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Bush Administration Considering A Takeover Of Freddie And Fanny
Freddie and Fanny lost about half of their value overnight as investors became more certain that the government was going to have to bail out the two GSEs (Government Sponsored Enterprises.) The New York Times says that senior members of the Bush administration are considering a takeover of Freddie and Fannie that would leave their shares "worth little or nothing," and where taxpayers would pay "any losses on mortgages they own or guarantee."
Together, Freddie and Fanny own or guarantee more than half of the nation's mortgages — about $12 trillion, according to the NYT.
Under a 1992 law, Fannie or Freddie could be put into conservatorship if their top regulator found that either one is “critically undercapitalized.” A conservator would have sweeping powers to overhaul them, but would not have the authority to close them.
Treasury Secretary Paulson maintains that he is in favor of supporting the GSEs in their current form.
"Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,'' Paulson said in a statement today in Washington. ``We are maintaining a dialogue with regulators and with the companies.''
As of this post, Freddie is trading at 5.85. Fannie is trading at 9.83. Both are down about 25%.
Comments
the bush administration?
or the government?
ever so slight, but one or two words means alot when trying to push an agenda.
are we talking a bailout? i dont like to read news articles too much- journalists get in the way of the facts by changing a couple of words here or there to give readers their opinions.
can anyone provide me with some bullet facts?
considering im a veteran and will be using the VA for a first time home purchase this year, i would like to know a little more from honest forum-goers of what this is all about.
ill read it later, the article that is.
-I will subtlety invade your psyche-
As BBH said...are we talking abil out? If so with whose money? Why must we bail out this mortagage company that screwed themselves up. Let them fall. They messed up. Let them be responsible for their own mess.
Ummm, these companies represent 5 Trillion dollars worth of economy. Yes, they will be bailed out. The alternative is a collapse.
Who will bail them out? Taxpayers of course.
so, the bush administration doing a good thing in the eyes of democrats?
wheres the love...
-I will subtlety invade your psyche-
bluberryhaze.
wheres your brain.
its bushes fault we are at this place to begin with.
it was bush who signed YES to all them home mortgages. he personally approved lots of money to people that cant afford it.
didn't you know?
-I will subtlety invade your psyche-
Conservative lobbyists set the stage for the mortgage crisis. You know, guys like McCain's economic adviser Phil Gramm.
He has been an economic adviser to John McCain's presidential campaign since summer 2007.
While advising the McCain campaign, Gramm was being paid by UBS to lobby Congress about the U.S. mortgage crisis. During this time, "the mortgage industry pressed Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages." According to Politico.com, Gramm had input on McCain's March 26, 2008 policy speech on the mortgage crisis.
Gramm was one of five co-sponsors of the Commodity Futures Modernization Act of 2000 which critics blame for permitting the Enron scandal to occur. At the time, Gramm's wife was on Enron's board of directors. Gramm left his Senate seat a few weeks before the expiration of his term in December 2002 so that his successor, fellow Republican John Cornyn, could gain seniority over other newly-elected senators.
Who is more at fault for this crisis, the consumers who signed the preditory loans or the banks that made loans they knew wouldn't be paid off? Supply side government seems quick to run to the rescue of corporations, while citizens have been suffering for nearly 3 years in the face of their ignorance. And it's not nearly over yet. Many sub-prime loans have yet to reset. This means that foreclosure rates aren't even in decline yet.
Don't forget, part of your IRA is probably tied up in these home loans that are in foreclosure. If you have been fortunate enough not to see a significant decline in returns, you almost assuredly will see decline in the near future, as it will begin to affect all the other markets that are invested in mortgage securities.
Worry not though. There is no recession. Go spend some credit!
The Bush administration heads the executive branch of government so there is no difference. However, I can see why someone with an agenda would want to pretend there was.
In related news, no link yet but I just heard on the news Indymac, the 7th largest US mortgage lender is no more. It sounds like the US government is absorbing their assets and liabilities to prevent a failure cascade. This may be the largest bank failure in US history.
My understanding of the situation is that Freddie Mac and Fannie May buy mortgages from the banks that make the loans to home buyers, thus replacing the money that the mortgage banks had loaned out. These loans are then bundled and sold in the market, replacing Fannie May and Freddie Mac's cash.
If Freddie Mac and Fannie May run out of cash because the markets will not buy the paper, they cannot buy mortgages from banks, and the circle of money comes to an end. That is, the mortgage lenders have no money coming in to lend out besides the monthly payments over the next thirty years. Thus, there may not be money available to finance that new home purchase, and without purchase money home prices will plummet even lower.
This will lead to an increase in defaults, and increase in foreclosures, and even further threaten the banking sector. By the way, just today the Feds moved in and shut down a major California bank that was insolvent. That is, we have had a major bank failure today.
Without Fannie May and Freddie Mac many more banks would fail. So yes, the Bush administration announcement to not let these publicly traded companies fail is a good thing.
Note that McCain and Obama remain clueless.......where is Mitt Romney when we need him?
I agree. Normally you don’t want government interfering to much, but in this case there is a strong likelihood of broad structural damage to the economy if they fail. This is why you need regulations designed to keep this situation from happening in the first place.
WOW such a company should have NEVER exsisted. they work around the whole banking reserve laws(forcing banks to keep 20% of the total cash people have invested/saved in them). Which means that a goodly part of the reason for having that reserve is useless.
That part being the whole concept of banks printing money and limiting how much they can print. (the printing money concept is along these lines, after a bank loans money out to you that money will end up in another bank while you still owe the bank money. with the 20% reserve that means that the money that got loaned to you generates a semi-imaginary amount of money. 80% than what the banks started with, because of the reserve.) However if the bank sells that loan that means that they are getting that money back so they can loan out more and print more money because they are meeting the 20% reserve requirement.
Sure the money to buy the loans comes from somewhere but there's still some printing going on in there no matter how you look at it, especially when you look at interest and buying the loans on bank printed money.
(special note. some decent level economic theory going on in there, and no it's not literal printing of money in the you have more coins now(it's still the 500 gold coins just that you're counting 800 coins after you add up who all owes what). This is also how the credit economy works, as for the healthiness of a credit economy that's argueable to the Nth degree.)
I find it amazing that by 2020 first world countries will be competing to get immigrants.
we had a housing boom, right? a huge boom. double, triple, quadruple value. supply, demand.
i wont argue lenders weren't throwing money at american consumers. i will argue the 'predatory lending' that CNN and MSNBC have led you to believe is the cause of all of this. it falls mostly, on the irresponsible american consumer.
but, there was a boom.
how was bush supposed to foresee all of this?
so, now we put regulations in place to prevent this from happening again.
hindsight, 20/20.
i know, the buck stops at the CEO. the president.
i am grateful i will be buying a home this year and not 2 years ago. it is rough paying 400k for a home that is now worth 300k. so goes the boom and the deflation. its leveling off.
too much boom.
-I will subtlety invade your psyche-
These companies have a tie-in with the federal government so they are quasi-public. Federal National Mortgage Association. The government will do all it can to keep these guys afoat. Sallie Mae is another that makes student loans. Sallie will probably be the next one in trouble. I never was intereseted in these stocks but they were good investments in the 80s-90s.
You should add that banks were pressured to lend to higher risk borrowers hence the name sub-prime lending.
It has nothing to do with boom-bust, but rather the rules that determine who is eligiable to receive a loan. Those rules were changed so that people who really had no business buying a house... or maybe no business buying such an expensive house -- were getting loans, falling behind when the ARM or similar deal came calling, and then going into default and foreclosure.
Combine the above with increasing costs in almost every basic thing -- such as energy and basic foods -- and there aren't a lot of people looking to buy (or being able to buy) houses a the costs that the original buyer paid, so that original buyer can't even sell his home to get out of his negative cash-flow situation.
Now include huge numbers of people maxed out on their credit cards, or those currently being suckered into buying on the credit cards (low, LOW, *LOW* interest! No payments until 2009!). What will happen when interest rates start to climb again? And they *will* start climbing soon... definitely after the next election.
The Fed is stuck. People have spent themselves into a corner. Increasing taxes wont help much because people are already maxed out with many living beyond their means.
What will happen only time will tell for sure. I myself am a very pessimistic person, so I expect things to go bad in a very big way. IMO, it's already happening and *has* been happening for some time. Eventually even the biggest ostrich will have to take note of the avalanche coming towards him.
This brings back memories. I remember when I re-financed my house, and had the mortgage guru telling me all about these latest and greatest mortgage products. I just went kind of goo-goo eyed, cause I didn't know jack about any of them, and asked, "Don't you still have 30 year fixed rate mortgages?"
The mortgage guru looked at me kind of strange, answered yes, and asked, "Why would you want one of those?"
This brings back memories. I remember when I re-financed my house, and had the mortgage guru telling me all about these latest and greatest mortgage products. I just went kind of goo-goo eyed, cause I didn't know jack about any of them, and asked, "Don't you still have 30 year fixed rate mortgages?"
The mortgage guru looked at me kind of strange, answered yes, and asked, "Why would you want one of those?"
hehe
I just called a few banks and ask what mortgage rates they had and took the lowest. I don't want a rate that changes because stuff always changes for the worse when I comes to borrowing.
I think that is about right. However, I have no idea what they are going to do to save Freddie and Fannie. Oh, of course I do, but not in any meaningful way. Nearly all of the banks are in this up to their eyeballs, and any one of them can cause (more) irreparable harm to the economy, and even potentially a crash.
___________________
Sadly, I see storm clouds on the horizon. A faint stench of Vanguard is in the air.-Kien
http://www.penny-arcade.com/comic/2006/12/13/
If something is going to crash, then sometimes it is best to allow it to do so. Yes, there will be short-term pain, but usually there are fundamental reasons for why something is going to fail and propping up something that ought to fail only allows those fundamental reasons to fester and grow.
I refer to the above as the National Forest Service method of crisis resolution. Normally, forest fires occur every once in a while. They tend to destroy undergrowth and add nutrients to the soil. Usually, a mature tree can weather a regular forest fire. If you cut such a tree down, you would normally see a few black rings on the stump: those are years it endured a fire.
But what the Forest Service does is immediately put out any fire, no matter how small. This prevents undergrowth from being destroyed, causing it to accumulate. Eventually, there gets to be a LOT of undergrowth and, when it dries out, it becomes VERY good kindling. Then, when a fire does finally break out, it is a nasty, huge, and very destructive fire. Trees don't survive it: they explode from the heat. These sorts of fires destroy everything in their path.
By not allowing nature to take its course, you can set up conditions that end up being *far* more devestating than they would be otherwise. You sacrifice some short-term gain (or stability) for long-term disaster of much greater proportions. We humans do this fairly often, and corporations do this a LOT because shareholders seem to care only about current revenues/profits, not about having an enterprise that makes less but is stable. Then, of course, there is the refusal to let go, or to change what has worked, or to just realize that the product/service is no longer profitable; instead people, companies, and governments all seek to prolong and extend things, and we get the National Forest Service method of fire control: this issue with Freddie Mac/Sallie Mae is just another example of it.
The Bush administration heads the executive branch of government so there is no difference. However, I can see why someone with an agenda would want to pretend there was.
I guess you've never heard of the US Congress then.
The Bush administration heads the executive branch of government so there is no difference. However, I can see why someone with an agenda would want to pretend there was.
I guess you've never heard of the US Congress then.
no. GWB is the dictator of america. King George as my father-in-law calls him.
there arent 3 branches of government- only lies from one to get the others on board.
havent ya heard?
/sarcasm
-I will subtlety invade your psyche-