[MrBill]

$this->bbcode_second_pass_quote('Farmboy', 'T')he F&F bailout only shifts losses from one place to another. If F&F really screwed up and the losses are in the trillions this bailout won't change the outcome...higher interest rates and a devalued dollar.

[Tyler_JC]

I doubt that even a tiny fraction of these loans will be a total loss.

If the house is foreclosed on, it can be sold to a new owner or rented out.

The house doesn't vanish off the face of the Earth.

Loans to internet companies can be total losses because the companies have no real assets.

But residential real estate loans must be made with real assets (houses) to back up the loans.

Some of the homes will be vandalized and destroyed but the vast majority will just sit there a few years until the market corrects and renters can move back in.

[loveandrage]

This comes from a relative and friend giving his two cents .....

Big Business wants no government interference in good times, but wants government bail-outs when times are bad. This should not be allowed to happen.

If the entities failed, the failures would send a signal that the U.S. government will not bail them out. This would cause entities to use more prudent business practices, realizing that they would have to bear the consequences of their actions. As you stated, this is a basic principle of capitalism. (An opposing prediction is that instead of causing entities to use more prudent business practices, entities would focus even more on influencing and manipulating government,)

The Fannie and Freddie bail-outs are just the latest example of corporate welfare. This is nothing new. The federal government bailed out Chrysler about 30 years ago, Boeing about 5 years ago, and other companies. Our legislative "leaders" don't have the backbone to do what is right: let capitalism work by the principle of survival of the fittest. Unfortunately, America has evolved so that the "fittest" are not necessarily the fittest in running their corporations; they are the fittest in culling favor (through money, primarily).

In the end, entities' failures would be the best thing for this country overall. But, as you point out, we are not a true democracy; we are a plutocracy. The common denominator in all of this is greed.

--- Captain Kirk
Dallas, TX

[loveandrage]

$this->bbcode_second_pass_quote('MrBill', '
')We should not be in the position in the first place. How two quasi-public institutions came to be sitting on 80-percent of the US mortgage market without greater Federal oversight, and the mirage that they were not supported by an implicit guarantee is an international joke. But once the reality of the situation became clear policy makers had to sacrafice limb to save the patient's life. Not to have done so would have started an international stampede out of US treasuries and US dollars. As unpalatable as an open cheque policy towards Freddie and Fannie might be at least it guarantees their survival. Now step two is to nationalize them and finish the job.

[AlexdeLarge]

$this->bbcode_second_pass_quote('cube', '')$this->bbcode_second_pass_quote('MrBill', '.')..Sometimes I wish the US would default on their debts. Just to shut you people up! Then we will see how the little man prospers as the global financial system comes crashing down around his ears.

[Falconoffury]

The problems with Fannie Mae and Freddie Mac really started with their very inception. Entities with implicit government backing should never have been allowed to control such a huge percentage of mortgage lending. We aren't just at the end of a 6 year housing boom. It's really more of a 30 year housing boom.

I'm not saying that Fannie and Freddie were the sole reason for the housing bust. There was plenty of stupidity, greed, and fraud going around.

If Fannie and Freddie don't fail, the economy will fail one way or another. Realistically, the Treasury will have to spend hundreds of billions, or even over a trillion dollars to keep them alive. The problem is so big that there really is no solution. If the Treasury tries to rescue everybody, it would cost so many trillions, that the rest of the world would lose all faith in the US dollar. The dollar would lose reserve status as the world trades their dollars for other assets. If the Treasury doesn't rescue everybody, some big institutions will fail and the FDIC will be overwhelmed in short order. Over the next 2 to 3 years, the US has no solution that would stop mass failure in the economy. There is just too much debt going into default. In the words of Agent Smith, "It is inevitable."

[efarmer]

One of the things about GSEs like Freddie and Fannie is that
they have the implied support of the US Government. Since
I know that foreign central banks owned bonds from both
of them, I am assuming that Freddie and Fannie were further
leveraged for overseas finance. Mr. Bill or someone adept
please explain if this is the case or not. Did the buyers of
our bubble use it for leverage to blow bigger bubbles
around the world?

[MrBill]

$this->bbcode_second_pass_quote('efarmer', 'O')ne of the things about GSEs like Freddie and Fannie is that
they have the implied support of the US Government. Since
I know that foreign central banks owned bonds from both
of them, I am assuming that Freddie and Fannie were further
leveraged for overseas finance. Mr. Bill or someone adept
please explain if this is the case or not. Did the buyers of
our bubble use it for leverage to blow bigger bubbles
around the world?

[ReverseEngineer]

$this->bbcode_second_pass_quote('MrBill', 'T')here was $5 trillion at risk. Bankruptcy is bankruptcy. That there are assets (mortgages) that can be sold-off for their salvage value after the fact means very little if Freddie and Fannie's debts exceed their capital and they run out of liquidity. You still have to find a buyer for all those outstanding mortgages.

Merrill Lynch sold-off $30 billion of their CDS for 22-cents on the dollar, and are still on the hook if their value falls by more than $1.7 billion as a potential liability. Freddie and Fannie's mortgage book is substantially larger. And given the huge market consequences of their demise there would be even fewer Lone Stars out there with that type of liquidity willing to buy up all those assets.

As it is Freddie and Fannie are the only buyers of mortgages at the moment because no other banks have the capital or the risk appetite to take on those assets in a still falling housing market. Despite having access to the Fed window for additional liquidity.

If you want to look at it rationally there was no reason that the stock market crash in 1929 had to turn into the Great Depression, but it happened. That is the problem with financial crashes. They take on a llife of their own, and once the downward momentum starts no one can say with any certainty where they will end. And a financial tsunami wipes out everything in its path. Not just risky debt and poor lending decisions, but everything and everyone caught up in its path.

We should not be in the position in the first place. How two quasi-public institutions came to be sitting on 80-percent of the US mortgage market without greater Federal oversight, and the mirage that they were not supported by an implicit guarantee is an international joke. But once the reality of the situation became clear policy makers had to sacrafice limb to save the patient's life. Not to have done so would have started an international stampede out of US treasuries and US dollars. As unpalatable as an open cheque policy towards Freddie and Fannie might be at least it guarantees their survival. Now step two is to nationalize them and finish the job.

[loveandrage]

$this->bbcode_second_pass_quote('MrBill', ' ')

If you want to look at it rationally there was no reason that the stock market crash in 1929 had to turn into the Great Depression, but it happened. That is the problem with financial crashes. They take on a life of their own, and once the downward momentum starts no one can say with any certainty where they will end. And a financial tsunami wipes out everything in its path. Not just risky debt and poor lending decisions, but everything and everyone caught up in its path.

We should not be in the position in the first place. How two quasi-public institutions came to be sitting on 80-percent of the US mortgage market without greater Federal oversight, and the mirage that they were not supported by an implicit guarantee is an international joke. But once the reality of the situation became clear policy makers had to sacrafice limb to save the patient's life. Not to have done so would have started an international stampede out of US treasuries and US dollars. As unpalatable as an open cheque policy towards Freddie and Fannie might be at least it guarantees their survival. Now step two is to nationalize them and finish the job.

[RdSnt]

While answering another thread I fell on an idea that seems to make some sense.
If we put aside all the greed and corruption that has brought the global financial community to the state it's in, there could be a very prudent long-term reason for the continued bail-out of these large banks.

One of the main reasons we are in this mess is because funding/liquidity has been withdrawn; no one wants to lend. A primary reason for this is due to the inability to put a value on much of the paper assets that have bloated the financial markets.
For example, various flavours of mortgages have been packaged together, made to look good (received high ratings) and sold off shore. Some of these packages have even been re-packaged again, and sold again.
The providence of many of these mortgages has been stretched so thin as to make it impossible to sort out who is liable, who owns it and most importantly, how much it is valued at.
Yet, they are still recognized as assets, and the financial institutions rely on them as a meaningful component of their worth. They borrow against these assets, which can't be legitimately valued.

The amounts we are talking about are staggering, several hundred Trillion dollars, by some estimates.
Now, the banks have been getting away with this because no one is looking. It's too complex, and the banks that hold these assets are the only ones who might be able to follow the trail and sort things out.
I think it's reasonable to say that the liabilities far exceed the real value of these assets. In a ponzi scheme everything is okay until someone actual pays attention and runs the numbers.

So, bankruptcy proceedings are essentially an accounting process whereby the bankrupt company's assets are valued, in order to determine how much creditors will get.
Here's Lehman's declaring bankruptcy, and I will bet it will not be a normal process.
Wall Street, the Fed and the US government can not allow evaluation to proceed. It would start the process of unravelling the phantom asset trail and put real value to the derivatives mark. Lehmans would provide a benchmark value on all global financial assets.

In essence the US government can not afford to investigate 700 Trillion dollars of phoney money. I'm not even talking about avoiding scandal and criminal charges, it's just a matter of logistics and funding the effort. There aren't enough lawyers in the US, and I'm talking about all lawyers not just financial specialist, to bring to bear.

It is economically cheaper, and pragmatic, to continue the bailouts.

Having said all that, the end result is going to be the difference between a hollow-point and a solid brass casing to the head.

[americandream]

$this->bbcode_second_pass_quote('RdSnt', 'W')hile answering another thread I fell on an idea that seems to make some sense.
If we put aside all the greed and corruption that has brought the global financial community to the state it's in, there could be a very prudent long-term reason for the continued bail-out of these large banks.

One of the main reasons we are in this mess is because funding/liquidity has been withdrawn; no one wants to lend. A primary reason for this is due to the inability to put a value on much of the paper assets that have bloated the financial markets.
For example, various flavours of mortgages have been packaged together, made to look good (received high ratings) and sold off shore. Some of these packages have even been re-packaged again, and sold again.
The providence of many of these mortgages has been stretched so thin as to make it impossible to sort out who is liable, who owns it and most importantly, how much it is valued at.
Yet, they are still recognized as assets, and the financial institutions rely on them as a meaningful component of their worth. They borrow against these assets, which can't be legitimately valued.

The amounts we are talking about are staggering, several hundred Trillion dollars, by some estimates.
Now, the banks have been getting away with this because no one is looking. It's too complex, and the banks that hold these assets are the only ones who might be able to follow the trail and sort things out.
I think it's reasonable to say that the liabilities far exceed the real value of these assets. In a ponzi scheme everything is okay until someone actual pays attention and runs the numbers.

So, bankruptcy proceedings are essentially an accounting process whereby the bankrupt company's assets are valued, in order to determine how much creditors will get.
Here's Lehman's declaring bankruptcy, and I will bet it will not be a normal process.
Wall Street, the Fed and the US government can not allow evaluation to proceed. It would start the process of unravelling the phantom asset trail and put real value to the derivatives mark. Lehmans would provide a benchmark value on all global financial assets.

In essence the US government can not afford to investigate 700 Trillion dollars of phoney money. I'm not even talking about avoiding scandal and criminal charges, it's just a matter of logistics and funding the effort. There aren't enough lawyers in the US, and I'm talking about all lawyers not just financial specialist, to bring to bear.

It is economically cheaper, and pragmatic, to continue the bailouts.

Having said all that, the end result is going to be the difference between a hollow-point and a solid brass casing to the head.

[MrBill]

loveandrage, before you get on the taxpayer's high horse you may wish to remember that the US - nevermind its States and municipalities - have not balanced a budget(s) in over thirty years. You have been living on borrowed time and credit for a long time, so stop blaming big, bad business.

Frannie existed to help your middle class buy houses. Unfortunately, it became a whore. The whole idea behind the US supporting homeowners was the idea that they would build equity in their homes. Not that they would spend that equity on stuff imported from China. I read yesterday about a retired preacher who was 66 complaining that he had to pay more for his home loan even though his credit score was good. Step back and look at it for Christopher's sake. He is 66. He is retired. His home should have been paid-off already. He should not need a new home loan.

Here in Cyprus you cannot even get a home loan past 65 years old. So if you are 40 you can take out a 25 year loan. If you are 45 you can have a 20 year mortgage. And if you are 50 you are retricted to 15 years at the most. And you need to put down at least 20-percent that has recently been increased to 40-precent downpayment to discourage speculation.

It is mainly Americans (and a few others) that not only expect zero downpayments, but also to be able to borrow more than their home is worth, keep zero equity in the home, deduct the mortgage interest from their taxes and have the mortgage guaranteed by Frannie (and ultimately your precious taxpayer that has been getting a free ride for the past three decades). And you talk about the elites? Get a grip! These programs are as democratic as they get. You have no one to blame but yourself! Or do you forget that Americans cheered when the US entered Iraq? And elected W twice?

As for small businesses. Well, where are they? Does the US train enough engineers and skilled trades people to run them? Or are they all studying to get degrees in sports management? Or out selling real estate. You're not a battered wife. You're someone that prefers to stay at home, hide behind the apron strings and complain about the big, bad world as opposed to getting out and changing it. So go ahead and vote for Palin. You deserve her. No really. For the rest of the world you're yesterday's news anyway. But you gotta love the moral outrage. High on the horse in Texas indeed! ; - ))

[Snowrunner]

$this->bbcode_second_pass_quote('MrBill', 'I')t is mainly Americans (and a few others) that not only expect zero downpayments, but also to be able to borrow more than their home is worth, keep zero equity in the home, deduct the mortgage interest from their taxes and have the mortgage guaranteed by Frannie (and ultimately your precious taxpayer that has been getting a free ride for the past three decades). And you talk about the elites? Get a grip! These programs are as democratic as they get. You have no one to blame but yourself! Or do you forget that Americans cheered when the US entered Iraq? And elected W twice?

[idiom]

Smith says the Junkie, Marx says the dealer.

[Cid_Yama]

Mr Bill,
The US had a surplus when Bush entered office.

Yes, I know it was time for the Great Fleecing. The US population had been allowed to think of themselves as 'middle class', somehow better than peasants, but with a little luck they could experience social mobility to join the ruling class.

Yeah right! LOL What frakin' fools.

Now the Great Fleecing has been concluded. Thank you very much. The peasants might eventually have something to take again, but not for a long time. That is if the biosphere doesn't die first.

LOL What fools! I still can't get over it. Yeah, go ahead, keep telling yourselves that isn't what really happened.

What idiots! I, and several others, tried to let you know, but no, you had to fight on their side to allow them to do what they did.

You deserve every thing that happened to you.

Oh, by the way, they triggered runaway global warming, so mankind probably won't survive the century, even them, so you get the last laugh.

[MrBill]

$this->bbcode_second_pass_quote('', 'T')he US had a surplus when Bush entered office.

[Cid_Yama]

Nobody elected Bush. Both those elections were stolen.

The US is a lost cause. Idiots and sheep. The few of us who can see by virtue of birth or education can do nothing.

The country has been fleeced. The US has no value. Don't know why the rest of the world pretends it does.

[Cid_Yama]

Duh! Mr. Bill,

What has happened has not been the result of an unbalanced or mismanaged financial system.

The machine is designed to fleece the masses. To harvest the wealth of the country. They just got carried away and killed the goose that lays the golden egg.

It doesn't matter. It's over. The fleecing has happened. In the mean time they killed the biosphere.

We are on the threshold of an extinction event that rivals the Permian-Triassic extinction.

[RdSnt]

" Federal Reserve to Loan AIG $85 Billion in Rescue
Tuesday 16 September 2008
by: Edmund L. Andrews, Michael J. de la Merced and Mary Williams Walsh, The New York Times

If A.I.G. had collapsed - and been unable to pay all of its insurance claims - institutional investors around the world would have been instantly forced to reappraise the value of billions of dollars in debt securities, which in turn would have reduced their own capital and the value of their own debt."