Freddie & Fannie Bailout

A large portion of Freddie and Fannies paper is garbage. Why should the average american citizen pay for a companies greed?

OK, lets say the government lets Fannie and Freddy fail.

What happens?
-Their assets get sold off and other mortgage buyers take their place.

What happens on wall street?
-The people who risked their money in Fannie and Freddie and made huge profits for so many years lose their money for investing in a company that had bad business practices.
-The SYSTEM CLEANS ITSELF OUT! The garbage is taken for what it is. I don’t care if the dow has to drop 10%, get all those shitty banks down to zero where they belong. I am sick of them hiding bad debt off the books in unregulated markets and using unearned interest as capital. The smoke and mirrors need to stop. If I bank can not run itself properly it should fail. Why? This allows banks who are running things more efficiently take up the slack and not cause future problems.

Explain to me why we should bail them out? No one seems to have a good reason. It is always "why we can’t not bail them out’.

And don’t give me that bullshit, “they are too big to fail.” I am always open to logical ideas and scenarios that account for more than the direct visible results.

penfold… do you really understand the purpose, history, and creation of freddie and fannie… because you appear not to.

start here:

yeah I dont know where you guys were throwing around 2%.

MOST OF THE MORTGAGES IN THIS COUNTRY ARE OWNED OR GUARANTEED BY ONE OF THESE 2 COMPANIES. Well over 50%.
Everyone else is selling their mortgages and these are the only 2 buyers. I don’t know how to make it more clear. This is not 2 banks making stupid choices and looking to be bailed out. This is an entire industry hanging in the balance. If these 2 collapsed it could seriously be the end of the sub-20% residential mortgage. Do you know what happens when the only buyer of a product disappears? The product becomes worthless. Do you know what happens when secondary mortgages become worthless? Every financial institution that holds them fails. No for-profit bank is going to pick up trillions of dollars of a bad product for the greater good of the economy.

Particularly Penfold and Drifter, wake the fuck up and do research before you go spouting off this stupid shit. Everyone who reads your comments in this thread is now dumber. I award you 0 points in economics, and may god have mercy on your soul.

Yes, I do. I just read that entire article and learned nothing new.

“Fannie Mae receives no direct government funding or backing; Fannie Mae securities carry no government guarantee of being repaid. This is explicitly stated in the law that authorizes GSEs, on the securities themselves, and in many public communications issued by Fannie Mae.
Neither the certificates nor payments of principal and interest on the certificates are guaranteed by the United States government. The certificates do not constitute a debt or obligation of the United States or any of its agencies or instrumentalities other than Fannie Mae.”

well, the senate is going to pass the bill, so we will find out in a few years who was right.

If we let them die wouldn’t our economy kind of…collapse?

Only 2% of mortgages have gone bad.
I am not saying 2% of the banks.
I am happy to receive 0 points from a socialist about economics.

I will call my bank and tell them my mortgage is worthless.

The sky is falling! The sky is falling!

It already is, that is why I said saving them is no silver bullet.

There is alot more to the US economy, specifically the markets, then just banking.

I’m sorry, I thought we (save for Fry apparently) we’re beyond Ec:101 discussions here.

:roll2:

:squint: Are we boned or not?

Oh, we are boned but, freddie and fannie are not super heros that will save the day.:biglaugh:

Steel was at $535 a ton last year.
In June 2008 it hit $1225 a ton.

This year alone the USA lost 324,000 jobs.

The govt is spending like a drunken sailor.

How long can we exist like this?

Penfold, forgive me for being an economics noob, but I’m having trouble with your argument. Your argument seems to be 2 points:

  1. The federal government rescuing Fannie & Freddie is unfair/wrong.
  2. We won’t learn from our mistakes and have a shot at a better economy in the future unless they are allowed to fail.

No?

So your bank wants capital to issue new mortgages. So they go to sell yours, as mortgage backed securities. Guess what, if the only company that will buy it is out of business, your mortgage is going to sit on their books for 30 years. Now suppose you want to expand your company in 10 years, because a republican got elected again and they lowered the minimum wage to 50 cents an hour, so you go to your bank. Sorry, they don’t have any capital for additional lending. Neither do any of the other banks. Pay cash or you’re sucked up by China.

And F&F raise their own capital by charging fees when they sell those mortgage backed securities to investors?

EDIT: OK, did more reading. They charge a fee because they guarantee that the P&I will be paid to the person who bought their mortgages. Which is why they’re in deep shit because a bunch of mortgages aren’t going to be paid so they owe a ton of money to investors. OK. :retard:

So the proposed bailout is for the tax payers to lend money at a low interest rate to F&F so that they can pay the owners of these bad mortgages?

Right. F&F basically buy your mortgage from your bank, pool a whole bunch of them, and sell mortgage backed securities backed by them to investors. They charge a fee to guarantee them. If nobody pays their mortgage, F&F get stuck paying the investors because they guaranteed the securities.

If F&F were to disappear, nobody would be buying mortgages and issuing MBS. Your originating bank would be on the hook. Since their business model wasnt built for them to have to hold every mortgage they originate, they’d have to stop originating almost all new mortgages.

The bailout offers them the use of low-interest loans and to allow the Treasury department to buy their stock to stabilize it.

Is that just from plain old increased demand, basically?

EDIT: Well, nevermind. Lets stay on teaching fry about mortgages. We’ll cover the stock market in the next class.

So eventually F&F will recover, laws and regulations will be passed in attempt to prevent these bad mortgages, and all the stock the treasury holds will become more valuable?

The stock buy infuses capital, but it would be a new class of stock for only the Treasury. If everything goes according to plan, you got it. In the meantime, it keeps the tap flowing, so to speak, keeping F&F financially liquid to keep buying mortgages, which makes the banks originate more, which stops/slows the housing freefall.

OK cool. I can get my head around that.

So Penfold’s argument is that someone else will step in to buy and sell mortgage backed securities if F&F fail, so we shouldn’t use our money to save them per the above explained scenario?

Well, my biggest problem with the bill is the treasuries new ability to buy unlimited stock in fannie and freddie. If it was just loans to hold them over I could live with it.

I advocate a strong dollar. I can only see a weaker dollar coming out of this deal. They are essentially trading treasury notes for stock. That is equivalent to backing the US dollar with Fannie and Freddie Stock.

Besides for the socialism vs capitalism argument, I just do not trust putting the fate of the already battered US dollar into the hands of a companies stock. Not to mention the $900,000,000,000 that this bill adds to the national debt ceiling.

Inflation is a tax and an unfair one at that. The people who see the money first benefit and everyone else gets screwed.