Thanks to gross mismanagement and failed financial legerdemain, Fannie Mae and Freddie Mac are soon to be effectively nationalized, and the organizations' respective CEOs canned. What was to be a huge bailout is now for all intents and purposes a buyout, and in an already weak economy helped downward by their incompetence. And we get to foot the bill. Your thoughts?

tim

Ok, I had a nice long post about this at home when my net connection died -

I tend to be mean about these issues.. I bet that surprises no one..

These types of bailouts almost never work, Chrysler being an example of one that worked for a while, and are done because the politicians can't win no matter what they do..

Bail out: Gubment is just helping prop up their rich buddies..
No bail out: Gubment is mean and is letting people lose their jobs and homes..

These bail outs tend to not be given to smaller companies where their closure will only affect 1000 or so families.. But a failure that affects potentially millions can't be allowed in most people's minds..

Me, I'm all about personal failure.. Failure happens.. You learn from it and move on.. Bailing out those that fail tends to just lead to more failure..

In the case of the airline industry I'd agree with you. But in this case, "da gubment" isn't just bailing them out, they're effectively taking over.

tim

Its jacked up, but unavoidable IMO. If the alternative is the collapse of our mortgage system, we are in for much much darker times for our economy. Personally, I like the idea of buyout rather than bailout. It seems it would reward the people who created the problem less. The problem is, anything run by the government is usually run very poorly.

What do they do with Freddy and Fanny now.. run them continuously? Pass them back to the public? Personally, I'd be in favor of breaking them up into much smaller institutions and de-nationalizing them in pieces as soon as possible. Let the new king rise to the top.

Speaking of rewarding the people who created the problem, it isn't just a few greedy CEOs. I have quite a few friends/acquaintances who were mortgage brokers in the heat of the market. Not one of them was pulling in under a quarter a million dollars a year and one, a 25 year old girl, was pulling down a cool million per year(worked for Countrywide.. go figure). If you want to know where all the money went, it wasn't just a few fat cats who pocketed it. It was almost everyone in the industry. Makes it kind of tough to ask them to give the money back to uncle sam to pay for this bailout. Sad to say, in a strange way, those people lined their pockets with what will turn out to be taxpayer dollars every bit as much as Barack Obama's family did with earmarks. They just probably weren't aware they were doing it at the time.

This sort of news makes me want to scream as well. Why wasn't something done about this before it got to this point? Surely there was some sort of govenment oversight involved that saw this coming. What were they doing, wishing upon a star each night it would get better on its own?

Analysts have agreed that the upfront costs of this bailout by the Treasury Department could hit $100 billion dollars, with another $5 billion of mortgage=backed securities purchased as well. Government officials and experts on the matter are still unsure how much of this will have to be shouldered by taxpayers. Estimates floating around now, and these are just estimates, claim that the cost per taxpayer could hit $14,000, or $3,300 per US citizen. This of course will go up or down depending upon how much money the government actually has to put into the bailout.

Stockholder in both companies is no longer receiving dividends on their investments, and now that the government has stepped in, the stock prices have plummeted further. What are the remaining stockholders going to do now, and what effect will this have on the mortgage lenders and the length of time it will take to get them back on their feet.

The thought that makes me shudder though is where will all this money come from? The country is already in debt now, who will we run to for yet another loan? When will the day come when the Treasury Department, and the US Government, are the ones needed to be bailed out?

Originally Posted by cbwm

It seems it would reward the people who created the problem less. The problem is, anything run by the government is usually run very poorly.

And, when the alternative of being run by the private market resulted in catastrophic failure, poorly run by the "gubment" becomes a good alternative. Dogma about "bad government" not withstanding.

Not to offend any home owners out there...

it's good to live in an apartment

Originally Posted by furry

Why wasn't something done about this before it got to this point? Surely there was some sort of govenment oversight involved that saw this coming. What were they doing, wishing upon a star each night it would get better on its own?

Kind of like Clinton while Al Queda was building its base. The Fed warned about it while it was building, but no official action was taken. Unlike Al Queda, it seems anytime a whole market segment appreciates 200% or more in a few years a forthcoming correction should be obvious. Perhaps nobody realized the impact this correction would have on our lending institutions.

Originally Posted by furry

Stockholder in both companies is no longer receiving dividends on their investments, and now that the government has stepped in, the stock prices have plummeted further. What are the remaining stockholders going to do now, and what effect will this have on the mortgage lenders and the length of time it will take to get them back on their feet.

My understanding is the takeover was to restore confidence to the lenders (mostly foreign) who were financing much of our mortgage debt. The idea is their loans are now government backed, much like U.S. treasury bonds. The idea is to restore liquidity to our mortgage market, thaw it out, and get home sales moving again.

I couldn't care less as to whether those holding shares in Freddie and Fannie see a dime on their investment, nor whether the stock continues to pay a dividend. Just like when Bear Stearns collapsed, a few people lost their a**es (mostly Stearns employees) and those with well balanced portfolios soldier on.

I do have to agree with you and Feydarkin here though. Continually propping up these business failures may shore us up in the short term at the cost of a larger more catostrophic collapse in the medium term. Its like avoiding going to the dentist because you know its going to hurt, only to loose teeth because you failed to go to the dentist. The problem is, this trip to the dentist (Letting Fannie and Freddie Fall) would likely lead to a 8 year period of economic hardship while our housing markets continue to tumble with unknown impact on the remainder of the economy.

Originally Posted by Feydakin

I tend to be mean about these issues.. I bet that surprises no one..

Me, I'm all about personal failure.. Failure happens.. You learn from it and move on.. Bailing out those that fail tends to just lead to more failure..

It surprises me, because it's 180 degrees counter to what you said, yesterday, in a similar thread. To apply the criteria that you, yourself, established - are you planning to write a check to cover everybody's mortgage who's been borrowing from Fannie and Freddie? It's still a bad criteria, but it's very surprising that you apply it so selectively.

No, I'm not contradicting myself at all..

There is a world of difference between overextending yourself with a loan and debt that you can not legitimately afford, or running a company in to the ground, and being forced in to a situation beyond your control..

You'll also note that I never said that "I" would write a check to people short at the end of the month.. I asked if "YOU" would.. I try to help in a smaller, more direct, more beneficial, way IMO..

Now, if you want to talk to me about an individual family that might need a little help, that is a different issue than taking over a major mortgage company that should be allowed to fail.. People who qualify for loans will be able to get them anywhere, people that fannie and freddie loaned to that should have never been given one, won't.. And those people can go back to an apartment or to a home more within their budget..

I thought I'd top this again with some interesting data points..

In 2003 GWB wanted to put definite limits on Fannie and Freddie.. But he was fought on the issue and eventually lost and Fannie and Freddie were allowed to continue as they had been..

The people fighting GWB in the name of all the little people that needed Fannie and Freddie?? Barney Frank and his associates on the Democratic side of the aisle.. Would the limits have prevented what happened?? Who knows.. Should the republicans have fought harder for the limits?? Who knows.. But laying this all at the feet of one administration seems a bit unfair, don't you think??

Of course its unfair but that wont stop them from trying to do it. Unlike the rest of the Bush presidency, for which I give him fair to good marks (except maybe the decision to invade Iraq before Iran or Pakistan), this blight called Fannie/Freddie and the ensuing bailout could likely be the thing that his name will be cursed for most, even though it is something his administration made solid efforts to prevent. More amazing still, electing Barack Obama, the guy running against the "failed bush economic policies", would be electing 2nd highest ranked Fannie/Freddie donation receiver and a guy who is very connected to the creation of the problem. Its amazing he made number in donations with only a few short years in the Senate. The more I hear about this stuff, the more I am sickened every time I hear him utter the word "change". This guy gives people working/freeloading off of the welfare system a bad name.

Edit: By the way, you'll notice that these wall street events of the last few days have given Obama a bump in the polls.

Oh no... unregulated capitalism has come falling down around our ears... what a surprise...</sarcasm>

It was going to happen sometime or other. We've seen this sort of thing happen before - the market being very overconfident and not realistic, that instance being the dot com crash (amongst others).

Capitalism, or at least unregulated capitalism, doesn't work. Every so often, it comes smashing down and the government/the people have to pick up the pieces. However, it surprises me that we let it happen over and over - why not just regulate the market sufficiently so that this doesn't happen in the first place - the bubble doesn't keep getting bigger and bigger till it bursts. What humanity really wants (in my opinion) is a gentle, but sustained growth of wealth to benefit everyone at all levels of society. Unregulated capitalism doesn't do that.

Originally Posted by whym

Capitalism, or at least unregulated capitalism, doesn't work. Every so often, it comes smashing down and the government/the people have to pick up the pieces.

But that's just it, it DOES work.. If the government stopped picking up the pieces then people would be more careful with how they act.. And when they do collapse and crumble, that's a "good thing" too.. It clears out the old dead wood from time to time to make way for new ideas and methods..

By continuing to prop up 80 year old "government mandated" programs like Fannie, we end up 80 years down the road with massive failures.. It should have been allowed to fail 20 years ago.. Unfortunately our country has become afraid of failure and the hardship that brings with it..

Originally Posted by Feydakin

But that's just it, it DOES work.. If the government stopped picking up the pieces then people would be more careful with how they act.. And when they do collapse and crumble, that's a "good thing" too.. It clears out the old dead wood from time to time to make way for new ideas and methods..

It sounds good in principal, though it doesn't match the American philosophy as it exists today. While I dont think our government should force people to wear helmets while riding a motorcycle, bugs in the teeth and all, the fact of the matter is that we have helmet laws. Even though in this example, a person can only do damage to themselves for their free spirited foolishness, our government has decided to legislate "protection from ourselves". Perhaps a better example is the construction of a structure. Round after round of plan revision, inspections, engineering work, all to assure the structure you are building is going to hold up in an earthquake and not damage its occupants. The more people your structure holds (Skyscraper), the more "government regulation". Rightly or wrongly, our government is very occupied with protecting us from ourselves and from the foolishness of fellow citizens who setup structures (financial and physical) for us to occupy.

On the investment side, there is a reason the government has to sign of on Mergers of publicly held companies and monitors for insider trading. It is also illegal to sell investments over a certain level of risk to non-qualified investors. Options accounts, short selling, and other such strategies are also limited and loaded with thousands of government sponsored disclaimers. Long story short, the stability of the stock of most big companys (Enron, Lehman brothers) is made more stable by government regulation. Psuedo government entities (Freddy, Fannie) should be even more so.

Originally Posted by Whym

Oh no... unregulated capitalism has come falling down around our ears... what a surprise...</sarcasm>

The problem with this quote is, as I just mentioned, the "capitalism" of the companies that failed is heavily regulated. The problem is, those regulators failed to do their job, coincidentaly , after the Congresional Democrats (Dodd, Obama) reveived massive campaign donations from those very same failing companies. When you cry for regulation of our "unregulated" markets, you are really calling for the adoption of socialism, so we can embrace and praise mediocrity like so many other countrys have.

Originally Posted by Feydakin

By continuing to prop up 80 year old "government mandated" programs like Fannie, we end up 80 years down the road with massive failures.. It should have been allowed to fail 20 years ago.. Unfortunately our country has become afraid of failure and the hardship that brings with it..

I'll go this far. I'll take functioning regulators over bailouts anyday.

I'm still against the helmet laws though.

Isn't it ironic that the same folks who bristle at the thought of nationalized health care jumped all over nationalizing Fannie and Freddie? Even better, why not bail out AIG at your expense, but leave the medically uninsured glutting the emergency rooms at your greater expense? And just how long do you think it will take before our government finally admits that it's trying, badly, to offset the depression that's coming anyway? I really don't want to say this, but I told all of you so.

tim

http://elections.foxnews.com/2008/09...in-as-gambler/

Here we go again. Everyone blaming the "de-regulators" for the financial bailouts. Even Ben Stein talked about the disastrous deregulation last night. Can someone please explain to me exactly what deregulation caused this mess, when that deregulation took place, and who legislated it into place? Can someone explain how it is that the many remaining regulatory organizations don't share at least some portion of the blame for failure of oversight?

Its exactly this kind of cr*p that pisses me off. When a politician is busy telling you his opponent is to blame for this problem or that, why not provide a few details so that the public knows your not just making this stuff up. Its like Joe Bidens speech at the DNC where he alleged that McCain was wrong on the handling of the war in Iraq and that Obama was right when nothing could have been more opposite from the truth. Then half the unwashed masses go repeating it while the other half are reviled and alienated at the gaul of such a statement.

So seriously, if someone here knows what the specific deregulation this idiot is talking about, please share.

http://piggington.com/clinton_republ...nancial_system

Found it. I can see why Obama talks about the "evil deregulators" without providing specifics. Turns out it was Clinton who signed into law the easing of certain banking regulations. Ironic that the specific regulations rolled back by Clinton and the Republicans in congress(the prevention of Banks from crossing into insurance and other lines of business) were created in the aftermath of the great depression to prevent banks from ever being so vulnerable again.

I suppose if we live through this we can thank Dubya for bailing us out of another mess created by Clinton.

Which of course brings me back to what I tend to say, most governmental issues are multi administration problems that tend to be blamed on the last guy in office even when he was just the recipient of what the guys before him started..

And this goes for all of them.. Not just GWB..