Skip to comments.U.S. seizes Fannie and Freddie
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 ...
Hate say 'told you so' but i did. Who gets bailed out? The Wall Street gang who got America into this mess. The same people who gave F & F enough rope to hang. The BIG Boys get corporate welfare. Not ordinary Americans who got suckered into buying stocks.
Greenspan championed the deregulation. Personally, I hope he takes the hit in history books for this debacle of the century. I’ve heard numbers like $2 trillion.
"This is not a time to be panicking about this. These are viable, strong institutions," Sen. Christopher Dodd, D-Conn., said at a Capitol Hill press conference. The comments came as the two government-sponsored enterprises continued to be the focus of growing fears they could be insolvent or could face a capital crunch.
"The economics are fine in these institutions and people need to know that," Dodd said. There's no reason "to talk about failure," he added. Dodd, who chairs the Senate Banking Committee, said he had spoken earlier with representatives from the Federal Reserve, Treasury Department, the executives of Fannie Mae and Freddie Mac, as well as their regulator, the Office of Federal Housing Enterprise Oversight.
He said he was reassured that the firms are "fundamentally sound," have access to the capital markets, and have plenty of capital. "These two institutions are fundamentally, fundamentally strong," Dodd said. "There's no reason for the kind of reaction we're getting."
Is it true that Clinton placed his people in charge of these two agencies before leaving office and they in turn led the agencies into bad banking practices lining their pockets??
This backing of their debt will lower the yields on their bonds and ease down mortgage rates overall.
^^^^^^It should be noted that Clinton signed the 1999 bill that allowed for bank deregulation, resulting in the subprime mess.^^^^^^
Can you elaborate on that?
“ARMs reset “
I was questioning at dinner tonight how many of those ARMs are for homes that will not have the 20% equity or the 36% income ratio required and will not be able to be approved for a 30-year fixed. I suspect that number is in the millions.
It was Bank of America that bought Countrywide.
Excellent summation. I have said in the past that as long as the bankers(lenders) and appraisers could keep up the delusion of rising property values, it was a no risk scheme.
Till the music stopped.
And now the music is over. The fat lady done sang her heart out. And instead of there being only one fewer chair in the game, there’s only one or two chairs left.
And while there are many here who blame the “greedy borrowers” who wanted more house than they could afford, in truth the banks and lenders were the professionals who had the licenses and responsibilities to do due diligence.
Mr. and Mrs. Joe6P who wanted a little bigger house because she had one in the oven does not even come close to the magnitude and scale of tens of thousands of loans, maybe hundreds of thousands, made by the “professionals” when they KNEW it could not go on forever.
I am waiting for the board to sue Merrill's golden boy Stan O'Neil. He pocketed $250 million on his way out the door after destroying the firm.
When I was a kid, we moved to Sacramento in 1974 and bought a home for $29K. 6117 Jeanine Drive. Had an 18 foot deep back yard and faced I-80. We sold it in 1974 for $32K. In 1979, it sold for $95K. Today, I just checked, it has an assessed value of $237k.
When the revolution starts the first people shot should be the CEOs and investment bankers who orchestrated this mess as well as those in the government who enabled them.
Wachovia also has huge exposure to the mortgage industry.
No offense to the attorneys on this board... but
Lawyers and doctors have some of the worst business sense out there, as a percentage of the management population.
Why oh why would someone put Gorelick, who oversaw part of the justice department (right?) in charge of big business like this?
I want seizures and jail time for this greedy b@$+@rds.
Yeah, right out of the Japan model.
"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."
Just don't let HUD get in on this.
The Fed can hold to maturity. More likely, these very banks being bailed out will offer to take the good stuff off Uncle Sam's hands ala the Savings and Loan fiasco. Leaving the Feds with crap.
You know its bad when even NBC news hints at the implications.
It should be noted that the REPUBLICANS caused the subprime mess. Thank you very much. All Clinton did was Co-opt everything the Republicans were pushing for and make it sound like his own idea, so he could take credit for it. Without doubt, Clinton signed the repeal. He is partly to blame. Without doubt, the repeal of Glass-Steagall was written and sponsored by REPUBLICANS in both the House AND the Senate.
The idea from both Donkeys and Elephants is to make Wall Street rich and to rape the little guy of his money. Works great, dont it?
You're going to hurt alot of people with that post. What will they do without a team to root for?
“I dont think it is either. I see it this way: The feds and the markets have conspired for various reasons using various means over a number of years (75+) to create a housing market by which people must take loans or else least be unable to afford a house. Now that those practices have resulted in a negative outcome for both the markets and the feds, we are treated to the announcement that credit shall be dried up considerably and that we must now pay the price; not the markets pay the price, homeowners and taxpayers will pay the price.’
Well, I am not one for ascribing blame so much. There’s just too much to go around.
Also, I am not so much an absolute purist on the very existence of F&F. Having to borrow to afford a home is not, in and of itself, that much of a bugaboo for me. I WILL say that the process was allowed to run utterly amok. And further, concurent with the gross relaxations of underwriting standards was the wholesale toss-out of nominal debt-servicing guidelines. Which amounts to pretty much the same thing: Homes have sold, before the insane runup of the past 5 or so years, for roughly 3x the median income for a given area. Of course, there are fancier and more spartan homes in any particular area, and that’s how it should be, I’d say.
If we can agree that homeownership is generally a net positive to society, for a pile of fairly obvious reasons, I don’t have a problem with the secondary mort mkt created by the “invention” of F&F. As I’ve said (may have been in another thread) I think most would agree that within nominal bounds the creation of F&F have been net positives. Enable homeownership; free up lending capital on the part of local banks; give investors something good and solid to invest in; Help build up townships & cities. Up to now, they have been a fairly transparent game that offered those benefits to borrowers and lenders, and under good supervisory guidelines (LTV, debt svce ratios, etc) were probably responsible for much of the growth in the country’s housing stock. Yeah, a little bit socialistic, but nothing’s perfect.
By seizing F&F, though, I still believe this is a “biz as usual” move. Because under the plan, per what I’ve gleaned so far, until 12/09, F&F will actually EXPAND their book of business by about 20-25%; and thereafter REDUCE their book of biz by 10% per annum.
Why do I think biz as ususal?
1: Because the Tsy and Fed have effectively given the banks the above deadline before which they will be able to make final determinations as what loans they should dump into the cesspool. Together, F&F are intended to increase their books by $144 billion over the next 16 months.
2: The CURRENT holders of preferred debt are being subordinated (the ol’ switcheroo) behind newly issued preferred shares, which the government will own and which will yield 10%. This in a sub-4% rate environment. The Govt will assume control of 80% (actually 79.9% but let’s not quibble) of the books of F&F. Roughly 9% of current mortgages are in arrears in various forms; but few think that the bondholders would take more than 5% haircut if F&F were liquidated. A loss, sure, but not a catastrophic loss. How this is expected to “strengthen” F&F is totally beyond me. Between the preferred divs old and new, F&F are going to have to earn something like 10.5% to pay that vig on the new shares. I have no idea of the composition of F&Fs’ current book as to adj vs fixed morts, but suffice it to say that nobody with functioning neurons who was able to refi in the 5% range hasn’t done so. So, let’s say 25% of their books average 5.5% fixed and 75% are variables. Maybe my wild-ass guesses are way off, but I see NO BLOODY WAY F&F can pay the Feds 10% interest without forcing fire sales of distressed assets, which, again, I say will be snapped up by “insiders”. And thus, this formula seems specious from the very beginning, meaning it will be forced to change again. And again. Per which side of the bed the Hankster woke up on. The WAY it is likely to change, IMO (which could be 100% wrong) is to FORCE SALES which will drive down collateral values and endanger reserve ratios in the regional banks. So, I kind of see this as a self-built-in “Trojan Horse” defect with its own built-in-from-the beginning failure mode which will force this whole plan to be adapted again and again as time goes on and RE values decline.
3: And so, the originating banks will end up the beneficiaries NOW by getting rid of their worst crap, and THEN; by being both able (recapitalized) and clued-in to the best deals during the post 2009 cleanup phase.
My bottom line is that the seizure IMMUNIZES the banks (and the Chinese and Japanese) against preferred-share default yet guarantees NOTHING to the taxpayers (flowery language notwithstanding) because there is only most outlier case that the new preferred will be able to support a 10% coupon without scavenging the soundness of the current preferred and current debt. But THAT debt, despite being peddled as NOT backed by the Feds, is NOW BACKED by the Feds! So IMO, the seeds are, as we speak, being sewn for this running sore to get worse and worse. But Paulsen will be kicked out of office by then and someone else can play janitor.
We have heard nothing but lies since Bernanke said “subprime is contained and won’t affect the real economy.” In fact, the lies began long before that when Greenscam said there was no housing bubble.
Bank losses. Strength of the economy. GDP. Inflation rate. Employment numbers Nothing but lies. These aren’t the economic numbers you are looking for. Move along, move along...