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Fannie Mae, Freddie Mac and some good old government intervention
TCB
Registered User regular
Registered User regular
The federal government took control of Fannie Mae and Freddie Mac today in a bid to keep the two mortgage giants from failing, catastrophes that would have made home loans harder to get and taken the nation's housing collapse to a new level of crisis.
The rest of the story.
Not entirely sure how the government is going to solve these problems but go ahead and try. Looks like I won't be getting that house in the near future. I really think that we're going in over out heads. Spending money we don't really have. Plus, having the government have to take over the biggest mortgage company in the country, that isn't exactly going to look well to the rest of the world. I think this could very well be something that's going to cause problems.
The rest of the story.
Not entirely sure how the government is going to solve these problems but go ahead and try. Looks like I won't be getting that house in the near future. I really think that we're going in over out heads. Spending money we don't really have. Plus, having the government have to take over the biggest mortgage company in the country, that isn't exactly going to look well to the rest of the world. I think this could very well be something that's going to cause problems.
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All government control will do is keep the clearly incompetent mortgage industry from screwing the economy by overreacting to their own idiotic embrace of clearly unsupportable exotic loans. And for once we've decided to skip the whole "privatize gains and socialize loses" and instead let the people who screwed the pouch suffer while the rest of the population isn't punished.
What. The. Fuck.
Not really.
The executives are out, and the investors are almost sure to find themselves punished pretty brutally financially. The mortgages and related debt are the only thing the government has guaranteed.
edit: And socialism isn't a dirty word, especially when it's purely as a lender-of-last-resort in a extremely competitive market. If the government is going the guarantee that service, there's no reason we should be paying someone else to do it poorly and at a profit.
We are where we are because of deregulation. People don't get to bitch about socialism and big government when we have to do this because of stupid fucking conservative fundamentals.
It's not no risk. These people aren't being 'bailed out'. They lose everything.
my only question is does this mean that you can no longer walk away from a freddie or fannie mortgage? i know that student loans are nondefaultable since they are federally funded but it kind of sounds like the government is just saying "a loss is a loss" which is odd for them to do without trying to recoup.
Seriously. I don't understand how anyone can look at the housing crisis and not see how stupid excessive deregulation is.
My statement wasn't an opinion on the situation.
There was a brief discussion of socialism in another thread where I explained that socialism is fairly well ingrained in American culture, regardless of how much bitching the Right do about it.
To paraphrase myself, "Right wing love socialism when it comes from tax breaks and incentives. They hate it when it comes to giving up corporations or helping someone."
Like the pundits on TV and Blogs who decry that Obama will turn the US into a socialist state.
We've been well entrenched in socialism for quite some time.
The benefits are just pretty well hidden, and the consumer/little man largely gets them in the form of cheaper goods, while corporations get to pocket all that extra cash instead of giving it back.
Still, I disapprove of this as well. I understand it's necessary to prop up the economy and keep construction-related businesses from collapsing, but it's pretty repulsive from a "privatize profits, socialize losses" point of view.
Speaking of which, can anyone summarize the particulars of how executives and investors are being punished? I want to know if I can stop being repulsed by this.
That is a pack of lies. I've lived under an out-and-out socialist government. Government ownership or control of certain industries or services is not socialism.
Communism, w/e.
still no
What else would you call collective ownership of a business through the government?
According to the article, a ton of executives are getting fired and the stock price will probably go through the floor.
Gotta love the corporate veil.
I'm still not sure about this, though. Is that a sufficient punishment for practically tanking the housing industry? A friend of mine is a drawaller who normally commands $40+ / hr, but lately he's having trouble making just enough to pay rent.
To put it another way, what would happen to them with no government bailout? Putting aside the implications for the rest of the economy, what would executives and investors be dealing with if they had to bear the full burden themselves? Is this bailout in any way beneficial for the jackasses who got us into this mess?
Before, they were ACTING like it was no risk, even though it wasn't.
Edit: Although, I should note, they were using tactics to "reduce" risk, by taking into account what percent of loans they expected would fail. More failed.
Putting aside the implications for the rest of the economy...I don't know. My cynical side believes that all the executives have golden parachutes with platinum ripcords, and would've just gotten richer as the corporation crumbled. Individual investors would lose their shirt, hurting the economy.
The Feds assume trillions more in risk, and to cap it off, they do the whole thing just by calling in the top execs and telling them to hand over $2b in stock for no payment. That's some good old-fashioned nationalization of industry. We have started wars with other countries and deposed regimes in covert operations for doing exactly what we are doing now.
F&F insure prime mortgages much more than subprime. If you're looking for someone who needs to be punished for the housing crisis, you're looking in the wrong place.
One can certainly make a case as to how much those things caused this, just as I could make a case as to just how much deregulation in GLBA caused this.
The fact is that the real reason for this was that a housing/mortgage boom was fueling itself through new technology and business structures that got out of control before anyone knew what regulations ought to apply to them. Lenders were lending to people who "couldn't pay," except those borrowers were using those loans to buy houses that were skyrocketing in value, so it ended up that they could pay once they realized their new real estate wealth. Mortgage clearing houses were buying up all these mortgages and packaging them like stocks and selling off pieces of them, and analysts were rating those securities as "stong buys." Investors were buying them up, which firehosed more capital into mortgage investors, which, in combination with the spread of PC and Internet computing technology, made it even easier for lenders to give out crazier and crazier loans to worse and worse lenders, who then could go out and buy even more expensive homes, driving the housing market up more and more, and it all repeats. Eventually the difference between paper and reality stretched so far that it all fell apart. Blaming "deregulation" for all that doesn't quite explain it.
As for socialism or a bailout, these were always federally-chartered, quasi-government entities to begin with, and like everyone said, executives and shareholders are getting the screw, so just who do you think is getting bailed out here?
That being said, this looks like it isn't going to be a get-out-jail-free card with the government stepping in here. They're chopping off the dividends on both the common and preferred stock, and they are probably going to tank if they haven't already this morning. I know from firsthand experience that there are going to be a lot of investors that are going to be none too thrilled about this, and there are going to be more than a few banks that take a big kick in the pants as a result.
As much as companies who do stupid things deserve to go bankrupt, this really isn't a simple situation. As Savant said, Fannie and Freddie aren't *really* private companies, plus the ripple effect of them closing up shop would hurt nearly everyone, libertarian and communist alike. Probably the biggest factor is that the government won't just be writing a huge check from the taxpayers, but rather come out somewhere near zero considering the huge dollar amounts involved. All in all, the loan guarantees and take-over really do seem like sound policy.
If you ever need to talk to someone, feel free to message me. Yes, that includes you.
Uh, actually, Government owned or controlled industries are socialism. Out government now controls the mortage industry.
Socialism.
control is the wrong word, our government insures the mortgage industry against losses. so its kinda like our government banks the mortgage industry.
unless it turns out they actually tell fm&fm what to do, i wouldnt call it control.
Good. They were assholes who blindly clammored for more profit. The executives obliged by pushing less regulation and totally irresponsible loans.
It's like building a gold mine six inches under your headquarters. Except they screwed everyone else along with themselves.
but they're listening to every word I say
Except there really isn't anyone to transfer to. They were really the one and only. This is a product of deregulation. Hell they were full blown government agencys until the sixties. Then they got privitized and the investors pushed for more profits. They lobbied hard and the government looked the other way. If anything this is totally free market capitalism screwing us over.
If this was socialism the company never would have been privitzed and this never would have happened.
Now you could argue that having it private spurred more growth and allowed more people to buy houses. But a treasury department study says that is bullcrap. Very little savings were passed on to consumers but instead were passed on to executives and shareholders.
but they're listening to every word I say
Im not really sure, but I heard it went out with some privitization frenzy in the late 60s. Then FRMC was made to compete with FRMA.
According to here Johnson sold it to try and bail us out of some vietnam war debt to get a paper victory so he could look good
edit: what a dick....
but they're listening to every word I say
You can't really say this for sure. There were people in government pushing these loans (heavily due to pressure from lobbyists to be sure) who would have tried to get F&F to securitize these loans.
I'm glad that this part of it happened. I was concerned that, due to the federal government's willingness to guarantee their risk, these investors wouldn't lose more than a minority of the value of the stock they own. Hopefully, the federal government allowing losses of this size will convince investors that these guarantees don't incentivize risky behavior.