The kind of decisions that resulted in Fannie and Freddie being in their poor current poor positions? I’m not seeing that.
Who’s next?
Well, to be devil’s advocate here again, the minor shareholders were able to make the decision whether to buy stock or not. If I may channel high-school economics, the shareholders aren’t “guilty” in terms of evil corporate lords gaming the system; the money just needs to go to more productive venues.
I have a feeling there won’t be any major fraud here like Enron, just a system where if you invest in a quasi-government agency, don’t be surprised if you’re left with little to nothing when it becomes fully socialized. I’m no expert, so we’ll see how it plays out.
Who’s on first.
It’s not the decisions they made, it’s the decisions they didn’t make.
A year ago Freddie stock was around $60. At this moment of writing it’s less then a dollar. Anyone who actually had a brain and didn’t believe the statistic flag waving going on by the parties “in control” saw this coming. If a market tanks the institutes holding 80% of that market are going to go down right with that. Stockholders keeping their mouths shut (or not being loud enough) simply gambling on a bailout by the state deserve to be wiped out. I feel no pity at all for “private” investors counting on taxpayers to bail out their stupidity. Because that is what it all boils down to. Stupid people that aren’t being punished enough. They are just as complicit to this entire crisis as…well…everybody else involved in mortages, starting with the lenders, the resellers, the Fed, the rating agencies and ending with the borrowers.
That said, any long term stockholders have effectively already been wiped out. My complaint is directed more at the scores of stockholders that counted on the state to bailout* their shares.
*This proved somewhat correct, but after looking at the exact deal offered I still can’t wrap my head around what it will actually mean in the total picture. Opinions in the econblogosphere seem to be somewhat divided as well.
The reason why equity holders will likely be wiped out is not because Fannie and Freddie are being socialized. Rather, Fannie and Freddie are being socialized because the equity holders were wiped out (i.e. essentially the liabilities of the entities far exceeded their equity). Yes, there was a small amount of Fannie shareholder value (equity) on Friday that is likely to go to zero (or nearly so) now, but that value on Friday (and the small remaining value now) isn’t really, IIUC, a representation of true equity left in Fannie, but rather a bet on a chance that Fannie could somehow pull through even with negative equity - perhaps via a government bailout that would be generous to shareholders.
FNM was in the 60s a year ago. It closed at 7.04 last Friday, and is at .99 now (just under a buck). Prices per Yahoo! Finance.
What is history behind this? What were circumstances (de-regulation? / lending requirements reduced / requiring no vetting of loan docs / etc) that congress passed to allow this to happen in the first place?
From my understanding, Freddie & Fannie are kind of wholeseller of MBS, but if they re-sell these, why are they left holding 50% of all mortgages?
I want someone to blame (congress more than likely), but not sure when they severely reduced all the reqts to allow so much of this to occur. Probably mentioned in another thread?
Low interest rates. It’s the Feds.
Because up till some months ago, one of the “brilliant plans” to combat the whole crisis was to have F&F buy up mortages in an attempt to “stabilize” the markets.
The markets however did not stabilize and everyone who saw a chance to unload some of their toxic mortage waste upon F&F did so post haste.
OopsiemcSnugglewufkins!
They’ve saved the industry and probably a lot of borrowers. But they’re pretty much going to put owning a home out of reach for the next generation of buyers.
Saved? Do you think that with this bailout it’s all over?
If the gummint comes back and makes every loan they own 1% APR, there would still be a shitload of people out there who can’t make the payments. That’s because house prices were totally out of whack with historical affordability. Not to mention liar loans, etc…
Saved? Do you think that with this bailout it’s all over?
Taking 5+ trillion out of the equation certainly moves things along.
Uh, no. I think that is what they were trying to stop, and it didn’t work. Hopefully, all those CDS’s terminate at par, or there are going to be some really nasty things happening.
The Chinese will save us.
Why is Fanny Mae worth so little? They hold a lot of reasonably good debt. Are they leveraged to the point where they can’t survive a 10% default rate? (I think that’s the national default rate)
Yeah, only it’s not out of the equation unless you found some magical ponymath way to turn 5+ trillion into zero.
The only thing that has happened so far is that toxic debt kept moving downstream until it hit the largest bucket, which is the US government. There are no bigger buckets. Combine this with the last decade of running a deficit and needing to loan tons of money just to keep things going adding that amount of extra debt is going to make more then a little prick.
If this bailout won’t restore foreign investor trust, the entire USA economy is going to tank. Hard.
Why is Fanny Mae worth so little? They hold a lot of reasonably good debt. Are they leveraged to the point where they can’t survive a 10% default rate? (I think that’s the national default rate)
Thanks to previously mentioned idea to have them buy up crap mortages they spend lots of good money on stuff that wasn’t worth shit. So all that stuff turned to ashes over the last months and suddenly they found their debts exceeded their positive balance because that balance shrank to near nothing (and I’m sure leverage also helped).
So all the toxic stuff they bought, they bought with borrowed money?
It’s all borrowed money. Most have to borrow from Wall Street. Those with savings deposit divisions borrow from themselves.
From The Huffington Post:
Gov. Sarah Palin made her first potentially major gaffe during her time on the national scene while discussing the developments of the perilous housing market this past weekend.
Speaking before voters in Colorado Springs, the Republican vice presidential nominee claimed that lending giants Fannie Mae and Freddie Mac had “gotten too big and too expensive to the taxpayers.” The companies, as McClatchy reported, “aren’t taxpayer funded but operate as private companies. The takeover may result in a taxpayer bailout during reorganization.”
Economists and analysts pounced on the misstatement, which came before the government had spent funds bailing the two entities out, saying it demonstrated a lack of understanding about one of the key economic issues likely to face the next administration.
“You would like to think that someone who is going to be vice president and conceivable president would know what Fannie and Freddie do,” said Dean Baker, co-director of the Center for Economic and Policy Research. “These are huge institutions and they are absolutely central to our country’s mortgage debt. To not have a clue what they do doesn’t speak well for her, I’d say.”