U.S. to bail out Fannie Mae, Freddie Mac

[ParanoiA]

That reminds me a lot of what Alan Greenspan told Charlie Rose earlier this year. We need to just let it run its course. The more we do to "soften" things' date=' the longer and more drawn out those things will become. The ONLY way we are going to get through this is to let everything reach rock bottom, essentially hitting the reset button, and crawling forward again.

 

The more we keep intervening, the more uncertainty there is, and the less likely people will be to pump money into the critically needed areas. If, however, they know that bottom has been reached, they'll feel more confident and we'll see things move up.

 

Will it hurt if we do nothing? Yep. Will people be outraged if we do nothing? Yep. However, sometimes medicine that helps us most tastes the worst.[/quote']

 

That's been my take from the beginning. We didn't need to bail out the idiots that got these loans, and we didn't need to bail out the idiots making them and selling them, or those getting stuck with them. The market needed to learn the lesson on its own. It didn't. Because we are crybabies about surface things, and utterly passive about the deeper, creepy ones.

 

We freak out over the housing crisis and most don't have any idea how close our dollar is to being toilet paper.

 

Like I said, just tell them the economy is fine. Anything to get their hands out of the machine.

[bombus]

Ho ho ho, see here:

 

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

http://www.informationclearinghouse.info/article20720.htm

 

US Is "More Communist than China": Jim Rogers By CNBC

http://www.informationclearinghouse.info/article20715.htm

 

Yet again the US government rips off it's people. Really guys, you gotta "wake up and smell the coffee!". The USA is a country ruled by the rich for the rich, the rest of you are just tax fodder. We in the EU are next, if not there already...

Edited September 9, 2008 by bombus

[ParanoiA]

No, it's USSA. We don't use the R.

[bascule]

That reminds me a lot of what Alan Greenspan told Charlie Rose earlier this year. We need to just let it run its course.

 

Those same Milton Friedmanisms are what got us into this mess in the first place. I don't see how they're the solution now.

[Pangloss]

Well I see it as a combination of moderate intervention and letting it runs its course. That's what modern governmental economic control is all about, really.

[bombus]

Well I see it as a combination of moderate intervention and letting it runs its course. That's what modern governmental economic control is all about, really.

 

Well I'd agree that there should be a good mix of the free market and state control. I think all the 'arteries of the state' (gas, oil, water, electricity, transport infrastructure, healthcare, education) should be run by governments - or at least non-profit making trusts, and the rest should be left to the free market (with adequate fiscal controls). That is basically good old democratic socialism European style. However, this example is a case of bailing out the rich and dumping the risk on the tax-payer (read: the poorer) They'd never do this to help the poorer in society.

[Pangloss]

So you'd allow corporations, just so long as they aren't evil. Cool. Is that something you discover by reading a company's charter, or is it more along the lines of a tea leaves and cast-bones sort of thing?

[bombus]

So you'd allow corporations, just so long as they aren't evil. Cool. Is that something you discover by reading a company's charter, or is it more along the lines of a tea leaves and cast-bones sort of thing?

 

Don't act so stupid. I explained exactly what I mean and you are deliberately pretending you don't understand.

[iNow]

Those same Milton Friedmanisms are what got us into this mess in the first place. I don't see how they're the solution now.

 

I disagree. "Leaving it alone" had nothing to do with the current issues being discussed in this thread (except maybe that we left it alone after screwing it all up so badly in the first place).

 

I happen to agree with Greenspan's larger point. It's all shades of jacked up right now. People are apprehensive and anxious, and choosing to hold their money tightly. Until this thing gets as bad as it can possibly get, those people are going to continue holding their money and further stagnating the economy. Ergo, cushioning the collapse or softening the blow is actually causing it to be drawn out for longer. Let's take our medicine and be done with it.

 

Don't get me wrong. I know why the government is stepping in to help, and I know how there are real people impacted by this. What I'm saying is that the more we intervene the more drawn out it will be, and longer it will take before we're past it.

[bascule]

Isn't that like saying that if a building is a fire hazard, we should let it burn to the ground and build a new fire-safe building, rather than trying to put the fire out and fix the fire hazards? Otherwise, no one will want to live in the building because they think it's a fire hazard.

 

I don't think the economy needs to hit rock bottom before people can regain confidence, and I think the regulatory commissions put in place since the Great Depression have more or less weathered us through many similar economic crises in the past.

 

I'm extremely wary of "let the market take its course" dogma. Letting the market take its course will generally involve lots of collateral damage to sectors which are tangentially connected to failed ones. The entire value chain can break down, in which case way more damage is wrought to the economy than if the government assumes some liabilities and temporarily props up an ailing sector.

[iNow]

I understand your points. However, you seem to be assuming a priori that intervention by us will result somehow in a better outcome overall than letting it run its course. If our previous/recent experiences are to serve as any indicator, then this line of reasoning seems to be wishful thinking at best.

 

I don't know the answers. I don't know how to fix this all. I also don't know what "better" really means in all of this, unless we define "better" as getting past it all indefinitely. I do know, however, that people with real money and wealth who make this all move have their proverbial wallets puckered tighter than the ass of a 17 year old male model who just arrived to prison and dropped his soap in the shower.

 

 

<ewww....>

[bascule]

If our previous/recent experiences are to serve as any indicator, then this line of reasoning seems to be wishful thinking at best.

 

Actually, if recent experiences are any indicator, we can get past these sort of economic crises. What recent experiences are you thinking of? I'm thinking of things like post-9/11, the S&L crisis, the and the '79 Iranian/oil crisis.

 

The last "let the system run its course" approach to going through one of these crises I can even think of was the Great Depression, and I don't think that should serve as a positive example for how to handle an economic crisis.

[iNow]

Actually, if recent experiences are any indicator, we can get past these sort of economic crises.

 

I definitely agree that getting past it is possible. I guess I'm skeptical that those we have in place right now making the rules and regulations will ultimately do so properly (like, they could create more problems than they solve, and the cure could be worse than the problem).

 

The correction has to be done on multiple levels, in multiple contexts, and in parallel with countless other dynamic factors, and right now the ideas being presented to help are nothing more than government bailouts. Not exactly a fully thought plan to restructure the system, eliminate weakness, pump resources into areas where greatest growth is needed, and "shore up" the "leaking dam."

 

Perhaps I'm just cynical. We just don't seem to handle our financial systems responsibly or intelligently anymore.

 

It's only just beginning. The bail out is a band-aid, but the source of the bleed remains.

[bascule]

I'll definitely agree that now is not the time for the government to be assuming more liabilities which will only serve to further devalue the dollar, but unfortunately Bush picked an awful time to start an expensive war while simultaneously cutting taxes.

 

The nice thing about band-aids is that sometimes the wounds under them heal, even without leaving scars.

[CaptainPanic]

I'm more than a little uncomfortable with the government owning that much private debt. I hope they divest it as soon as possible.

 

LOL! :D :D

You Americans are just weird. I'd be more than a little uncomfortable with a large (profit making) company owning that much private debt. (At least a government isn't making profit, and at least it is, supposed to be, elected by you and the rest of the people).

 

Tsk. I guess I'll never truly understand capitalist thinking.

[Pangloss]

LOL! :D :D

You Americans are just weird. I'd be more than a little uncomfortable with a large (profit making) company owning that much private debt. (At least a government isn't making profit' date=' and at least it is, supposed to be, elected by you and the rest of the people).

 

Tsk. I guess I'll never truly understand capitalist thinking.[/quote']

 

Rofl. I guess they do things differently in the People's Republic of the Netherlands? BTW, why did they call it Royal Dutch Shell, again? I can't remember.

 

I'm not sure what all the hand-wrangling over the trillions in mortgages is about anyway. That debt was already backed by the government. That's why they had control of that money in the first place, because it was guaranteed.

[ParanoiA]

I'm not sure what all the hand-wrangling over the trillions in mortgages is about anyway. That debt was already backed by the government. That's why they had control of that money in the first place, because it was guaranteed.

 

But I thought Fannie Mae and Freddie Mac were not gauranteed by the federal government?

 

That's what invalidated my original connection to the Palin comment about being "too expensive for taxpayers", in that it was too big and expensive to be gauranteed by the federal government, or taxpayers.

[iNow]

http://time-blog.com/curious_capitalist/2008/09/fannie_mae_and_freddie_mac_rej.html

Why were Fannie and Freddie allowed to operate as private companies with implicit government backing? The history is that Fannie, created as a government agency (the Federal National Mortgage Association) in 1938, was privatized during LBJ's administration to get its debts off the federal government's books. Then Congress created Freddie (originally the Federal Home Loan Mortgage Corp.) so Fannie wouldn't have a monopoly.

 

So basically the motivation behind the creation of these strange public-private entities was an accounting subterfuge. Their debts weren't counted as government debt, but investors assumed that they were guaranteed by the government. In the 1970s Fannie and Freddie were both still reasonably small enterprises, so this wasn't that big a deal. But the collapse of the S&L industry in the 1980s left them the dominant force in the U.S. mortgage market. And until recently they (particularly Fannie) were able to wield their wealth and lobbying prowess to fend off all Congressional attempts to rein them in.

 

 

 

From that same article:

"Government support needs to be either explicit or non-existent," Paulson said today. Through the end of 2009, at least, it's going to be explicit. The FHFA has taken over the two companies as a conservator, and Treasury has entered into contracts in which it pledges to keep Fannie and Freddie solvent and they in turn give Treasury the right to acquire up to 79.9% of their common stock for a nominal fee. Treasury also committed to buy lots of the companies' mortgage-backed securities for the next couple of years, which should keep mortgage rates down. Both companies will be getting new CEOs (former Merrill Lyncher and TIAA-CREFer Herb Allison at Fannie and former U.S. Bancorper David Moffett at Freddie) and are suspending all dividend payments, but their common and preferred stock will continue to trade.

 

 

 

 

And yet, just two months ago:

 

http://www.economist.com/finance/displaystory.cfm?story_id=11751139

The authorities are keen to avoid nationalisation, which would bring the whole of Fannie’s and Freddie’s debt onto the federal government’s balance sheet. In terms of book-keeping this would almost double the public debt, but that is rather misleading. It would hardly be like issuing $5.2 trillion of new Treasury bonds, because Fannie’s and Freddie’s debt is backed by real assets. Nevertheless, the fear that the taxpayer may have to absorb the GSEs’ debt pushed Treasury bond yields higher. That suggests yet another irony; the debt of the GSEs has been trading as if it were guaranteed by the American government, but the debt of the government was not trading as if Uncle Sam had guaranteed that of the GSEs.

 

If Congress approves this package, the Fed will have more authority over the agencies. But that will give the central bank another headache. If an institution is struggling, the normal answer is to shrink its activities and wind it down slowly. But that is the last thing that the housing market needs right now.

[waitforufo]

http://online.wsj.com/article/SB122083279354208543.html?mod=googlenews_wsj

 

Interesting article on the subject.

[Pangloss]

But I thought Fannie Mae and Freddie Mac were not gauranteed by the federal government?

 

Yah I guess not, but it seems to be how things worked out. The moment they stopped being able to cover those losses, the government stepped in.

[ParanoiA]

Yah I guess not, but it seems to be how things worked out. The moment they stopped being able to cover those losses, the government stepped in.

 

Yeah, doing a bit of reading on the subject with all the links flying around here and I guess it was considered "implicit" backing by the federal government via the belief by the investors that despite the official line of no guarantees, the feds would never really let them fail.

[CaptainPanic]

Rofl. I guess they do things differently in the People's Republic of the Netherlands? BTW, why did they call it Royal Dutch Shell, again? I can't remember.

 

Funny that you call it the People's Republic, when People's Kingdom would be more accurate. But I'm afraid the old socialist days of the 70's are over, and we're now copying the "success" of the American economy. We've privatized a lot of things, and that includes insurances, energy and healthcare. Of course, they only got more expensive, but hey, it's the market that does that!

 

But all in all, my government has a lot more to say about my life (financially) than the US gov. about the average US citizen. And people seem to trust our government financially too.

[bascule]

The economy isn't unraveling, it's simply struggling.

 

According to Alan Greenspan it's in a "once-in-a-century" crisis

 

http://money.cnn.com/2008/09/14/news/economy/greenspan/index.htm?eref=rss_topstories

[iNow]

Some are calling it a "death spiral." Greenspan on THIS WEEK this morning. Watch below:

 

http://abcnews.go.com/video/playerIndex?id=5798760

[Pangloss]

Financial crisis. Not economic crisis. It's a crisis for the financial industry, not for the economy. Greenspan made that clear.

 

"I can't believe we could have a once-in-a-century type of financial crisis without a significant impact on the real economy globally, and I think that indeed is what is in the process of occurring," he said.

 

"Significant impact". Not "unraveling". Recession, not depression, etc.