’t made Jamie Gorelick his VP nominee!!!

[yeah, I know it’s unlikely-to-impossible since she’d be so deadly dull on the campaign trail, but it’s fun to think about right now....]


10 posted on 09/07/2008 9:14:03 AM PDT by Enchante (Governor Palin DECIDES more every day than all of Obama's "present" votes put together!!!)
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To: CodeToad

Following is the text of a statement by U.S. Treasury Secretary Henry Paulson on the U.S. government takeover of mortgage companies Fannie Mae and Freddie Mac:

Good morning. I’m joined here by Jim Lockhart, Director of the new independent regulator, the Federal Housing Finance Agency, FHFA.

In July, Congress granted the Treasury, the Federal Reserve and FHFA new authorities with respect to the GSEs, Fannie Mae and Freddie Mac. Since that time, we have closely monitored financial market and business conditions and have analyzed in great detail the current financial condition of the GSEs - including the ability of the GSEs to weather a variety of market conditions going forward. As a result of this work, we have determined that it is necessary to take action.

Since this difficult period for the GSEs began, I have clearly stated three critical objectives: providing stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers - both by minimizing the near term costs to the taxpayer and by setting policymakers on a course to resolve the systemic risk created by the inherent conflict in the GSE structure.

Based on what we have learned about these institutions over the last four weeks - including what we learned about their capital requirements - and given the condition of financial markets today, I concluded that it would not have been in the best interest of the taxpayers for Treasury to simply make an equity investment in these enterprises in their current form.

The four steps we are announcing today are the result of detailed and thorough collaboration between FHFA, the U.S. Treasury, and the Federal Reserve.

We examined all options available, and determined that this comprehensive and complementary set of actions best meets our three objectives of market stability, mortgage availability and taxpayer protection.

Throughout this process we have been in close communication with the GSEs themselves. I have also consulted with Members of Congress from both parties and I appreciate their support as FHFA, the Federal Reserve and the Treasury have moved to address this difficult issue.

Before I turn to Jim to discuss the action he is taking today, let me make clear that these two institutions are unique. They operate solely in the mortgage market and are therefore more exposed than other financial institutions to the housing correction. Their statutory capital requirements are thin and poorly defined as compared to other institutions. Nothing about our actions today in any way reflects a changed view of the housing correction or of the strength of other U.S. financial institutions.

***

I support the Director’s decision as necessary and appropriate and had advised him that conservatorship was the only form in which I would commit taxpayer money to the GSEs.

I appreciate the productive cooperation we have received from the boards and the management of both GSEs. I attribute the need for today’s action primarily to the inherent conflict and flawed business model embedded in the GSE structure, and to the ongoing housing correction. GSE managements and their Boards are responsible for neither. New CEOs supported by new non-executive Chairmen have taken over management of the enterprises, and we hope and expect that the vast majority of key professionals will remain in their jobs. I am particularly pleased that the departing CEOs, Dan Mudd and Dick Syron, have agreed to stay on for a period to help with the transition.

I have long said that the housing correction poses the biggest risk to our economy. It is a drag on our economic growth, and at the heart of the turmoil and stress for our financial markets and financial institutions. Our economy and our markets will not recover until the bulk of this housing correction is behind us. Fannie Mae and Freddie Mac are critical to turning the corner on housing. Therefore, the primary mission of these enterprises now will be to proactively work to increase the availability of mortgage finance, including by examining the guaranty fee structure with an eye toward mortgage affordability.

To promote stability in the secondary mortgage market and lower the cost of funding, the GSEs will modestly increase their MBS portfolios through the end of 2009. Then, to address systemic risk, in 2010 their portfolios will begin to be gradually reduced at the rate of 10 percent per year, largely through natural run off, eventually stabilizing at a lower, less risky size.

Treasury has taken three additional steps to complement FHFA’s decision to place both enterprises in conservatorship. First, Treasury and FHFA have established Preferred Stock Purchase Agreements, contractual agreements between the Treasury and the conserved entities. Under these agreements, Treasury will ensure that each company maintains a positive net worth. These agreements support market stability by providing additional security and clarity to GSE debt holders - senior and subordinated - and support mortgage availability by providing additional confidence to investors in GSE mortgage backed securities. This commitment will eliminate any mandatory triggering of receivership and will ensure that the conserved entities have the ability to fulfill their financial obligations. It is more efficient than a one-time equity injection, because it will be used only as needed and on terms that Treasury has set. With this agreement, Treasury receives senior preferred equity shares and warrants that protect taxpayers. Additionally, under the terms of the agreement, common and preferred shareholders bear losses ahead of the new government senior preferred shares.

These Preferred Stock Purchase Agreements were made necessary by the ambiguities in the GSE Congressional charters, which have been perceived to indicate government support for agency debt and guaranteed MBS. Our nation has tolerated these ambiguities for too long, and as a result GSE debt and MBS are held by central banks and investors throughout the United States and around the world who believe them to be virtually risk-free. Because the U.S. Government created these ambiguities, we have a responsibility to both avert and ultimately address the systemic risk now posed by the scale and breadth of the holdings of GSE debt and MBS.

Market discipline is best served when shareholders bear both the risk and the reward of their investment. While conservatorship does not eliminate the common stock, it does place common shareholders last in terms of claims on the assets of the enterprise.

Similarly, conservatorship does not eliminate the outstanding preferred stock, but does place preferred shareholders second, after the common shareholders, in absorbing losses. The federal banking agencies are assessing the exposures of banks and thrifts to Fannie Mae and Freddie Mac. The agencies believe that, while many institutions hold common or preferred shares of these two GSEs, only a limited number of smaller institutions have holdings that are significant compared to their capital.

The agencies encourage depository institutions to contact their primary federal regulator if they believe that losses on their holdings of Fannie Mae or Freddie Mac common or preferred shares, whether realized or unrealized, are likely to reduce their regulatory capital below “well capitalized.” The banking agencies are prepared to work with the affected institutions to develop capital restoration plans consistent with the capital regulations.

Preferred stock investors should recognize that the GSEs are unlike any other financial institutions and consequently GSE preferred stocks are not a good proxy for financial institution preferred stock more broadly. By stabilizing the GSEs so they can better perform their mission, today’s action should accelerate stabilization in the housing market, ultimately benefiting financial institutions. The broader market for preferred stock issuance should continue to remain available for well-capitalized institutions.

The second step Treasury is taking today is the establishment of a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Given the combination of actions we are taking, including the Preferred Share Purchase Agreements, we expect the GSEs to be in a stronger position to fund their regular business activities in the capital markets. This facility is intended to serve as an ultimate liquidity backstop, in essence, implementing the temporary liquidity backstop authority granted by Congress in July, and will be available until those authorities expire in December 2009.

Finally, to further support the availability of mortgage financing for millions of Americans, Treasury is initiating a temporary program to purchase GSE MBS. During this ongoing housing correction, the GSE portfolios have been constrained, both by their own capital situation and by regulatory efforts to address systemic risk. As the GSEs have grappled with their difficulties, we’ve seen mortgage rate spreads to Treasuries widen, making mortgages less affordable for homebuyers. While the GSEs are expected to moderately increase the size of their portfolios over the next 15 months through prudent mortgage purchases, complementary government efforts can aid mortgage affordability. Treasury will begin this new program later this month, investing in new GSE MBS. Additional purchases will be made as deemed appropriate. Given that Treasury can hold these securities to maturity, the spreads between Treasury issuances and GSE MBS indicate that there is no reason to expect taxpayer losses from this program, and, in fact, it could produce gains. This program will also expire with the Treasury’s temporary authorities in December 2009.

Together, this four part program is the best means of protecting our markets and the taxpayers from the systemic risk posed by the current financial condition of the GSEs. Because the GSEs are in conservatorship, they will no longer be managed with a strategy to maximize common shareholder returns, a strategy which historically encouraged risk-taking. The Preferred Stock Purchase Agreements minimize current cash outlays, and give taxpayers a large stake in the future value of these entities. In the end, the ultimate cost to the taxpayer will depend on the business results of the GSEs going forward. To that end, the steps we have taken to support the GSE debt and to support the mortgage market will together improve the housing market, the US economy and the GSEs’ business outlook.

Through the four actions we have taken today, FHFA and Treasury have acted on the responsibilities we have to protect the stability of the financial markets, including the mortgage market, and to protect the taxpayer to the maximum extent possible.

And let me make clear what today’s actions mean for Americans and their families. 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. This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation. That is why we have taken these actions today. While we expect these four steps to provide greater stability and certainty to market participants and provide long-term clarity to investors in GSE debt and MBS securities, our collective work is not complete. At the end of next year, the Treasury temporary authorities will expire, the GSE portfolios will begin to gradually run off, and the GSEs will begin to pay the government a fee to compensate taxpayers for the on-going support provided by the Preferred Stock Purchase Agreements. Together, these factors should give momentum and urgency to the reform cause. Policymakers must view this next period as a “time out” where we have stabilized the GSEs while we decide their future role and structure.

Because the GSEs are Congressionally-chartered, only Congress can address the inherent conflict of attempting to serve both shareholders and a public mission. The new Congress and the next Administration must decide what role government in general, and these entities in particular, should play in the housing market. There is a consensus today that these enterprises pose a systemic risk and they cannot continue in their current form. Government support needs to be either explicit or non-existent, and structured to resolve the conflict between public and private purposes. And policymakers must address the issue of systemic risk. I recognize that there are strong differences of opinion over the role of government in supporting housing, but under any course policymakers choose, there are ways to structure these entities in order to address market stability in the transition and limit systemic risk and conflict of purposes for the long-term. We will make a grave error if we don’t use this time out to permanently address the structural issues presented by the GSEs.

In the weeks to come, I will describe my views on long term reform. I look forward to engaging in that timely and necessary debate.


11 posted on 09/07/2008 9:16:01 AM PDT by frithguild (Can I drill your head now?)
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To: navyguy
What’s the scoop with Gorelick?

"Chinese wall", 9/11, $millions from FNMA, the list goes on.
12 posted on 09/07/2008 9:16:34 AM PDT by TheLawyerFormerlyKnownAsAl
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To: CodeToad

here are the Freddie and Fannie stockholders forums on yahoo....it is extremely active and nuts right now.....anyone can read the messages, no need to sign up for anything.....

Freddie
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_F/messagesview?bn=7269

this one is Fannie:
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_F/messagesview?bn=7179


13 posted on 09/07/2008 9:19:05 AM PDT by Vn_survivor_67-68 (CALL CONGRESSCRITTERS TOLL-FREE @ 1-800-965-4701)
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To: TheLawyerFormerlyKnownAsAl

thanks, but could you expand on the banking part?
most of us know gorelick only via ‘the wall’


14 posted on 09/07/2008 9:20:09 AM PDT by norton
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To: TheLawyerFormerlyKnownAsAl

thanks, but could you expand on the banking part?
most of us know gorelick only via ‘the wall’


15 posted on 09/07/2008 9:20:42 AM PDT by norton
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To: aimhigh
It should be noted that Clinton signed the 1999 bill that allowed for bank deregulation, resulting in the subprime mess.

You are talking about the Gramm-Leach-Bliley Financial Services Modernization Act.

53 Republican Senators (including Senator McCain) and one Democrat voted to approved the Act.

44 Democrats and no Republicans voted against the Act.

YEAs ---54
Abraham (R-MI)
Allard (R-CO)
Ashcroft (R-MO)
Bennett (R-UT)
Bond (R-MO)
Brownback (R-KS)
Bunning (R-KY)
Burns (R-MT)
Campbell (R-CO)
Chafee, J. (R-RI)
Cochran (R-MS)
Collins (R-ME)
Coverdell (R-GA)
Craig (R-ID)
Crapo (R-ID)
DeWine (R-OH)
Domenici (R-NM)
Enzi (R-WY)
Frist (R-TN)
Gorton (R-WA)
Gramm (R-TX)
Grams (R-MN)
Grassley (R-IA)
Gregg (R-NH)
Hagel (R-NE)
Hatch (R-UT)
Helms (R-NC)
Hollings (D-SC)
Hutchinson (R-AR)
Hutchison (R-TX)
Jeffords (R-VT)
Kyl (R-AZ)
Lott (R-MS)
Lugar (R-IN)
Mack (R-FL)
McCain (R-AZ)
McConnell (R-KY)
Murkowski (R-AK)
Nickles (R-OK)
Roberts (R-KS)
Roth (R-DE)
Santorum (R-PA)
Sessions (R-AL)
Shelby (R-AL)
Smith (R-NH)
Smith (R-OR)
Snowe (R-ME)
Specter (R-PA)
Stevens (R-AK)
Thomas (R-WY)
Thompson (R-TN)
Thurmond (R-SC)
Voinovich (R-OH)
Warner (R-VA)
NAYs ---44
Akaka (D-HI)
Baucus (D-MT)
Bayh (D-IN)
Biden (D-DE)
Bingaman (D-NM)
Boxer (D-CA)
Breaux (D-LA)
Bryan (D-NV)
Byrd (D-WV)
Cleland (D-GA)
Conrad (D-ND)
Daschle (D-SD)
Dodd (D-CT)
Dorgan (D-ND)
Durbin (D-IL)
Edwards (D-NC)
Feingold (D-WI)
Feinstein (D-CA)
Graham (D-FL)
Harkin (D-IA)
Inouye (D-HI)
Johnson (D-SD)
Kennedy (D-MA)
Kerrey (D-NE)
Kerry (D-MA)
Kohl (D-WI)
Landrieu (D-LA)
Lautenberg (D-NJ)
Leahy (D-VT)
Levin (D-MI)
Lieberman (D-CT)
Lincoln (D-AR)
Mikulski (D-MD)
Moynihan (D-NY)
Murray (D-WA)
Reed (D-RI)
Reid (D-NV)
Robb (D-VA)
Rockefeller (D-WV)
Sarbanes (D-MD)
Schumer (D-NY)
Torricelli (D-NJ)
Wellstone (D-MN)
Wyden (D-OR)
Present - 1
Fitzgerald (R-IL)
Not Voting - 1
Inhofe (R-OK)

16 posted on 09/07/2008 9:24:27 AM PDT by Doe Eyes
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To: CodeToad
Thank you congress for helping, crooked bankers, real estate agents, appraisers and developers, steal billions off of joe tax payer.
17 posted on 09/07/2008 9:28:18 AM PDT by org.whodat (Republicans should support the SAM Walton business model, and then drill???)
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To: Doe Eyes
Another illustration that there is a one party cartel in DC.
18 posted on 09/07/2008 9:28:20 AM PDT by VRWC For Truth (No mas Juan "Traitor Rat" McAmnesty)
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To: norton

She was on the board of one of them (can’t recall which) and got $17 million in pay.


19 posted on 09/07/2008 9:29:55 AM PDT by Defiant (I prefer a Lewinsky in the White House to an Alinsky. The first blows, but the latter really sucks.)
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To: aimhigh

No and yes, like of oversight by a congress more intent upon building roads with tax payer fund, hasters 200 million dollar road, ear mark for private development and no to forget Harry reeds land and bridge deals, etc, etc.


20 posted on 09/07/2008 9:31:24 AM PDT by org.whodat (Republicans should support the SAM Walton business model, and then drill???)
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To: Doe Eyes

Telling the truth will get you in hot water with some here, you see the issue is more important than the facts.


21 posted on 09/07/2008 9:33:10 AM PDT by org.whodat (Republicans should support the SAM Walton business model, and then drill???)
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To: aimhigh

It should be noted that you have not answered post #16.


22 posted on 09/07/2008 9:35:46 AM PDT by org.whodat (Republicans should support the SAM Walton business model, and then drill???)
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To: CodeToad

Now I wonder if the markets knew this was coming and have already compensated for it, or will we see a nasty crash this week.


23 posted on 09/07/2008 9:38:03 AM PDT by FlyVet
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To: CodeToad

As a banker, I can tell you there is going to be more devastation in the banking industry in the months ahead. This crisis is far from over. Expect a few big names to diasppear.


24 posted on 09/07/2008 9:42:04 AM PDT by Humvee (Beliefs are more powerful than facts - Paulus Atreides)
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To: CodeToad

Waiting for Feds to take over my credit card balance.....


25 posted on 09/07/2008 9:45:15 AM PDT by TomasUSMC ( FIGHT LIKE WW2, FINISH LIKE WW2. FIGHT LIKE NAM, FINISH LIKE NAM)
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To: Humvee

I am wondering if the feds put a crimp on loans then who can buy another home or sell thiers if people need 20% down with good credit and 30% down with marginal credit? Will the banks simply have to play loose with the numbers, such as take a $400k home and put it on paper as a $500 home to show a 20% down? Will the home market simply grind to a halt as the feds demand liquidity in the market, meaning more cash, which people do not have?


26 posted on 09/07/2008 10:01:49 AM PDT by CodeToad
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To: FlyVet

It was reported that the news was to be before the Asian markets open, so watch those today as an indicator of the US market reaction.


27 posted on 09/07/2008 10:02:55 AM PDT by CodeToad
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To: CodeToad

The brief summary (as I and some others see it)

http://www.youtube.com/watch?v=kJfUNWthglI

On the front page of the prospectuses for this debt, at the top, in big black capital letters, as has been the case for many, many years:

“THE CERTIFICATES AND PAYMENTS OF PRINCIPAL AND INTEREST ON THE CERTIFICATES ARE NOT GUARANTEED BY THE UNITED STATES AND DO NOT CONSTITUTE A DEBT OR OBLIGATION OF THE UNITED STATES OR ANY OF ITS INSTRUMENTALITIES OTHER THAN FANNIE MAE”

But worldwide, wise, experienced, savvy financial gurus apparently misread that and somehow deleted the word “NOT” in its’ two appearances.

Ladies and gentlemen, you and I and every taxpayer in the nation are now going to make these bankers and funds whole for their third-grade reading error. Let’s hope we get free toasters out of it. We are witnessing the single biggest step towards economic and financial socialism this country has ever taken. I’ve read the comments about whom is to blame for this travesty, but frankly, it doesn’t matter. I leave it up to all who may read this to ponder the consequences for themselves.


28 posted on 09/07/2008 10:10:30 AM PDT by Attention Surplus Disorder (Congrasites = Congressional parasites.)
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To: TomasUSMC
Waiting for Feds to take over my credit card balance.....

I'm waiting for the people to take over the feds!

29 posted on 09/07/2008 10:12:35 AM PDT by unixfox (The 13th Amendment Abolished Slavery, The 16th Amendment Reinstated It !)
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To: CodeToad; informavoracious; larose; RJR_fan; Prospero; Conservative Vermont Vet; ...

What does this mean?


30 posted on 09/07/2008 10:15:47 AM PDT by narses (...the spirit of Trent is abroad once more.)
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To: CodeToad
Barack Hussein Obama had this comment:

Cheers!

31 posted on 09/07/2008 10:17:02 AM PDT by grey_whiskers (The opinions are solely those of the author and are subject to change without notice.)
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To: unixfox

Ah..Shoot ! Watsa nudder 10% piled on???????? 5 Billion more won’t make no diff....


32 posted on 09/07/2008 10:17:22 AM PDT by litehaus (A memory tooooo long)
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To: Toddsterpatriot; SAJ

Like, *PING*, dudes.


33 posted on 09/07/2008 10:17:46 AM PDT by grey_whiskers (The opinions are solely those of the author and are subject to change without notice.)
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To: narses

It means the debt of the federal government just went up. By how much will be determined by how many loans go bust. It will no doubt be in the billions.

I believe it also means people holding stock in either corporation just lost their money, all of it.

It means tightened credit requirements...and possibly such a squeeze as to kill the housing market as banks fail to completely understand the requirements and loans are denied.


34 posted on 09/07/2008 10:30:20 AM PDT by CodeToad
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To: narses

It means the taxpayer is going to bail out poor business practices.


35 posted on 09/07/2008 10:31:02 AM PDT by ViLaLuz (2 Chronicles 7:14)
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To: CodeToad
Will the banks simply have to play loose with the numbers, such as take a $400k home and put it on paper as a $500 home to show a 20% down?

Any banker who gets caught making a 100% loan should have a free ticket to five years in the big house. Any appraiser that makes a false appraisal should share his room.

36 posted on 09/07/2008 10:35:25 AM PDT by org.whodat (Republicans should support the SAM Walton business model, and then drill???)
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To: narses

It means alot of different things, but basically, we’re screwed!

For one example from the article: “Similarly, conservatorship does not eliminate the outstanding preferred stock, but does place preferred shareholders second, after the common shareholders, in absorbing losses. The federal banking agencies are assessing the exposures of banks and thrifts to Fannie Mae and Freddie Mac. The agencies believe that, while many institutions hold common or preferred shares of these two GSEs, only a limited number of smaller institutions have holdings that are significant compared to their capital.”

Sounds reasonable, and it is. The trouble is that many banks have their required reserves IN Fannie and Freddie “preferred stocks.” So, more banks will need to raise capital to replace the losses. Some banks will fail because of this. I have no idea how many. So, ultimately it means that the bank implosion continues.


37 posted on 09/07/2008 10:40:15 AM PDT by TruthConquers (Delendae sunt publici scholae)
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To: Attention Surplus Disorder

Good video. Well presented. He makes a great point that this effectively doubles the federal credit trade and forces home prices down significantly. He also points out that on Monday F/F will only take loans with at least 20% down on the loan.


38 posted on 09/07/2008 10:43:42 AM PDT by CodeToad
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To: aimhigh

Coming from a banking perspective, what caused the subprime market was affirmative action. The gov’t forced banks to loan to low-income minorities to meet the requirements of the Community Reinvestment Act. Stupid gov’t.


39 posted on 09/07/2008 10:54:46 AM PDT by RedBloodedTexan
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To: navyguy
From David Frum on the demise of Fannie Mae and Freddie Mac

From 1991 to 1998, Fannie Mae was headed by James Johnson, a longtime aide to former Democratic vice president Walter Mondale. Johnson’s successor, Franklin Raines, had served as budget director to Bill Clinton. Jamie Gorelick, vice chair of Fannie Mae from 1998 to 2003, served as deputy attorney general in the Clinton administration.

40 posted on 09/07/2008 10:56:49 AM PDT by Virginia Ridgerunner (Sarah Palin is a smart missile aimed at the heart of the left!)
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To: RedBloodedTexan

Yep. And Fan and Fred holding onto a good-sized chunk of this toxic paper didn’t help one little bit, either.


41 posted on 09/07/2008 10:57:57 AM PDT by SAJ
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To: TomasUSMC

And the taxpayers get the shaft as usual.


42 posted on 09/07/2008 10:59:35 AM PDT by mulligan (A)
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To: FlyVet

The markets have known something like this was possible for quite some time now.

This doesn’t totally wipe out common stock holders. When the takeover was announced (w/o details) Fri afternoon, Fannie and Freddie stock took a sizeable hit in after hours trading. This bailout effectively gives the gov’t an option on about 80% of the two companies. This is bad for shareholders, but not as bad as it could have been and probably not too far out of line with what the market was expecting.

Many of the bank and homebuilder stocks went up in Friday’s afterhours; probably because the gov’t moving to back Fannie and Freddie debt takes that uncertainty away and does help get credit flowing again.

Trading in FNM and FRE will be fast and furious tomorrow, but I think this has largely been priced in by the rest of the market. At this point, FNM or FRE common stock is basically a lottery ticket.

In a perfect world, the first source of capital that should be required is a return of every nickel of campaign or political event contributions ever made by FNM & FRE to candidates or the two political parties. I know, never happen - but we can dream.


43 posted on 09/07/2008 11:24:03 AM PDT by javachip
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To: org.whodat

I am a real estate appraiser....and object to your inclusion of appraisers in your comment.


44 posted on 09/07/2008 11:26:36 AM PDT by illiac (If we don't change directions soon, we'll get where we're going)
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To: CodeToad
http://www.ustreas.gov/news/index1.html

Link to the Treasury announcement. The fact sheets there provide a pretty good description of what's going on.
45 posted on 09/07/2008 11:28:27 AM PDT by javachip
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To: CodeToad

Respectfully, I think you are conflating what the video advocates SHOULD be done with what this bailout IS LIKELY to do. I humbly suggest you watch it again.

Yes, I agree with you, this effectively doubles the Federal debt.

But the central conceptual notion the video advocates, as I see it, is whether this bailout/takeover/seizure, whatever you wish to call it, is a “market clearing” move or is a “preserve biz as usual” move.

I suggest it is the latter, and not only that, it is an explicit and extra-Constitutional and taxpayer-funded ratification of the latter.

Housing prices are influenced by many things, of course, among them; supply and demand; prevailing wages/earnings; desirability of living in a given area; recent comparable sales [”COMPS”] and the availability of mortgage credit.

The ready availability of mort credit is IMO the fundamental mandate/purpose of F & F. Supporting the operations of F&F is a triad of factors; the biggest of which IMHO was the (formerly) very high quality of the debt instruments resold into the secondary market. The fact that F&F debt traded only slightly higher than risk-free Treasury debt indicated the universal high regard the market placed upon such instruments. This was proven by the very small spread that used to exist between Treasury and F&F debt. F&F at one time ONLY purchased “confoming” loans; which meant that the loans had pretty darn rigid underwriting requirements: The ability of the borrower (homebuyer) to service the payment stream from verifiable sources at no more than 36% front-end and 28% back-end load; the loan-to-value of the loan relative to the value of the collateral (the house’s appraised value) and a 20% down payment which guaranteed that the borrower had a serious stake in the game and would not casually default. These lending guidelines had been established by longtime banker experience. There was a time (in fact MOST of the time in histories of F&F) that if the debt service on a home loan consumed 28.4% of your after tax income YOU DIDN’T GET THE LOAN. If the loan was more than 80% LTV, YOU DIDN’T GET THE LOAN. Period!

But then, F&F went into the business of fudging their own rules, and did so big time. Fast forward to now, and the giant rise in home prices has undermined the LTV factor in the soundness of a great many of the loans now sold into F&Fs’ book of biz. In other words, they are holding a tremdous load of crap, to put it bluntly. As if that weren’t enough, the recasting of the variable-rate loans has placed many, many borrowers into tenous positions as to their ability to service the loans. You will note that mortgage rates, in general are HIGHER than they were before the Fed began its latest round of rate cuts. You may say “big deal, rates went from 5.75% to 6.375% and that’s still low by generational standards and I remember 18% mortgages...” and etc; but the point has to be made that PREVIOUS MOVES by “Bazooka Hank” and “Helo Ben” haven’t quite had the desired effect, have they? So maybe these guys aren’t the geniuses they tell us they are? And just to add some additional topping to this melting sundae, the forced liquidations of surrounding homes has further tarnished the collateral value of subject properties, because as you probably know, homes are sold based upon those COMPS I talked about earlier. 5.75% to 6.375% may not seem like much but in the world of bonds & morts it’s more than a 10% move; meaning, payments on adj-rate morts are set to rise almost 11%! Figure your own mort payment (or rent) into that equation and I think you’ll agree, that’s a non-trivial move; especially when apparently, housing values are continuing to fall.

So, it was a bubble, and these guys are at fault and those guys are at fault and it all started when blah blah blah.

Point being, here we are. Do we now seek to engineer a market clearing process or do we ensure the survival of the purveyors of the fraud and questionable dealings that got us into this mess; ON THE BACKS OF the 90+% of taxpayers who not only DIDN’T benefit, their homes lost value {via the COMPS mechanism] plus their savings lost value plus the purchasing power of their dollars lost value. Just how much flesh is there supposed to be on the taxpayer bone? Just how far do we trust these guys whose financial engineering helped get us into this jam and whose palliative moves have so far made the problems WORSE?

This seizure is NOT a “market clearing” event. It is yet another a hot-potato handoff to the gullible taxpayer, IMHO. NOTHING is to be done about all the folks who bought F&F debt thinking it was good as Tsys when the prospectus clearly, clearly stated it wasn’t. It WON’T lower house prices; it will synthetically attempt to PRESERVE home prices (but it won’t work)

Most galling to me, is that when F&F work to clear their books of the underperforming and defaulted loans (AND: the underlying foreclosed properties) IT WILL BE NONE OTHER than the banks themselves, recapitalized by this taxpayer handout, who will be in the optimum position to cherry-pick and self-deal (remember; Morgan Stanley is the advisor/consultant on this deal) themselves the best deals.


46 posted on 09/07/2008 11:35:30 AM PDT by Attention Surplus Disorder (Congrasites = Congressional parasites.)
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To: illiac
LOL,I don't care, unprofessional appraisal practices are one of the prime problems. Where did you get your degree???
47 posted on 09/07/2008 12:01:13 PM PDT by org.whodat (Republicans should support the SAM Walton business model, and then drill???)
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To: CodeToad

Good tip, thanks.


48 posted on 09/07/2008 12:22:19 PM PDT by FlyVet
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To: Virginia Ridgerunner

Thanks! That answers my question.


49 posted on 09/07/2008 1:26:02 PM PDT by navyguy (Some days you are the pigeon, some days you are the statue.)
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To: Doe Eyes

Exactly and this is another Bush Administration disaster.


50 posted on 09/07/2008 2:02:58 PM PDT by flattorney (See my comprehensive FR Profile "Straight Talk" Page)
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