http://www.nytimes.com/2008/09/06/business/06credit.html?_r=1&ref=business

Quote :

" On Friday, as the federal government prepared to take control of the two companies in its most drastic action yet to resolve the credit crisis and bolster the economy, the potential consequences of the takeovers began to crystallize. ... But many questions remain about the government’s plan, which involves placing the companies under a conservatorship and could cost taxpayers tens of billons of dollars. ... Even so, it is almost certain that some of the biggest losers will be shareholders who own more than $10 billion worth of Fannie Mae and Freddie Mac common stock. At the end of last year, those shares, which are widely held by individuals, pension funds and mutual funds, were worth nearly $100 billion. Now those investments could be virtually wiped out. Fannie Mae shares fell nearly 22 percent, to $5.50 in after-hours trading; Freddie Mac was down nearly 21 percent, to $4.04. ... "

I don't really follow the financial systems at all, but this seems like a drastic measure to me. This is almost implying that if the gov. didn't do anything, the already timid lending system would regress further, which would even have deeper impacts with businesses across the country. To me, it sends the message that we were (are?) close to a catastrophic failure in banking.

And doesn't this also show that even in one of the freer markets on the world, the gov. has to take control directly sometimes anyway? Could better regulation have prevented this?

9/6/2008 12:49:37 AM

Quote :

"Could better regulation have prevented this?"

Yes.

Quote :

"And doesn't this also show that even in one of the freer markets on the world, the gov. has to take control directly sometimes anyway?"

No. Regulation and oversite without interference is key. Tighter lending rules are already being put in place to avoid this kind of meltdown in the future. This is a drastic action, make no mistake. But it could have been avoided easily with some common sense rules against risky loans and excessive leveraging.

9/6/2008 12:55:55 AM

^ I agree with that.

But as I understood it, one of the tenets of free market ideology is that things correct themselves. The idea being, for example, that bankers would know offering too much credit to people with little or no income was not a good idea, because even if you could sell the debt for a profit, in the long run, it would hurt your business, therefore you shouldn't do it in the first place.

But what seemed to happen is that people, even knowing this risk, looked for short-term game (selling "bad" debt), competition forced everyone to adopt a risky model (spreading a diseased practice), which eventually infected the entire system. I guess the "corrective" mechanism is to let them fail, then when they eventually get restarted, they know not to do it again (until the next generation comes along).

So this seems to lead to the question of how do you know where to draw the line between too little regulation or too much regulation? Too much regulation and certain people will cry "socialism" and too little, and this kind of thing happens.

9/6/2008 1:03:06 AM

fannie and freddie are hardly an example for the free market at work. They are companies with an implicit guarantee (well, it was implicit for a while) that the gov't would back them up should they hit hard times. They used this to their advantage in practically every way possible, and other lenders and mortgage companies have cried foul over this for years. They used this government guarantee to make themselves huge. Then, they essentially failed in the same way that other major lenders have failed, yet their collapse has put our whole economy into jeopardy. If anything, this should show that government interference harmed, not helped, the mortgage industry. We can only assume that the government completely bailing them out and taking them over will only make things worse. The parallel I would make is the government takeover of flood insurance. Now, a fucking homeowner's policy doesn't cover destruction of the home due to a flood. What the fuck? Why is that? Cause only the government can sell flood insurance. Maybe there are good reasons for that, but it seems entirely ridiculous that homeowner's insurance doesn't fully cover the home.

9/6/2008 1:17:13 AM

Quote :

"They are companies with an implicit guarantee (well, it was implicit for a while) that the gov't would back them up should they hit hard times."

What do you mean by "implicit guarantee"? Do you mean where they could borrow money from the feds anytime they wanted? IIRC, Lonesnark said ALL banks can do this.

Or do you mean some other agreement that was "under the table?" Because that would then be corruption, which is even harder to control in a truly free market system.

9/6/2008 1:23:18 AM

it's always been understood, though, that fannie and freddie had a stronger guarantee than other lenders. This is common knowledge. They used this speculation to their advantage, as stated before.

9/6/2008 1:29:27 AM

I'll take your word for it, but which came first? Their massive size, or their stronger gov. ties?

It makes sense for the gov. to "trust" larger, more proven banks more than smaller ones.

9/6/2008 1:30:52 AM

definitely their strong government ties. they are a GSE. they were created by the government, dude. Fannie Mae was made in 1932 as part of the New Deal. Wikipedia for the win!

9/6/2008 1:32:34 AM

The implicit guarantee meant that Fannie and Freddie's creditors were supplying capital with far fewer contingencies and at far lower costs than would normally occur without such government ties. This caused moral hazard, leading Fannie and Freddie to take on more risk given they could partake in the upside, but be protected on the downside. The capital requirements on these GSE's are also much, much lower than those of private commercial banks (e.g. tier one ratios of most commercial banks are about 3 to 4 times larger)

[Edited on September 6, 2008 at 10:53 AM. Reason : .]

9/6/2008 10:52:38 AM

[/quote]Could better regulation have prevented this?[quote]


yes. but it also proves that americans are retards for getting shitty loans that they wouldn't be able to take care of


i'm sure these are the same people that pile up on credit card debt we hear about

9/6/2008 12:35:45 PM

^ So what are you saying, people are too retarded to be trusted with freedom?

9/6/2008 12:41:05 PM

no


if you're stupid you have the right to be stupid and collect your welfare check. if you're smart and can afford a house but you still buy out of your range you should still pay the consequence of debt.

that's life ngr. suck it up and stop crying like a baby.



[Edited on September 6, 2008 at 3:32 PM. Reason : -]

9/6/2008 3:28:02 PM

Quote :

" if your stupid you have the right to be stupid and collect your welfare check. if your smart and can afford a house but you still buy out of your range you should still pay the consequence of debt."

9/6/2008 3:29:06 PM

wow just wow.

you must be F5ing this page like a motherfucker. lol

9/6/2008 3:31:55 PM

9/6/2008 3:33:35 PM

So why not let Fannie/Freddie pay the consequence of buying out of their range?

9/6/2008 5:15:52 PM

did i ever say we shouldn't you moron?

9/6/2008 7:00:49 PM

Quote :

"yes. but it also proves that americans are retards for getting shitty loans that they wouldn't be able to take care of i'm sure these are the same people that pile up on credit card debt we hear about"

word.

these idiots should be thrown out onto the streets and made to work for free for the rest of their lives so their earnings could help the world they ended up destroying.

i don't care how poor/old/whatever these people are. they made conscious decisions to buy things they couldn't afford. now they should pay.

i know. someone will come in here defending these people. someone always does.

9/6/2008 8:28:38 PM

^ You bet. I'll put aside my opposition to the banking industry for a moment. The lenders and simple misfortune deserve as much blame for the problem as the supposedly stupid clients. Had the contracts been fairer or the economy stronger, things would have turned out differently.

9/6/2008 9:02:39 PM

ngas need to pay for ppl who can barely afford rent too right?

where does it end?

should we bail your ass out b/c you don't know how to use a credit card??

hell no.

9/6/2008 9:05:54 PM

why are you using racial slurs?

9/6/2008 9:10:56 PM

because america is a racist. didn't you get the memo from obama?

he'll not only save all these families with a massive tax increase to pay for them from the rich, but also force these same rich ceo's and business owners to keep creating more jobs after those same taxes hit the fan.

9/6/2008 9:16:00 PM

that doesn't mean you can't rise above it

9/6/2008 9:17:42 PM

ok, i will.

but do 1 thing for me Mr.

find me 5 mainstream (current)rap artists that don't have a race oriented song or lyric in his musik collection.

9/6/2008 9:28:05 PM

raced oriented does not connote racist

9/6/2008 9:32:47 PM

Quote :

"these idiots should be thrown out onto the streets and made to work for free for the rest of their lives so their earnings could help the world they ended up destroying. i don't care how poor/old/whatever these people are. they made conscious decisions to buy things they couldn't afford. now they should pay. i know. someone will come in here defending these people. someone always does. "

I suggest you listen to this: http://www.thisamericanlife.org/Radio_Episode.aspx?episode=355

9/6/2008 9:42:26 PM

are you serious? what the fuck? why are we even talking about this shit??

are the dems getting more and more nuts as time goes on? why the fuck are we still having to fight a war against communism in our own fucking country?

9/6/2008 10:11:16 PM

we are still fighting a war against communism?

9/6/2008 10:13:40 PM

these types of battles are right down the road few miles. ready for america to take on its fun with the never before battletested obama?? it's gonna be so much fun. can't wait.

http://www.youtube.com/watch?v=_oZe3P2DxCg

[Edited on September 6, 2008 at 10:33 PM. Reason : .]

9/6/2008 10:32:37 PM

Quote :

"If anything, this should show that government interference harmed, not helped, the mortgage industry."

Moreso than government interference with business, is it possible that government collusion with business may have played some role in this failure?

9/6/2008 10:42:58 PM

i say let them go bankrupt... then we can stop paying our mortgages

9/6/2008 11:48:21 PM

I say let them go bankrupt and let shareholders sue the high ups.

9/7/2008 8:38:17 AM

The worst part of this situation is even if you are against the takeover you cant vote against it. I think both major parties probably support the action and even if they didnt they couldnt really do anything to Paulson b/c they have no oversite.

9/7/2008 12:21:07 PM

If the government defaulted on the national debt, then we would have a de-facto balanced budget rule, since no one would be willing to lend them money.

9/7/2008 1:10:27 PM

i'm going to have to do some research, because i'm not sure what the implication/consequences will be

it implicitly "feels" like a bad thing, but again... I don't know

...

read for a couple of minutes...

the first question I have is, is this legal? Can they even legally do this?

article talking for a second on the legal aspect... should delve to more later

http://www.monstersandcritics.com/news/business/news/article_1429129.php/US_government_to_take_over_Fannie_Mae_Freddie_Mac__Roundup__

[Edited on September 7, 2008 at 2:23 PM. Reason : blah]

9/7/2008 2:16:30 PM

They were created by an act of congress so I suspect they can be killed by an act of congress.

9/7/2008 2:36:35 PM

just because we don't agree with it doesn't mean communism is evil. huge mis perception. There are some good values in both capitalism and communism and a mix of the two is ideal. Both have their pros and cons.

Quote :

"these idiots should be thrown out onto the streets and made to work for free for the rest of their lives so their earnings could help the world they ended up destroying. i don't care how poor/old/whatever these people are. they made conscious decisions to buy things they couldn't afford. now they should pay."

Selfish and inconsiderate post. These people were preyed on by predatory lending practices. It was unfair and it was down right fraudulent. These people are VICTIMS and the same kind of thing goes on everyday from corporate America forcing people to buy things they don't need. These companies need to pay and be held accountable for their actions.

9/7/2008 3:38:01 PM

Quote :

"There are some good values in both capitalism and communism and a mix of the two is ideal. Both have their pros and cons."

Not as I understand. What are the pros of communism as you understand it? I suspect they are not really pros at all, merely buzz words which would have no relation to reality.

9/7/2008 4:43:34 PM

^^ look, i am against big bad corporate america (or england/china/etc) as you are, but at the same time, personal responsibility is where its at.

NO ONE "forced" or "forces" anyone to buy anything. unless prices and interest rates are not clearly written, there is no fraud, from a legal point of view. you can call it evil, or greed, but not fraud.

people should live within their means, as they have done for 5,000+ YEARS, plain and simple. yes, the ads and messages from the big companies are heinous and evil -- i agree -- but again, no one is forcing anybody to buy anything. people should be able to control their brains and desires, and if they can't there should be consequences... this is how it is in the majority of the world.

and we are talking about the US here, not india, afghanistan, or sudan, where just to survive, a chunk of the people have to borrow from private lenders and land owners, after which, they basically have to be slaves for life to pay back. people in the US are not that hard up, are they?

i don't have a car, i don't have a credit card, and i have never had those things. i NEED a car now, and i would give my left arm for one, but i can't afford it now (as i am making house payments), so i am not going to sign some agreement to pay installments i can't pay. i have a 5 year old cell phone, 3 year old laptop, 3 year old ipod, and 4 year old digicam, and i intend to use those things till they literally die. i save 2/3 of my salary (most of which goes to the house payments) each month (and if i told you what i get paid as a university lecturer, you will be shocked), and still live very comfortably. why can't others not spend money THEY DON'T HAVE? those people you are denfending are the same ones who buy new phones every year, expensive shoes and clothes, car accessories, etc, and so of course when it came to paying for their houses, they couldn't. but they bought them out of their own free will, and no one forced them to. if they couldn't afford the houses, why did they buy them? that's the gist of the problem. if you can't afford a house, you rent for life. having a house is not a right.


[Edited on September 7, 2008 at 4:53 PM. Reason : ]

9/7/2008 4:50:39 PM

Quote :

"unless prices and interest rates are not clearly written"

Are they ever? Look, both the lenders and clients took a risk. If the economy had performed better for whatever reason, they might have been fine. They weren't simply buingy more than they could afford. They could have paid their debts under the initial circumstances.

9/7/2008 10:51:49 PM

Quote :

"i don't have a car, i don't have a credit card, and i have never had those things. i NEED a car now, and i would give my left arm for one, but i can't afford it now (as i am making house payments), so i am not going to sign some agreement to pay installments i can't pay. i have a 5 year old cell phone, 3 year old laptop, 3 year old ipod, and 4 year old digicam, and i intend to use those things till they literally die. i save 2/3 of my salary (most of which goes to the house payments) each month (and if i told you what i get paid as a university lecturer, you will be shocked), and still live very comfortably. why can't others not spend money THEY DON'T HAVE?"

I applaud you for retreating into your miserliness, but you only live once. Get a vehicle for Christ's sake.

9/7/2008 11:58:57 PM

Quote :

"and we are talking about the US here, not india, afghanistan, or sudan, where just to survive, a chunk of the people have to borrow from private lenders and land owners, after which, they basically have to be slaves for life to pay back. people in the US are not that hard up, are they? "

yes

most people are in debt here, and it's difficult not to be when houses cost so much. For most people, they wouldn't be able to by a house without a loan. This has nothing to do with the mortgage issue. People had been getting loans fine for decades, it was a new issue that caused this problem.

It boils down to greed, on all sides, and is a clear example why you can't let businesses run away with power (although everyone agrees with this... the disagreements are where to draw the lines).

9/8/2008 12:07:40 AM

Quote :

"I applaud you for retreating into your miserliness, but you only live once. Get a vehicle for Christ's sake."

I am far from miserly. Miserly people don't spend a considerable amount of money on fancy, health, and gourmet foods from around the world (teas, chocolates, honeys, grains, nuts, expensive fruits, cheeses, European specialties, etc). I do this because as you said "you only live once". I can taste various teas, chocolates, and honeys and tell you what country they originated in. Can miserly people do that? I got married in Mauritius and had my honeymoon there. Misers do that? Things that give me pleasure, I spend lots on. I can give you hundreds of other examples, but it should be obvious now I am not a miser.

You don't think I would love to have a car? Have you seen the Garage? I am crazy about cars. You need to read:

Quote :

"i save 2/3 of my salary (most of which goes to the house payments) each month "

Quote :

"(and if i told you what i get paid as a university lecturer, you will be shocked)"

Quote :

"still live very comfortably"

But, I will be getting a car soon, within the next 6 months, as I have a bun in the oven!

Quote :

"it's difficult not to be when houses cost so much."

That's true in almost every country, developed, developing, and undeveloped -- it is all relative. People earn more in the US on average than most countries in the world, and house prices are higher here than they are in most countries. In poor countries, houses are very cheap (for you and me), but for someone earning the average salary, say $200/month, they are very expensive. But at the same time, s/he don't go around trying to buy a house s/he can't afford.

Quote :

"People had been getting loans fine for decades, it was a new issue that caused this problem."

Then maybe I don't know the issue...? Please explain. Is it that the interest rates and payment terms are much higher/difficult now compared to say 10 years ago? Even if so, as I said, if you can't afford to make the payments, don't start! If you want a house, you cut down on spending elsewhere (food, cars, gadgets, etc), like I am doing. Having a house is a privilege, NOT a right. In an ideal world, almost everybody would have their own house, as people did millenia ago, but it is not that world anymore, unfortunately.

But please do explain what you meant by the "new issue". I want to know. This issue has affected me too (and almost everyone else who invests). My mutual funds have tanked, seriously. I have to wait perhaps 2 years before they reach the value they had back in January. They are still higher than what I started with, as I started 2+ years ago. But still, it is very annoying, as since January, they have dropped 25% collectively. Oh well...

9/8/2008 7:58:51 AM

http://tinyurl.com/5d3otn

"Comrades Bush, Paulson, and Bernanke Welcome You to the USSRA (United Socialist State Republic of America)"

Quote :

" By nationalizing Fannie and Freddie the US has increased its public assets by almost $6 trillion and has increased its public debt/liabilities by another $6 trillion. The US has also turned itself into the largest government-owned hedge fund in the world: by injecting a likely $200 billion of capital into Fannie and Freddie and taking on almost $6 trillion of liabilities of such GSEs the US has also undertaken the biggest and most levered LBO (“leveraged buy-out”) in human history that has a debt to equity ratio of 30 ($6,000 billion of debt against $200 billion of equity). ... Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill of $300 billion. ... The ideologue “regulators” who literally held a chain saw at a public event to smash “unnecessary regulations” are now communists nationalizing private firms and socializing their losses: the bailout of the Bear Stearns creditors, the bailout of Fannie and Freddie, the use of the Fed balance sheet (hundreds of billions of safe US Treasuries swapped for junk toxic illiquid private securities), the use of the other GSEs (the Federal Home Loan Bank system) to provide hundreds of billions of dollars of “liquidity” to distressed, illiquid and insolvent mortgage lenders, the use of the SEC to manipulate the stock market (restrictions on short sales), the use of the US Treasury to manipulate the mortgage market (Treasury will now for the first time outright buy agency MBS to manipulate and prop up this market), the creation of a whole host of new bailout facilities (TAF, TSLF, PDCF) to prop and rescue banks and, for the first time since the Great Depression,to bail out non-bank financial institutions, and a whole range of other executive and legislative actions (including the recent bill to provide a public guarantee to mortgage for banks willing to reduce their face value). "

9/10/2008 9:08:19 AM

Obama turns out to be the third highest recipient of Fannie Mae money in the Senate, after John Kerry and, of course, Chris Dodd.

http://www.opensecrets.org/news/2008/07/top-senate-recipients-of-fanni.html

9/10/2008 11:12:17 AM

Quote :

"Then maybe I don't know the issue...? Please explain. Is it that the interest rates and payment terms are much higher/difficult now compared to say 10 years ago?"

They are much lower now than they used to be. mortgages used to be 10-15 % for everyone now they are like 5-7. Thing is though the less you can afford the more they are going to charge you. Recently, this type of thing is what got out of hand. They picked on people who needed more but could afford less and had them paying astronomical fees and interest to getinto something they needed but couldn't afford. And they tricked them. Investors loved these loans and got addicted to them. Demand increasd. All of a sudden more and more of these sub prime loans were out there on 3 or 5 year arms then they all adjusted, to insane interest rates and nobody could afford them anymore. Most people weren't even explained what would happen when they adjusted or that they would simply refi when it happened so everybody got foreclosed.

Its pretty stupid how if I am spending a higher % of my salary on my house then you're going to charge me more than somebody who is spending less. Kick a person while they're down. "This person can't afford this loan. LETS CHARGE THEM MOAR!"

Quote :

"Not as I understand. What are the pros of communism as you understand it? I suspect they are not really pros at all, merely buzz words which would have no relation to reality."

1.Peaceful society
2.strong sense of COMMUNITY
3.no exploitation of the masses by a small group of jerks

Society would basically operate like most family households or tribal villages. Everyone has chores and everyone looks out for everyone.

Every form of government has its own pros and cons. Maybe you should read more into the philosophy before forming a baseless opinion.

Quote :

"if you can't afford a house, you rent for life."

owning is often cheaper than renting and anytime a lease ends its the same as being foreclosed you lose everything you've paid so in no situation would it be smarter to just rent simply because you can't afford it. either way worst case scenario you're on the street at the end except with a house you are investing your money reningt is just giving it to somebody to pay their mortgage that they can't afford.

9/11/2008 11:49:31 PM

Quote :

"Its pretty stupid how if I am spending a higher % of my salary on my house then you're going to charge me more than somebody who is spending less. Kick a person while they're down. "This person can't afford this loan. LETS CHARGE THEM MOAR!""

Clearly you don't understand how a loan works, do you? The higher interest rate represents the risk the company is taking by lending you money. If you make less and have less security, you are a risk! Should the mortgage companies just give everybody the same rate and then get fucked when people who obviously are a risky deal default anyway? No. They charge a higher rate so that they will lose less if the person defaults. The higher rate also serves as a weak pressure on people to be smarter with their money and credit, as people with better credit get better rates. But really, the choice should have been "These people can't afford this loan, let's not give them one. But then those poor people are out of a house, right? Then that evil mortgage company is denying them what they neeeeed, right?

Quote :

"1.Peaceful society [ tell that to Czechoslovakia. Or afghanistan. Or the millions who died in the ghoulags.] 2.strong sense of COMMUNITY [because only Communism offers that, right?] 3.no exploitation of the masses by a small group of jerks [riiiiiiight. Ever heard of the Politburo? Would that classify as a 'small' or a 'large' group of jerks?]"

Quote :

"Every form of government has its own pros and cons. Maybe you should read more into the philosophy before forming a baseless opinion."

Maybe you should do the same...

9/12/2008 12:05:58 AM

ya way to go picking out certain cases where it failed without mentioning how almost any economy or government is bound to fail when it is put in place during an unstable time (when most reform takes place) Nevermind highlighting all the failed free markets that failed so bad it forced leadership into desperate attempts at communism either. That wouldn't help support your biased views now would it? Or how any successful capitalism did some form of "cheating" to jumpstart it on its path to success. Like I said every form of government and economy has its pros and cons but theres no way to argue that under the same conditions communism benefits more people than capitalism. Sure the overall average could possibly be higher in capitalism but thats only because it is brought up by a very small% of the theoretical population.

Quote :

"Clearly you don't understand how a loan works, do you? The higher interest rate represents the risk the company is taking by lending you money. If you make less and have less security, you are a risk! Should the mortgage companies just give everybody the same rate and then get fucked when people who obviously are a risky deal default anyway? No. They charge a higher rate so that they will lose less if the person defaults. The higher rate also serves as a weak pressure on people to be smarter with their money and credit, as people with better credit get better rates."

of course i understand how it works but what im saying is that its stupid. the plan is to not have people default so raising the rate on high risk loans is only going to raise the risk on those loans. thats worked out pretty well, huh? How about decreasing the risk by lowering fees/rates on high risk loans. This is why mortgages should be federalized. Anything in the private sector is driven by profit. Profits are always driven by greed and greed leads to overaggression which always leads to suffering in some form. Usually most severe at the lowest levels of the totem pole.

9/12/2008 12:34:17 AM

^



you should try china. you'd fit in economically.

9/12/2008 12:41:40 AM

Quote :

"How about decreasing the risk by lowering fees/rates on high risk loans. "

Then what you will have is more people who can't afford the loans in the first place seeking loans, defaulting, and hurting lenders. You want to federalize loans? What a horrible idea! Now the taxpayer will be on the hook for people who default on their loans. I can't imagine a worse plan if I tried. Furthermore, you don't actually decrease the real risk by decreasing the rate. The actual risk still exists, namely that the person might not finish off the loan. Again, the higher rate serve two purposes: discouraging bad financial decisions and helping the company lose less money on defaulted mortgages so they can offer more loans to more people.

Quote :

"ya way to go picking out certain cases where it failed without mentioning how almost any economy or government is bound to fail when it is put in place during an unstable time (when most reform takes place) Nevermind highlighting all the failed free markets that failed so bad it forced leadership into desperate attempts at communism either"

Dude. I was talking exclusively about the Soviet Union. You know, the place where communism fucking started. If you would like to point out all of the "failed free markets," I'd love to see it, but only because you will, more than likely, only point out markets that were never truly free to begin with.

9/12/2008 12:42:14 AM