Phil Graham was right. The whiners are everywhere:
The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives and prop them up financially, federal officials told the two companies yesterday, according to three sources familiar with the conversations.
Under the plan, which could prompt one of the most sweeping government interventions in financial markets in U.S. history, federal officials would place the firms under a conservatorship, a legal status giving the government the option and time to restructure and revive the companies, the sources said. The value of the companies’ common stock would be diluted but not wiped out, while the holdings of other securities, including company debt and preferred shares might be protected by the government. /blockquote>
Serious question. Why can’t we just let them fail. Why do we have to pay off the bill for what others lave looted?
*** Update ***
Can you say Neil Bush? I knew you could.
Some Guy
If you just believe you can pay your mortgage, then you can. It is all about attitude.
On a different note: the iron-fisted attempt to quash troopergate better get some serious national coverage and Obama’s surrogates better put the attempt to de-rail legitimate investigations for political reasons into there “more of the same” language.
Honestly, it does feel exactly the same with them. Everything. It is just a new figurehead with a young demagogue in training.
sparky
yeah it was an interesting Friday: we get to bail out the Chinese, and Andy McCain’s bank failed.
if i read the stories right (!) the common and most of the preferred stock will be wiped out. the bondholders have to be saved. we have no choice because…wait for it…how many guesses as to who holds those bonds?
yup. China.
meet your new overlords.
so in a real sense the empire is over as of yesterday and all this election stuff is just window dressing.
that said i sure hope someone starts pointing out that if they are not careful the US is about to elect a doddering angry fool and a sociopath in training.
Jake
Have you seen where McCain is now using this same “more of the same” language in his new ads? It’s clear that the attack is effective, and Obama should push back, HARD.
HARRY VERBERNE
PHIL GRAMM
sparky
ps: just to make it clearer as to who our new masters are–
the stockholders that will be wiped out will be US investors, like say *cough* TIAA-CREF and assorted doltish pension funds.
that would be you.
the Chinese and Saudi bondholders will be made whole.
sparky
on a brighter note, i’ll always get a good laugh when i hear some ninny in the US talk about how it has a “free market economy”
question: if the national debt just went up by say, 5 trillion (US, assuming yesterday’s um dollar) where should we store our pieces of it? i’m thinking U-stores for everyone!
lee
The Bush administration can even fuckup a bailout.
Unless the bushies are doing this so they can give wallstreet a nice 5 trillion dollar gift right before they leave.
These 2 are NOT the problem. They have strict guidelines that they MUST adhere to in order to own a loan. If you remember several years ago (like 10?), the NAACP and LULAC (sp?) got all pissed off because these 2 did not have enough minority loans. They both said “give us qualified buyers and properties and we’ll loan them money, but we are NOT dropping our standards”.
Their foreclousure rate is 1.2%.
The debt ratio is higher than it normally is, but it is not bad.
Their problem is all preception. Every THINKS they should be tanking because they are so large, so their stock price is down. When their stock price is down, they do not have enough captial to loan money so their business slows down.
FUCK FUCK FUCK.
Leave it to the Bushies to pick the absolute WORST option of all of them to fix a non-existent problem.
(not an expert, but have done a some research regarding these 2 as I was thinking about buying some of their stock at a bargain).
HeartlandLiberal
So? Bush has basically NATIONALIZED these companies.
He was just against socialism before he was for it, obviously.
So? Remember. IOKIYAAR
And of course we American taxpayers (except the super rich, of course) will be picking up the tab, for billions, trillions, hey, who is counting anymore?
After all, Bush and the Republicans were AGAINST big government before they were for it.
So what’s your point in reporting on this takeover again?
dslak
Yeah, well, the animated .pdf here humorously explains how investors got around those guidelines.
Conservatively Liberal
We are now all socialistic capitalists, as if there was any doubt of it in the past. They have privatized the profits and socialized the losses. We are the insurance policy, insurance that we pay for in more ways than one.
All of the crooks and bastards who made the outrageous sums that they did in ‘growing the market’ are able to walk away, leaving us holding the bag.
The rich get richer and the poor get fucked over. Freedom baby!
Shit.
NonyNony
Bush and the Republican Party in general have NEVER been against socialism of a certain kind – except for rhetorically.
Socialize the costs, privatize the profits. That’s their mantra for everything they do. It explains their environmental policies, their economic policies, their tax policies – everything that can’t be explained as “throwing a sop to the social conservatives” can be explained by socializing the costs and privatizing the profits. The blatant profiteering in Iraq and our current banking stupidness are both prime examples of this philosophy at work.
maxbaer (not the original)
Is this how that laissez faire economics is supposed to work?
AkaDad
The invisible hand just punched my junk.
wasabi gasp
Trickle Down Economics
Now with More Urine!
b-psycho
Every time I see crap like this, I wonder to myself why you never hear a Democrat incorporate pointing at this garbage and saying “Free market? What free market? All I see is welfare for rich people” into their stumping.
BTW: John, y’know you have a broken blockquote tag at the end?
/nitpick
Ninerdave
Because you’ll essentially destroy the mortgage market if they fail.
TenguPhule
I prefer to think of it as putting out it out of its misery.
TenguPhule
I’ve got bad news for you.
That’s not a hand.
Badtux
Tengu, the problem with destroying the mortgage market if Fannie/Freddie are allowed to fold is that this then reduces housing prices by about 90% because the only way to buy a home becomes cash. Which in turn pretty much says to people currently paying mortgage loans, “Hmm, I won’t pay my loan either, I’ll just walk away and pay cash for a new home.” The result is the complete collapse of all banks holding mortgages.
It is not possible to print enough money to prevent the collapse of the banking system in this doomsday scenario. The FDIC fund could in no way reimburse the holders of deposits in these institutions. What we’re talking about then is the disappearance of 90% of all money in America due to fractional lending effects, a scenario of galloping deflation a’la 1930-1932, where assets are transferred en masse to the ruling class that has cash on hand because loans taken out in cheaper dollars are no longer payable in more expensive dollars and thus the properties are foreclosed-upon and transferred en masse to the monied classes.
In short, the consequences of allowing Fannie/Freddie to collapse are far more drastic than you seem to believe. Basically the entire banking system then falls over like it got a neutron bomb blasted up its collective nostrils, and effectively all wealth in the U.S. gets transferred to the investor class. It is the “Mexico North” scenario, and even our glorious Republican leadership that sees little wrong with Mexico North is not stupid enough to believe that Mexico North is politically palatable at this time. So they will bail out Fannie/Freddie because they have to. But they do seem to be doing so while figuring out the best way to feather their own nests in the process, eh?
– Badtux the Banking Penguin
Nancy Irving
The answer seems to be that the preferred stock is widely held by banks, so that if the preferred stock is wiped out, many banks will fail, and that will mean the taxpayers will take an even geater hit if the FDIC insurance pool is wiped out.
I’m no expert and I don’t know if this is a legitimate reason, but it’s what I’ve heard.
jcricket
Too big to fail means too big period. This is why we have anti-monopoly and trust-busting laws. This is why we have (had?) media and industry consolidation limits (i.e. no bank can hold more than 10% of deposits in US).
A well regulated financial sector not only reduces risk to the US consumer (see above), but it also provides a level of transparency that investors seek, increasing overall investment. Compare the NYSE to the AMEX and you’ll see the good (read: don’t take the company’s word for it) regulation actually increases profits, investment returns, etc.
So honestly, I’ve stopped believing Libertarians have anything to offer regarding good policy ideas, except on the general concept of social liberty (and even there, I think progressives and liberals state it better).
lee
Freddie and Fannie are NOT part of the subprime mess.
NOT NOT NOT
They handled ZERO subprime loans. The subprime loans are a wallstreet creation which Freddie and Fannie are NOT a part of.
THIS IS NOT A &^%*$^$%* BAILOUT.
What the government is doing is raiding these 2 companies in order to bail out their wall street buddies (who have the subprime problem).
I do realize that something has to be done in order to help stablize the housing market because if the housing market implodes we are ALL fucked (and not in a good way).
But the Bushies looked down a long list of remedies and picked the WORST FUCKING option…again.
Monetarily freddie and fannie are in no real danger (managable debt load, low foreclosure rate, etc) the real danger for them was the ignorant press that was lumping them in with the subprime mess (which as a review…THEY HOLD ZERO subprime loans).
I’m telling you when historians are looking back at this and they get someone to run the numbers, they are going to figure out that this is flat out theft by the government.
I know John is on vacation but he should talk to someone in the accounting or economics department and see what they think of this (or Tim F if he does research at a University).
b-psycho
Badtux’ scenario shows exactly why neither of these companies should’ve ever been chartered in the first place. When you’re forced into a position where the only options are excusing a ponzi scheme or absolute disaster, clearly you fucked up a long time ago.
The socialization of costs for private benefit is a feature of the US economic system as we know it, not a bug. If it weren’t for the fallout possibly harming innocents I’d be all for just shutting the whole damn thing down right now.
Rome Again
lee, I understand that as secondary mortgage holders, you would think that Fannie and Freddie have no sub-prime holdings, but you’re wrong:
From the Wall Street Journal, April 20, 2007 Real Estate section:
Read the whole thing. You need a lesson in what’s really going on here.