Here come the Freddie and Fannie bailouts...

NEW -> Contingent Buyer Assistance Program
Neither Bush, Obama, nor McCain have any choice but to support this. The foreign central banks that are funding the government's massive deficit are also the ones who would be clobbered by a F&F debt haircut. Although the FCBs deserve to take a hike, no president can tell them to because a funding strike is disaster for the US. Such is the position that Bush's deficits have put us into.
 
[quote author="FairEconomist" date=1220786400]Neither Bush, Obama, nor McCain have any choice but to support this. The foreign central banks that are funding the government's massive deficit are also the ones who would be clobbered by a F&F debt haircut. Although the FCBs deserve to take a hike, no president can tell them to because a funding strike is disaster for the US. Such is the position that Bush's deficits have put us into.</blockquote>


I don't think neither of these three has the knowledge required to be able to tell what's going on, so they're going to defer to the financial specialists running the show, aka. Paulson & Bernanke. These two have way more power over the USA's future than the President right now.



Besides there'd be little incentive for either McCain or Obama to make waves about this. The issues are complicated, the public may not understand, so it's better to go with the flow to not jeopardize any of the votes acquired.



Post-election though I wouldn't be surprised if this resurfaces and there's a lot of finger pointing about how much this is all going to cost.
 
I for one say that it's about time they dogs get nationalized and receive an explicit financial backing by the US government. They should wipe-out the common stock holders and discount the preferred stock holders. Yeah, the move will result in more money being printed by the FEDS, but just image the carnage in the real estate market if these two dogs were left to die (you think it's tough to get a mortgage now, it'd 100x more difficult to get a mortgage if these guys went belly up). The net positive will be lower mortgage rates since the risk premium will decrease since the US government is backing things up.
 
[quote author="usctrojanman29" date=1220789745]The net positive will be lower mortgage rates since ...</blockquote>


The following is a poster on Calculated Risk:




/




sue writes:

Isn't this ironic, paying higher taxes and more gov't debt to keep housing prices affordable for all Americans. We must be idiots in this country.



With all our sophistication, the conclusion to this experiment is simple - how about going back to a fair risk premium on lending based on real income and real dollars. Promoting Home ownership in any type of subsidized way is retarded and irresponsible, because now all Americans and unborn Americans are going to pay for the subsidized risk premium for the rest of our lives.



The path to hell paved with good intentions once again.

sue | 09.06.08 - 8:17 pm | #
 
[quote author="awgee" date=1220806141][quote author="usctrojanman29" date=1220789745]The net positive will be lower mortgage rates since ...</blockquote>


The following is a poster on Calculated Risk:




/




sue writes:

Isn't this ironic, paying higher taxes and more gov't debt to keep housing prices affordable for all Americans. We must be idiots in this country.



With all our sophistication, the conclusion to this experiment is simple - how about going back to a fair risk premium on lending based on real income and real dollars. Promoting Home ownership in any type of subsidized way is retarded and irresponsible, because now all Americans and unborn Americans are going to pay for the subsidized risk premium for the rest of our lives.



The path to hell paved with good intentions once again.

sue | 09.06.08 - 8:17 pm | #</blockquote>
The choice to take over these two dogs is far better then letting them go out of business. Sure there will be some burden that Joe Taxpayer will have to bare in the short term, but once the dust settles the companies may begin to generate revenues for the federal gov't once the housing market stabilizes for good (how long that will be...who knows).
 
<a href="http://www.treasury.gov/press/releases/hp1129.htm">Did you all read the statement and the other attachements</a>?



Don't worry, the GSEs will pay the guberment a fee when this done to pay the guberment back.

<em>

Treasury temporary authorities will expire, the GSE portfolios will begin to gradually run off, <strong>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</strong>. Together, these factors should give momentum and urgency to the reform cause. Policymakers must view this next period as a <strong>"time out"</strong> where we have stabilized the GSEs while we decide their future role and structure.</em>



I just like the "time out" part. Now Phony and Fraudy, you are not behaving like good little GSEs, do you want a time out? Oh... look what you have done now, look at all those delinquent loans. That's it you get in the corner and face the wall, you can't come out to play GSE again until uncle Jim and uncle Hank fix this mess. What did your uncle Jim and Hank do to you to deserve this mess. Bad, bad GSE, shame on you for lying to us.
 
[quote author="graphrix" date=1220839378]<a href="http://www.treasury.gov/press/releases/hp1129.htm">Did you all read the statement and the other attachements</a>?



Don't worry, the GSEs will pay the guberment a fee when this done to pay the guberment back.

<em>

Treasury temporary authorities will expire, the GSE portfolios will begin to gradually run off, <strong>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</strong>. Together, these factors should give momentum and urgency to the reform cause. Policymakers must view this next period as a <strong>"time out"</strong> where we have stabilized the GSEs while we decide their future role and structure.</em>



I just like the "time out" part. Now Phony and Fraudy, you are not behaving like good little GSEs, do you want a time out? Oh... look what you have done now, look at all those delinquent loans. That's it you get in the corner and face the wall, you can't come out to play GSE again until uncle Jim and uncle Hank fix this mess. What did your uncle Jim and Hank do to you to deserve this mess. Bad, bad GSE, shame on you for lying to us.</blockquote>


So now we have Jon and Kate + Eight style governing. Neato!
 
[quote author="awgee" date=1220696235][quote author="redline" date=1220686909]Great... my hard earned tax dollars at work to bail out the irresponsible acts of Fannie and Freddie. I wish I could start a company, not get taxed on profits, and have taxpayers bail it out when it suffers astronomical losses! A brilliant business plan!</blockquote>


What tax dollars? Seriously, where are these supposed tax dollars going to come from? The US federal government is already spending more than it collects, so just what tax dollars are we refering to?</blockquote>


Good point. Our dollars are spread out sooo thin across some many different types of bailouts and of course protecting our foreign oil reserves... ugh I mean... protecting the freedoms of our Iraqi brothers and sisters. ;)
 
USC, I think on Monday, things could get really ugly......



I have no clue what will happen, but I'm expecting commodities to rally. The dollar is tanking right now, as it has opened lower to the EURO today after Friday's close. As long as these bailouts continue, there is no safe haven. Another thing that could happen is we see everything reverse tomorrow. Instead of commodities rallying and dollar being trashed, it could be the opposite. We are in a market environment where nothing seems to make sense anymore. If the dollar rallies tomorrow, I know that there is some serious manipulation going with increased debt of bailing out FRE/FNM. We still don't know all the details to the FRE/FNM bailout. Which could lead some to say that things were overdone. I believe there could be major dollar selling overnight with a big spike in oil and gold.



Part of me believes that this was all planned by the government to prop up the dollar and bail out these dogs. It is a scary time to be a investor in 2008 as markets are moving against the fundamentals. I will not be suprised if the gold tanks and the dollar rallies tomorrow.



What are the opinions of others?
 
I have no idea what the market will do tomorrow or the day after that, nor do I find it relevant. I have read about how short term Americans think, but now I am truly amazed. Is there no one who understands what the long term consequences are of the government explicitly subsidizing home mortgage rates? Does anybody realize it is not "tax" dollars which will fund this? There are no "tax" dollars left. The US is in debt by trillions of dollars and somehow there are many people who think the debt can be fixed by spending more money we don't have and going further into debt. Fannie and Freddie can not be fixed by doing more of the same. The only good thing to come out of all this is that long term, gold will be worth so much more than I can logically comprehend.
 
The futures are indicating the market likes this quite a bit so far, much to my dismay, while the japanese index is down. Americans eternal optimists, japanese eternal pessimists, it seems.



Dollar not liking it that much, though asian currencies are falling with respect to it so far. Sorry Panda!
 
Here is some more. Are those dollars in your pockets feeling a bit lighter?




<a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=af5C3f6SpmFo&refer=home">more bailout</a>
 
[quote author="awgee" date=1220858370]I have no idea what the market will do tomorrow or the day after that, nor do I find it relevant. I have read about how short term Americans think, but now I am truly amazed. Is there no one who understands what the long term consequences are of the government explicitly subsidizing home mortgage rates? Does anybody realize it is not "tax" dollars which will fund this? There are no "tax" dollars left. The US is in debt by trillions of dollars and somehow there are many people who think the debt can be fixed by spending more money we don't have and going further into debt. Fannie and Freddie can not be fixed by doing more of the same. The only good thing to come out of all this is that long term, gold will be worth so much more than I can logically comprehend.</blockquote>


I agree this is huge. Gold is rallying right now so at least some things make sense. I might increase my gold holdings, given the reaction.



What saddens me is how everything seems to run around classes of people screwing around other classes of people, and how everything is just a giant breach of trust from everyone. Homeowners are screwing their debtors, breaching their trust, some walking away from houses they could actually pay. Those same homeowners are breaching the trust of renters who assume the homeowners actually own the house. The government is bailout out debtors, breaching the trust of its taxpayers. Banks breached the trust of clients with respect to the safety of their securities. We are breaching the trust of our children, chaining them in our debt. Realtors and economists are breaching our trust, telling us "the bottom" in housing is near. And retirees who would normally invest in the relative safety of high-dividend bank stocks have had their thrust breach as well.



Everywhere I turn, I see people walking away from their engagements. Isn't that what defines a financial collapse?
 
I posted some additional information in the "Economy" forum. I was prevented from xposting here.



The Politics of Fannie and Freddie Takeover



http://boards.fool.com/Message.asp?mid=26968793



<em>Most people around here already seem to understand that most government actions under the Bush administration have served corrupt political or financial purposes. I suspect, however, that most casual observers don't understand how this all fits in with the GSE takeover plan announced today. Having read through all the statements offered by the treasury this morning, here are my thoughts:





It is clear that the takeover of Fannie and Freddie has been carefully constructed to serve the political purposes of the Republican party. Fannie Mae and Freddie Mac have always been politically aligned with the Democratic party. They have historically been big campaign contributors to Democratic candidates, but recently the donations have been spread more evenly between the two main parties because the Republicans have controlled the GSEs regulator.





The stated purpose of Fannie an Feddie has been to make housing more affordable. This goes directly contrary to the primary goal of the Republican party which is to squeeze as much wealth out of the middle class as possible and transfer it to their rich and powerful allies.



The GSEs have been in competition with Wall Street investment banks in the securitization market, and they also have a goal of extracting as much wealth as possible from the American people. For that matter, the investment banks constitute the most important "rich and powerful allies" of the Republican party.





Hank Paulson left his job as CEO of Golman Sachs to run the Treasury Department. He has been the major architect of the plan to take over the Fannie and Freddie. The deal has clearly been designed to cripple the institutions over the long term, and eliminate their ability to help out Democratic candidates in the short term.



One of the restrictions put on the GSEs is for them to immediatly stop their lobbying efforts.





There had been much speculation that the Treasury would inject capital into the firms in order to support them as strong entities. Instead they just pledged to provide enough capital to keep them solvent. This would be in the form of preferred shares that payed 10-12% interest.



The goal clearly is to cripple them financially. This ensures that their impact will be minimal even if Democrats eventually regain control and try to revitalize them.



The portfolio caps are lifted so that they can buy up as much toxic mortgage debt as possible and take some pressure off of the banks who are struggling from the housing crash. However, Fannie and Freddie will have to start dramatically reducing their own portfolio holdings in 2010, presumably preventing them from doing well after the market recovers. Just as they were forced to limit their growth as the last housing boom really took off, they will likely be forced to contract when the housing market is finally set to recover.





Press releases from the Treasury Department:

http://www.treasury.gov/news/index1.html</em>
 
[quote author="muzie" date=1220858508]The futures are indicating the market likes this quite a bit so far, much to my dismay, while the japanese index is down. Americans eternal optimists, japanese eternal pessimists, it seems.



Dollar not liking it that much, though asian currencies are falling with respect to it so far. Sorry Panda!</blockquote>


Patience my friend. Never under estimate the power of the China man's currency. Panda is long on the Yuan. Asia will be hurt the most in the short-term (compared to Europe) from United States's recession. Long term, Panda's bets are on Asia.
 
[quote author="muzie" date=1220858942][quote author="awgee" date=1220858370]Isn't that what defines a financial collapse?</blockquote>


Perhaps, though fiat currencies are built to crumble. The only difference between crumbling and collapsing is the rate of the deterioration.



But, at any rate, it is the logical fate for any system built on a store of value which only exists in the imagination.
 
I respectfully disagree Awgee and defer to CR, who I agree with:



<blockquote>The cost to taxpayers is also very unclear. It is possible that taxpayers will not be negatively impacted in the long run. This depends heavily on the losses in the retained portfolios of Fannie and Freddie, and the cash flow from the good portion of the portfolio, and also on future defaults and house prices. Even if the Treasury has to purchase $50 billion or $100 billion in senior preferred shares to maintain the positive net worth of Fannie and Freddie, the Treasury will own the first equity in line to be paid off from future profits (assuming future profits). This makes the losses very unclear.

</blockquote>


<a href="http://calculatedrisk.blogspot.com/2008/09/fannie-freddie-thoughts.html">http://calculatedrisk.blogspot.com/2008/09/fannie-freddie-thoughts.html</a>



The doom and gloomers said the same thing after they bailed out the S&Ls;. Considering that F&F are 70% of the market share of loans underwritten, I expect that they will increase YSPs, and ultimately the government will be made whole.



What I would hope would happen would be more along the lines of what exists for farmers via the USDA, the FSA aka "Lender of Last Resort".



<a href="http://www.fsa.usda.gov/FSA/webapp?area=home&subject=fmlp&topic=landing">http://www.fsa.usda.gov/FSA/webapp?area=home&subject=fmlp&topic=landing</a>



But that's just me, and I doubt it happens because too many folks are afraid of big government. Right up to the point where those same folks need big G to come bail thier sorry butts out.
 
[quote author="no_vaseline" date=1220867739]I respectfully disagree Awgee and defer to CR, who I agree with:



<blockquote>Even if the Treasury has to purchase $50 billion or $100 billion in senior preferred shares to maintain the positive net worth of Fannie and Freddie, the Treasury will own the first equity in line to be paid off from future profits (assuming future profits). This makes the losses very unclear.

</blockquote>
</blockquote>


Just curious, where will the Treasury Dept. get the $50 billion or the $100 billion or ... ? Profits? Like the USPS? or Medicare, or ... ? It is possible there will be profits, but what are the probabilities? And how would they be discovered or measured? Government accounting?
 
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