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Fannie Mae, Freddie Mac and some good old government intervention

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    Manning'sEquationManning'sEquation Registered User regular
    edited September 2008
    http://www.house.gov/paul/congrec/congrec2002/cr071602.htm
    Congressman Ron Paul
    U.S. House of Representatives
    July 16, 2002

    Mr. Speaker, I rise to introduce the Free Housing Market Enhancement Act. This legislation restores a free market in housing by repealing special privileges for housing-related government sponsored enterprises (GSEs). These entities are the Federal National Mortgage Association (Fannie), the Federal Home Loan Mortgage Corporation (Freddie), and the National Home Loan Bank Board (HLBB). According to the Congressional Budget Office, the housing-related GSEs received $13.6 billion worth of indirect federal subsidies in fiscal year 2000 alone.

    One of the major government privileges granted these GSEs is a line of credit to the United States Treasury. According to some estimates, the line of credit may be worth over $2 billion. This explicit promise by the Treasury to bail out these GSEs in times of economic difficulty helps them attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy. Thus, the line of credit distorts the allocation of capital. More importantly, the line of credit is a promise on behalf of the government to engage in a massive unconstitutional and immoral income transfer from working Americans to holders of GSE debt.

    The Free Housing Market Enhancement Act also repeals the explicit grant of legal authority given to the Federal Reserve to purchase the debt of housing-related GSEs. GSEs are the only institutions besides the United States Treasury granted explicit statutory authority to monetize their debt through the Federal Reserve. This provision gives the GSEs a source of liquidity unavailable to their competitors.

    Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges of Fannie, Freddie, and HLBB have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

    However, despite the long-term damage to the economy inflicted by the government’s interference in the housing market, the government’s policies of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

    Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.

    No less an authority than Federal Reserve Chairman Alan Greenspan has expressed concern that government subsidies provided to the GSEs make investors underestimate the risk of investing in Fannie Mae and Freddie Mac.

    Mr. Speaker, it is time for Congress to act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors misled by foolish government interference in the market. I therefore hope my colleagues will stand up for American taxpayers and investors by cosponsoring the Free Housing Market Enhancement Act.

    Hey Yar,

    I Hate Ron Paul as much as the next guy but the crazy son-of-bitch was right in 2002.

    Manning'sEquation on
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    DasUberEdwardDasUberEdward Registered User regular
    edited September 2008
    I wish I would have put more into Wells Fargo instead of JP Morgan.

    DasUberEdward on
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    YarYar Registered User regular
    edited September 2008
    Thanks Manning. I'd never read that before but damn he makes a good case for a single cause to this whole mess. Everyone wants to blame this on a lack of government regulation but it is a direct result of government interference, not lack thereof.

    There is no doubt that government policies overwhelmingly favor home ownership as the answer to all of life's problems (and there's actually some evidence to support that notion), and through the FRMC, FNMA, CRA, and Reserve policies they just went too far in their quest to make sure anyone who could sign their name could get the house of their dreams.

    Yar on
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    SavantSavant Simply Barbaric Registered User regular
    edited September 2008
    Yar wrote: »
    Thanks Manning. I'd never read that before but damn he makes a good case for a single cause to this whole mess. Everyone wants to blame this on a lack of government regulation but it is a direct result of government interference, not lack thereof.

    There is no doubt that government policies overwhelmingly favor home ownership as the answer to all of life's problems (and there's actually some evidence to support that notion), and through the FRMC, FNMA, CRA, and Reserve policies they just went too far in their quest to make sure anyone who could sign their name could get the house of their dreams.

    Well, with some combinations of private and public sectors you get the worst of both worlds. The moral hazards and privatizing the gains but socializing the risk are recipes for disaster. Having them be kinda sorta private companies and kinda sorta government backed was a bad idea in the first place, but now we just have to navigate our way through the fallout. However, it would be an oversimplification to say that there was only one single cause for the problem.

    As for Ron Paul, and I've used this analogy before, but I think of him as a doctor who is quite good at diagnosing problems but prescribes amputation almost regardless the nature of the malady.

    Savant on
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    Alistair HuttonAlistair Hutton Dr EdinburghRegistered User regular
    edited September 2008
    Yar wrote: »
    Szech, a 3/1 40-yr ARM is a pretty bad loan, although it certainly could make sense to do it that way. ARMs are the way to go if you know you'll be selling in the next few years anyway. The 40-year thing just makes it more money to the bank's pocket and less money against what you owe every month, though at a reduced monthly cost and over a longer period of time. What bothers me is that you refer to it as a "3-yr fixed." It's about as unfixed as a loan can be. You can just renegotiate in 2010, or anytime before or after that for that matter. If home values are back up but rates are still low, you'll be able to score something nice. If both are still low, you may have trouble getting approved. If rates are up, it's a matter of which is better: the terms of your ARM at that time, or the terms of new loans being offered at the time.

    But if you have 60 - 75% equity then jebus you hardly even have a mortgage and any bank would be willing to make you a competitive offer, because it's practically risk-free for them.

    I wonder how much the difference between the UK an other mortgage markets is important here. In the UK people can shift mortgages pretty much on a whim unless you got the sketchiest of mortgages to start with. A 3 year fixed mortgage will probably include a penalty clause if you want to move during the fixed interest period but once that ends most banks let you move your mortgage for free, so you can move to another 3 year fixed mortgage at a different bank (or indeed the same bank). When my girlfriend moved her mortgage last she moved to a fixed rate mortgage at ING which had no arrangement fee so the total cost of moving the mortgage was £0 and she got a better interest rate.

    Anyway as Yar says, with a mortgage of only %25 of the property you will have your pick of the mortgage deals as banks will practically beat a path to your door with £0 arrangement fee deals. Unless your property was built in Cornwall, on a tin mine, and it's now fallen into the tin mine.

    Alistair Hutton on
    I have a thoughtful and infrequently updated blog about games http://whatithinkaboutwhenithinkaboutgames.wordpress.com/

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    YarYar Registered User regular
    edited September 2008
    You can do all of that here, too, except 1) penalties for early payoff are considered scams and looked down upon, though they do exist, so here we switch mortgages at will, however, 2) there are fees associated with closing on a mortgage, and generally the borrower has to pay all that or roll it into the loan.

    I think what you're failing to point out here is that even if you move to a new 3/1 (that's 3 years fixed, and afterwards can adjust every 1 year) - each time you move you're still getting a new rate at then-current market. Often when a rate adjusts it is subject to an annual maximum adjustment and a lifetime maximum adjustment (though not necessarily). That's what you need to consider. If you have a 5% rate that can only adjust 1% a year after the first three years, then after those three years if rates are at 8%, you're still better off keeping your 5% (6, 7, etc.) for the time.

    I still can't understand calling it a "3-yr fixed" though. Yeah, it's fixed for three years, but like I said, overall that's about as un-fixed as a loan can be.
    Savant wrote: »
    However, it would be an oversimplification to say that there was only one single cause for the problem.
    I agree, and have made that argument myself. But Ron mades a good case is all.

    Yar on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    @ YAR

    I am not sure you know what renegotiate means. He is not talking about going elsewhere. He is talking about what happens when his rate gets reset.

    Goumindong on
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    Alistair HuttonAlistair Hutton Dr EdinburghRegistered User regular
    edited September 2008
    Yar wrote: »
    I think what you're failing to point out here is that even if you move to a new 3/1 (that's 3 years fixed, and afterwards can adjust every 1 year) - each time you move you're still getting a new rate at then-current market. Often when a rate adjusts it is subject to an annual maximum adjustment and a lifetime maximum adjustment (though not necessarily). That's what you need to consider. If you have a 5% rate that can only adjust 1% a year after the first three years, then after those three years if rates are at 8%, you're still better off keeping your 5% (6, 7, etc.) for the time.

    Sezch's mortgage isn't a 3/1, when the fixed rate portion ends he goes onto the standard variable rate (also known as the tard rate), which sits at around 2% higher than the Bank of England's base rate. The Standard Variable Rate fluctuates on a whim with the BoE's base rate. So if the Bank of England was to go all Federal Reserve crazy and drop the interest rate down to, say, 1% in 3 years time the SVR would be around 3% and likewise if the BoE nudges up the interst rate to (unrealistically, 6% to try and combat our disappointingly high inflation (4.3%) then the SVR would be around 8%.

    There's pretty much no reason to be hanging around on the SVR as most mortgage lenders will offer a "Tracker" (read variable rate) mortgage at an interest rate lower than the SVR.

    Alistair Hutton on
    I have a thoughtful and infrequently updated blog about games http://whatithinkaboutwhenithinkaboutgames.wordpress.com/

    I made a game, it has penguins in it. It's pay what you like on Gumroad.

    Currently Ebaying Nothing at all but I might do in the future.
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    GoumindongGoumindong Registered User regular
    edited September 2008
    Yar wrote: »
    Thanks Manning. I'd never read that before but damn he makes a good case for a single cause to this whole mess. Everyone wants to blame this on a lack of government regulation but it is a direct result of government interference, not lack thereof.

    No, its retarded. The advantage that freddie and fannie had were substantial, but that by no means meant that that was the cause of the problem. There was no "wealth transfer from american homeowners to GSE debt holders" the advantage that the GSE's granted made rates lower which means that american homeowners were getting away with interest rates that were almost thievery.

    E.G. in the low end of the 70's you would pay 10% for a fixed rate homeloan with 20% down. In the early 80s, the rates peaked at 22%[inflation]. Now you can get a fixed rate for 6.5 or 5.5 if your credit is good.

    Talking about how there is wealth transfer from the american homeowner to GSE debt holders is fucking ridiculous. Even with the bailout, the GSE debt holders are going to get screwed, they bought a bunch of mortgage backed securities rated AAA that were actually shitty because of shitty lending practices and shitty rating companies[among other problems].

    Goumindong on
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    zeenyzeeny Registered User regular
    edited September 2008
    So, as this has become the de facto financials thread. What is the opinion on the short sell ban? Because...
    Cheetas!

    Yeah, he's bitter, but I agree. That's BS.

    Edit: That refers to the total ban for finances btw, not the naked ban.

    zeeny on
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    MuddBuddMuddBudd Registered User regular
    edited September 2008
    Bush finally says something of substance on the subject.


    My favorite bit:
    Separately, the Securities and Exchange Commission took what it called "emergency action" and temporarily banned investors from short-selling 799 financial companies.

    "What we had, in effect, was a dam that was sprouting lots of cracks and lots of leaks," said Bernard Baumohl, chief global economist for The Economic Outlook Group. "For the last several days, the Federal Reserve and the Treasury were trying to plug each of these holes as they were appearing. What they decided to do today was to put up a whole new dam."

    This is the federal government's most far-reaching intervention in the financial markets since the Great Depression of the 1930s.

    "They did what they had to do," said Baumohl. "They were facing a Category 5 financial hurricane that really threatened the entire global financial architecture."

    ...hurricane metaphor?

    Burn

    MuddBudd on
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    MalkorMalkor Registered User regular
    edited September 2008
    So it isn't that short selling is bad, it's short selling and giving out "information". Right?

    Malkor on
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    YarYar Registered User regular
    edited September 2008
    Goumindong wrote: »
    I am not sure you know what renegotiate means. He is not talking about going elsewhere. He is talking about what happens when his rate gets reset.
    Either way you are talking about a new mortgage. I'm not sure I understand what you think renegotiate means.
    Sezch's mortgage isn't a 3/1, when the fixed rate portion ends he goes onto the standard variable rate (also known as the tard rate), which sits at around 2% higher than the Bank of England's base rate. The Standard Variable Rate fluctuates on a whim with the BoE's base rate. So if the Bank of England was to go all Federal Reserve crazy and drop the interest rate down to, say, 1% in 3 years time the SVR would be around 3% and likewise if the BoE nudges up the interst rate to (unrealistically, 6% to try and combat our disappointingly high inflation (4.3%) then the SVR would be around 8%.

    There's pretty much no reason to be hanging around on the SVR as most mortgage lenders will offer a "Tracker" (read variable rate) mortgage at an interest rate lower than the SVR.
    This doesn't add up, though. You get 3 years fixed, and then it immediately goes to 2% more than what you could get anywhere else for free... what is the point? Just to needlessly make people redo paperwork every three years? What possible incentive could the bank or government have for such a structure?
    Goumindong wrote: »
    No, its retarded. The advantage that freddie and fannie had were substantial, but that by no means meant that that was the cause of the problem. There was no "wealth transfer from american homeowners to GSE debt holders" the advantage that the GSE's granted made rates lower which means that american homeowners were getting away with interest rates that were almost thievery.
    Don't misquote to scramble the message. The wealth transfer was from American workers to GSE debt holders. In other words, our income taxes funding sources of capital only available to GSEs that unduly influenced the market. Since FRMC and FNMA dominated the secondary mortgage market, and since their failures are the biggest tipping point in this whole ordeal, I don't see how you can discount it so easily. And I don't know if you've been watching the news or anything lately, but your assessment that American homeowners are making out like thieves... that was the bubble. Fueled primarily by government intervention and carried along by greedy rating analysts, appraisers, investors, lenders, borrowers, scammers, fradusters, etc. Then it popped. Which is what we're talking about.

    People being greedy can't create a bubble. People are always greedy.

    I agree with all the reasons why Fannie and Freddie are great institutions to have around, and their positive effects. The government pushed home ownership too hard, though, pumping up these institutions with tax dollars instead of what the market would bear (and also through Fed policy and CRA and other stuff), and eventually created an inflated market space where greed could feed on itself.
    Goumindong wrote: »
    Talking about how there is wealth transfer from the american homeowner to GSE debt holders is fucking ridiculous.
    Well, you're the one who said it; no one else did.

    Anyway, as for short-selling, yeah. It's a legitimate transaction, but it's betting against a company. Basically, you tell someone that you'll sell them X # of shares at today's price, but you won't actual hand them over until a future date. Presumably at which point you could buy them a lot cheaper. The problem is that right now it's financial companies who are in trouble, and people in that same industry are the ones who do short-selling, and so it's way too easy to short-sell the heck out of a financial company and then call all your buddies and tell them that you know guys at that company and you heard they were next to be taken over by the Fed. That last part is the clearly illegal part, but it's a lot easier to ban short-selling for now then to investigate every short-sell and try to enforce laws against spreading rumors. Stuff like this doesn't go on in normal markets, most people would ignore you if you tried to spread a rumor that a company was about to go to pot. Only when things get wild like right now does it become a problem.

    Yar on
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    SavantSavant Simply Barbaric Registered User regular
    edited September 2008
    Malkor wrote: »
    So it isn't that short selling is bad, it's short selling and giving out "information". Right?

    I don't think there's anything inherently wrong with shorting if the markets are in normal shape. Yar basically explained what is going on with them. The "information" angle is that they can be useful to open up gains for motivation to find hidden weaknesses in businesses.

    With normal buying and selling of stock you are limited in your losses to just how much money you put in to buy the stock, but with short selling the potential for losses is unlimited as you lose money proportionally to increases in the stock price.

    Naked short selling is very risky, where you take a short position but don't first borrow the shares. Recently McCain's been badgering on about naked short selling, but from what I can tell there were already measures in place to clamp down on it before this mess started.

    Savant on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    Yar wrote: »
    Goumindong wrote: »
    I am not sure you know what renegotiate means. He is not talking about going elsewhere. He is talking about what happens when his rate gets reset.
    Either way you are talking about a new mortgage. I'm not sure I understand what you think renegotiate means.
    No, he is not talking about a new mortgage. That is the issue. He was talking about what happened after his 3 year fixed rate was up.


    This doesn't add up, though. You get 3 years fixed, and then it immediately goes to 2% more than what you could get anywhere else for free... what is the point? Just to needlessly make people redo paperwork every three years? What possible incentive could the bank or government have for such a structure?

    BoE == The fed. You cannot get a loan at the fed funds rate in the U.S. unless you are a bank. The BoE will raise rates in order to stave off inflation and lower rates in order to encourage lending. This is the rate his SVR will be tied to according to Hutton
    Don't misquote to scramble the message. The wealth transfer was from American workers to GSE debt holders. In other words, our income taxes funding sources of capital only available to GSEs that unduly influenced the market. Since FRMC and FNMA dominated the secondary mortgage market, and since their failures are the biggest tipping point in this whole ordeal, I don't see how you can discount it so easily. And I don't know if you've been watching the news or anything lately, but your assessment that American homeowners are making out like thieves... that was the bubble. Fueled primarily by government intervention and carried along by greedy rating analysts, appraisers, investors, lenders, borrowers, scammers, fradusters, etc. Then it popped. Which is what we're talking about.

    I am not misquoting anything. Its retarded. Even with the federal bailout the GSE's owners got shafted. They are going to get shafted. There was no wealth transfer from workers to GSE debt owners. Especially not in 2002 which was before the lending practices changed that started allowing these crazy as shit loans.

    American homeowners were making out like thieves, and it was the bubble. But it was not fueled primarily by government intervention. Not even close. You're making the same mistake that everyone lambasted Palin for[almost unfairly, since she was not talking in 2002]. There was no government money going into the GSEs. None, nada, zilch. There was an implicit backing on the private funds, but there was no funding. And when it collapsed the people who owned the debt are still getting screwed. The implicit backing holds up the institution but not the value of the mortgages which investors have dropped like hot potatoes. The value of the mortgages is what drives the value for the debt holders. They're fucked.

    This crisis is primarily a function of the markets lack of trust for mortgage backed securities especially in the sub-prime area. The problem is these loans and the prices of the loans. Not the housing prices[which were a function of low interest rates, and shoddy lending practices]. Here is a quick econ 101 lesson for you. When lending practices are lower, the cost of buying a home is decreased assuming everything else is equal. So, assuming everything else is equal the price of a home will go up.

    Do you see where I am going with this? I hope you do, because it means you're wrong. Lending practices decline, real cost of buying a home declines, more people buy homes, prices increase, interest rates lower, price increase further. Speculation furthers the deal. Housing exemption taxes didn't change. People didn't suddenly start buying more houses just because. Its the lending.

    Goumindong wrote: »
    Talking about how there is wealth transfer from the american homeowner to GSE debt holders is fucking ridiculous.
    Well, you're the one who said it; no one else did.
    Anyway, as for short-selling, yeah.

    You don't even have to start the rumor. A sell order indicates that someone thinks something is up, which is likely to reduce the price. If you're shorting enough of the market someone will take notice when 5-10% of a company sells its shares.

    E.G.

    http://finance.yahoo.com/echarts?s=GNW#symbol=GNW;range=1d

    Look at the 18th. We have about 15-25% of the company being sold[this was the day before the naked ban] with total orders of 46 million shares[160-200m shares total iirc]. This is a fortune 500 company with a 6 billion dollar market cap, but since its stock depends on the market price and since anyone can short sell, you can, if you have enough money, dump prices. It doesn't take much market collusion or even a single agent to make these things. Harder for the big companies, but many are still vulnerable. After the naked ban, prices go up since the market is less vulnerable to manipulation[less risk], after the full ban[which included GNW i presume], prices go up again.

    This, minus the short selling, is supposedly also happening to a lot of the mortgage backed securities. Volume is so low, that anyone selling can drive the price down simply by their action.

    You can actually do the same thing when you have a low volume product. Sell it and the price goes down. When the price is lower, buy the product again. Might as well call it the "day trader" tax.

    Goumindong on
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    Manning'sEquationManning'sEquation Registered User regular
    edited September 2008
    So I here the government wants each of us to pay $3,333 to help get these companies out of trouble.

    http://www.politico.com/news/stories/0908/13602.html

    So here is the question would you rather,

    1. Keep your $3,333 and spend it the why you want to spend it.
    2. Pay the government which pays the companies $3,333.
    3. Burrow the money from future generations.

    Sounds like we have a poll for the thread...


    Edit: Contact your senator and tell them which option you would like to pursue.

    http://www.senate.gov/general/contact_information/senators_cfm.cfm

    Manning'sEquation on
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    CauldCauld Registered User regular
    edited September 2008
    So I here the government wants each of us to pay $3,333 to help get these companies out of trouble.

    http://www.politico.com/news/stories/0908/13602.html

    So here is the question would you rather,

    1. Keep your $3,333 and spend it the why you want to spend it.
    2. Pay the government which pays the companies $3,333.
    3. Burrow the money from future generations.

    Sounds like we have a poll for the thread...

    this is a false representation of the situation. But, knowing only a vague outline of the proposed plan I'd choose 3.

    Cauld on
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    Manning'sEquationManning'sEquation Registered User regular
    edited September 2008
    Cauld wrote: »
    So I here the government wants each of us to pay $3,333 to help get these companies out of trouble.

    http://www.politico.com/news/stories/0908/13602.html

    So here is the question would you rather,

    1. Keep your $3,333 and spend it the why you want to spend it.
    2. Pay the government which pays the companies $3,333.
    3. Burrow the money from future generations.

    Sounds like we have a poll for the thread...

    this is a false representation of the situation. But, knowing only a vague outline of the proposed plan I'd choose 3.


    I agree it is a slight misrepresentation, but it gets the point across. The fact is the government could get really screwed or it could be just sorta painful. Either way I would need to see a very compelling case before I pay for someone elses sins. After all I am not Jesus.

    In a perfect world I think I vote of the people is not out of line. To bad we don't live in a perfect world.

    Manning'sEquation on
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    CauldCauld Registered User regular
    edited September 2008
    Cauld wrote: »
    So I here the government wants each of us to pay $3,333 to help get these companies out of trouble.

    http://www.politico.com/news/stories/0908/13602.html

    So here is the question would you rather,

    1. Keep your $3,333 and spend it the why you want to spend it.
    2. Pay the government which pays the companies $3,333.
    3. Burrow the money from future generations.

    Sounds like we have a poll for the thread...

    this is a false representation of the situation. But, knowing only a vague outline of the proposed plan I'd choose 3.


    I agree it is a slight misrepresentation, but it gets the point across. The fact is the government could get really screwed or it could be just sorta painful. Either way I would need to see a very compelling case before I pay for someone elses sins. After all I am not Jesus.

    In a perfect world I think I vote of the people is not out of line. To bad we don't live in a perfect world.

    I mean, you're right they screwed up. But the government not helping them kind of screws everybody, so there's that. I also don't think it will end up costing tax payers $3,333 each in the end.

    Cauld on
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    DmanDman Registered User regular
    edited September 2008
    Cauld wrote: »
    So I here the government wants each of us to pay $3,333 to help get these companies out of trouble.

    http://www.politico.com/news/stories/0908/13602.html

    So here is the question would you rather,

    1. Keep your $3,333 and spend it the why you want to spend it.
    2. Pay the government which pays the companies $3,333.
    3. Burrow the money from future generations.

    Sounds like we have a poll for the thread...

    this is a false representation of the situation. But, knowing only a vague outline of the proposed plan I'd choose 3.

    It's not like the government can instantly tax everyone an additional $3,333 so your pretty much guaranteed to be taking option 1 or 3. Really, the government will ultimately be buying the home-owner debts, so if housing markets improve in the future the government could get their money's worth out of this. Unless I'm missing something.
    Of course, that isn't why the government is doing it, the housing market isn't exactly somewhere the government typically invests money, they just feel they need to stave off further market instabilities.

    Dman on
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    YarYar Registered User regular
    edited September 2008
    Goumindong wrote: »
    BoE == The fed. You cannot get a loan at the fed funds rate in the U.S. unless you are a bank. The BoE will raise rates in order to stave off inflation and lower rates in order to encourage lending. This is the rate his SVR will be tied to according to Hutton
    I still don't think we're understanding each other here. I know what the Bank of Engladn is and how lending works. But why the hell bother giving someone 3 years fixed? Exactly what do you propose this "renegotiation" will entail at the end of the three years? I still don't understand and something is definitely missing.
    Goumindong wrote: »
    I am not misquoting anything. Its retarded. Even with the federal bailout the GSE's owners got shafted. They are going to get shafted. There was no wealth transfer from workers to GSE debt owners. Especially not in 2002 which was before the lending practices changed that started allowing these crazy as shit loans.
    Yeah, you did misquote, and it was a "promise" of wealth transfer. The government guaranteeing a $2 billion line of credit gave them exactly what they needed to be more risky than they should have been. They had $2 billion in free promised money in case they screwed up. In addition, their ability to sell mortgages right to the Fed also gave them liquidity and capital they shouldn't have had.
    Goumindong wrote: »
    This crisis is primarily a function of the markets lack of trust for mortgage backed securities especially in the sub-prime area. The problem is these loans and the prices of the loans. Not the housing prices[which were a function of low interest rates, and shoddy lending practices]. Here is a quick econ 101 lesson for you. When lending practices are lower, the cost of buying a home is decreased assuming everything else is equal. So, assuming everything else is equal the price of a home will go up.
    Yeah we've been through the various reasons over and over. You aren't even giving half of them. But you have to ask yourself why lending practices lowered. It was not, as you say, "just because." The answers lie in 1) technology and 2) government intervention on behalf of promoting home ownership.
    Goumindong wrote: »
    You can actually do the same thing when you have a low volume product. Sell it and the price goes down. When the price is lower, buy the product again. Might as well call it the "day trader" tax.
    It would be that easy, if it weren't for the fact that "low volume" means you aren't going to have many day traders interested in making those deals. The conditions of your hypothetical contradict, though I'm sure it can and does happen.

    Yar on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    Yar wrote: »
    Goumindong wrote: »
    BoE == The fed. You cannot get a loan at the fed funds rate in the U.S. unless you are a bank. The BoE will raise rates in order to stave off inflation and lower rates in order to encourage lending. This is the rate his SVR will be tied to according to Hutton
    I still don't think we're understanding each other here. I know what the Bank of Engladn is and how lending works. But why the hell bother giving someone 3 years fixed? Exactly what do you propose this "renegotiation" will entail at the end of the three years? I still don't understand and something is definitely missing.

    The "renegotiation" is what happens when his rate changes. Its a kind way of saying "your rate is going to change". They bother giving him 3 years fixed because people look at teaser rates and think that that is what they will be paying.
    Yeah we've been through the various reasons over and over. You aren't even giving half of them. But you have to ask yourself why lending practices lowered. It was not, as you say, "just because." The answers lie in 1) technology and 2) government intervention on behalf of promoting home ownership.

    government intervention relaxing regulating practices is exactly what Paul was proposing, that is what happened!
    It would be that easy, if it weren't for the fact that "low volume" means you aren't going to have many day traders interested in making those deals. The conditions of your hypothetical contradict, though I'm sure it can and does happen.

    Don't need many to make it work.
    Yeah, you did misquote, and it was a "promise" of wealth transfer. The government guaranteeing a $2 billion line of credit gave them exactly what they needed to be more risky than they should have been. They had $2 billion in free promised money in case they screwed up. In addition, their ability to sell mortgages right to the Fed also gave them liquidity and capital they shouldn't have had.

    This doesn't matter. The GSE debt holders would have been holding other debt instead [albeit slightly less of it] and they ended up getting fucked. The liquidity and capital they shouldn't have had did not hurt the American worker or homeowner, it hurts other competitive businesses. Which there were few of until regulations relaxed allowing more companies to get in the game.

    The entire characterization is wrong and the thought process that went into it flawed.

    Goumindong on
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    AngelHedgieAngelHedgie Registered User regular
    edited September 2008
    Oh, to all the people trying to peddle the "argument" that the CRA is to blame for this mess:

    Go peddle your bullshit elsewhere.

    AngelHedgie on
    XBL: Nox Aeternum / PSN: NoxAeternum / NN:NoxAeternum / Steam: noxaeternum
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    YarYar Registered User regular
    edited September 2008
    Goumindong wrote: »
    The "renegotiation" is what happens when his rate changes. Its a kind way of saying "your rate is going to change". They bother giving him 3 years fixed because people look at teaser rates and think that that is what they will be paying.
    We should probably drop this because no one seems to understand what the other is talking about. My only point was that if you are fixed for three years, then at the end of the three years you are going to be facing then-current rates (or worse), whether you stay with you existing loan or find a new one. So getting another fix at that time isn't necessarily the best idea, especially opposed to getting a longer fix now. Everyone kept jumping on me saying that's not how it works in the UK or whatever but I'm pretty sure it is how it works everywhere.
    Goumindong wrote: »
    government intervention relaxing regulating practices is exactly what Paul was proposing, that is what happened!

    Let's look at some more historical info. I've added a lot of bold.

    http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=print
    The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

    Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

    The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios...

    The administration's proposal, which was endorsed in large part today by Fannie Mae and Freddie Mac, would not repeal the significant government subsidies granted to the two companies. And it does not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enables them to issue debt at significantly lower rates than their competitors. Nor would it remove the companies' exemptions from taxes and antifraud provisions of federal securities laws...

    ''The current regulator does not have the tools, or the mandate, to adequately regulate these enterprises,'' Mr. Oxley B]Republican[/B said at the hearing. ''We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal Housing Enterprise Oversight,'' the independent agency that now regulates the companies...

    ''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

    Representative Melvin L. Watt, Democrat of North Carolina, agreed.

    ''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.

    tl;dr: Bush and the Republicans recognized that government subsidies and promises had created an overblown and out-of-control mortgage market 5 years ago and proposed authority to tighten down lending and capital requirements. Democrats, in the interest of more homes for more people who don't qualify, shot it down.

    Let's hear it a couple years later from the current Republican candidate for Presiency:
    Mr. President [of the Senate], this week Fannie Mae's regulator reported that the company's quarterly reports of profit growth over the past few years were "illusions deliberately and systematically created" by the company's senior management, which resulted in a $10.6 billion accounting scandal.

    The Office of Federal Housing Enterprise Oversight's report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae's former chief executive officer, OFHEO's report shows that over half of Mr. Raines' compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

    The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

    For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac--known as Government-sponsored entities or GSEs--and the sheer magnitude of these companies and the role they play in the housing market. OFHEO's report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO's report solidifies my view that the GSEs need to be reformed without delay.

    I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190 [sponsored by four Republicans], to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

    I urge my colleagues to support swift action on this GSE reform legislation.

    Republicans tried for years to resolve this situation. The GSEs and their (Clinton-croney) executives were backed by billions in govt. credit, subsidies, tax exemptions, regulatory exemptions, and bailout promises. They were defrauding the companies of millions, and meanwhile any proposed regulation to reign them in got shot down as unfair to urban areas, minorities, and the poor.

    What evidence do you have the deregulation caused this? Are you going to trot out GLB again? That had nothing to do with this, and regardless, the increased regulation it proposed far outweighed and improved the situation over the deregulation it effected.
    Oh, to all the people trying to peddle the "argument" that the CRA is to blame for this mess:

    Go peddle your bullshit elsewhere.
    You have no argument here. Yeah, large heavily regulated banks who originated their own loans didn't piss their money away nearly as much as the two-bit lending operations that gave away free money and then sold the debt to government-sponsored entities. That's all this study shows. The greed and opportunity afforded the latter is what really got this bubble and crash underway, I know. The CRA, however, explicity required banks to lend more money to people who didn't have the proper paperwork or credit, and audited them on this and threatened shutdown if they did not comply. This, along with Federal Reserve policy, GSEs, and everything else, was a contributor to the lending market that got out of control.

    Greed and deregulation aren't the answer. If I have $200,000, no amount of greed or lack of laws could ever convince me that I should give it to someone who I know can't pay me back. That is retarded. The only reason I'd do that in the name of "greed" is if I knew there was someone out there stupid enough to buy the debt from me. That stupidity came in the form of government-subsidized GSEs, as well as rating analysts who saw the effect those GSes had and decided that maybe bad debt wasn't so bad after all.

    Yar on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    Hey Yar, way to completely ignore the fact that none of those subsidies did what you said it did. Get your head out of your ass and actually figure out what they do rather than just yell that "subsidies are bad omg" and that they must be the problem.
    Greed and deregulation aren't the answer. If I have $200,000, no amount of greed or lack of laws could ever convince me that I should give it to someone who I know can't pay me back. That is retarded.

    No, what is retarded is you. The people who were giving the money away were not the ones taking the risk. They were the ones getting payed to put the deals together. The guy who sells you a loan doesn't give a shit if it fails. He has already been paid. The guy who buys the loan isn't doing it with his own money, but someone elses. He gets paid when the deal goes through. The guys rating the loans got payed when the deal went through...

    When you give your money to a mutual fund company, the guy who is working the trades is not doing it with his own money. He is doing it with your money.

    And good fucking god, yes, you need regulation to prevent these things from fucking happening.

    Goumindong on
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    YarYar Registered User regular
    edited September 2008
    Good job not responding to my post. Or taking one quote out of context and then responding with what I already acknowledged.

    I never said that we needed less regulation. I said that government interference was a major cause of this mess, not deregulation, and attempts by Republicans to increase regulation in order to balance the problems created by government-sponsored mortgage backers were thwarted by Democrats in the Senate in the interest of more home ownership for more poor people.

    Do you have any evidence that ratings analysts got paid for closed mortgages? Everything I understood was that they simply rated bad debt well because the backing of the GSEs and the housing bubble made bad debt look just as good as good debt.

    Yar on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    Yes, and i explained how that "government interference" as you describe it was not a prime cause of the mess.

    Goumindong on
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    JragghenJragghen Registered User regular
    edited September 2008
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    themightypuckthemightypuck MontanaRegistered User regular
    edited September 2008
    I wish I could draw. I have some cool comics in my brain that will never escape. One thing I know: why they call these things "Panics".

    themightypuck on
    “Reject your sense of injury and the injury itself disappears.”
    ― Marcus Aurelius

    Path of Exile: themightypuck
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    zeenyzeeny Registered User regular
    edited September 2008
    The FBI is investigating "If investors were mislead about the risk associated with the company's mortgages business".....yes, that investigation is certainly going places.

    zeeny on
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    firewaterwordfirewaterword Satchitananda Pais Vasco to San FranciscoRegistered User regular
    edited September 2008
    Jragghen wrote: »
    2008-09-24.gif

    They learned their lesson in the first crash - now all the windows are made out of lexan. See: The Hudsucker Proxy.

    firewaterword on
    Lokah Samastah Sukhino Bhavantu
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