I love the way people think the various financial problems are/were caused by the current president. You are in for a bad shock when we get a different one (no matter which one) and things don’t magically get better.
If you want bottom line fault for the current troubles a whole, go look in the mirror.
Crunch time for Fannie and Freddie is over for Fannie and Freddie. Now it’s crunch time for the taxpayer that has been left holding the Five Trillion dollars worth of crap. Wall Street has been protected and we have been duped yet again.
God Bless America
Anthony in Ontario, California is 100% correct IMHO.
I am writing from Ontario, Canada.
My interest stems from the fact that our economy is very dependent on what happens south of our common border.
For Americans the opposite is not true. The Canadian economy has proportionately a MUCH smaller impact on the U.S. economy. So that is why Canadians naturally tend to pay much more attention to your economy than you need pay attention to ours.
These GSE-s are for all intents and purposes Government Sponsored (i.e., Almost Guaranteed) Enterprises.
So what did I just write that everyone didn’t already know?
Nothing.
It is only one’s interpretation of what the term GSE means that we can quibble over.
The shareholders might be left with nothing.
The bondholders are guaranteed 100% by the backing of the Federal U.S. Treasury. (That at least, is the common understanding.)
That means a level of 100% backing of the American taxpayer.
You guessed it — Middle America is left with no chair again, once the music stops.
Whether wrong or right, this is a legacy of good intentions. Once again “the road to hell is paved with good intentions.”
The idea was to have everyone in owner-occupied housing – that is, their own homes.
The idea seems good in a social engineering kind of sense.
When everyone has their own home, society is stronger and community spirit is higher and crime is lower. Ownership tends to equate with pride of upkeep and general strengthening of social bonds and intensification of common purpose. We are more glued to each other, and one might say we are more supportive of the social norms we live within.
The problem is —— can we afford it? Can we subsidize housing for everyone who wants it? Because isn’t that what it might come down to?
If we cannot afford it, our intentions are meaningless.
That is the whole problem —— we thought there was NOTHING we could not afford. The sky was the limit.
In current circumstances, that kind of thinking appears almost quaint and delusional.
At some point in the near future, the country as a whole might have to decide that — for social good alone, if not for fiscal and financial good — it might be better to have all the housing that is currently sitting empty to have some owner-occupier sitting in it. I believe there are some 8 million such unoccupied houses today.
And if it was the mutual decision of the majority of taxpayers, maybe that would be OK.
The problem is then, how are those people who followed the rules and paid their OWN way going to feel? And also what about those who don’t get selected for such subsidized housing? Will we need a lottery?
Will the new owners have the jobs and means to pay the prevailing property taxes? Will those taxes also have to be subsidized? Better some property tax collection than none at all?
How does one “socialize” fairness?
It’s crunch time for American people because they have made wrong decision in 2004. So be smarter this time around.
No; they are doomed. FRE stock is already below $10 and FNM is close; these are ‘junk’ levels for stocks, as most mutual funds cannot buy them below $10 and must sell them off.
I don’t think there will be a bailout, which could run into the $$$ trillions. The federal government is in debt and deficit; it doesn’t have that much money.
An alternative solution would be to have the Treasury buy up the stocks at a token amount, such as $1 per share to take them off the street when the prices get that low, and fire all of the current management teams. This would allow an orderly winding down of FRE and FNM. Then, have GNMA and FHA (they are not in trouble) buy up the remaining FRE and FNM debt at a reasonable price (maybe as low as 20c on the dollar, like the recent Merrill Lynch sale of mortgage bonds to private equity). Everybody wins: markets continue to function and assets are all re-priced at once.
An even better solution would be to set up a new company (maybe Fannie Mac) with a clean slate. It could not issue stock. It would be a government baby (like GNMA/FHA) that could only deal in qualified, insured bonds. Then, have it issue only new loans and/or buy up the remaining FRE and FNM debt at the above-mentioned reasonable price.
I’m a veteran of several successful turnarounds. These patients are just too far gone.
The worst in not over for Fannie and Freddie, but it does not really matter. They will suck up all the major mistakes that were made by banks and financial institutions and when the housing market bottoms out the American people will pay the price. This way everyone in Fannie, Freddie and the Fed. Gov. keeps their JOB’s and their high paying do nothing jobs. It has been this way for some time now and I don’t expect it to change anytime soon.
I have to agree with you entirely on this one Paul. It is going to be brutal for Freddie and Fanny.
I just don’t know anyone who thinks, nor have I read anything to suggest, that the housing market doesn’t have a h*ll of a lot of ugly left in it.
i suppose freddie and fannie have bounced back thanks to a bailout and their good friend chris cox who has turned the financial markets into a game of tee-ball
now play nice kids dont short fannie and freddie
while obama was holding a rock concert over seas the lobbyists he rails against were having congress for lunch
and letting fannie and freddie stick it to the american people
The disconnect between Wall Street and Main street is all too obvious in this story. Paulson acts as if the only concern here is the investor’s confidence. In fact the problem lies in the over-valuation and run-up in housing. The real problem(s) will continue unabated with or without the blessing of the Treasury.
Both Paulson and the entire Administration miss the point when they act at the level of the investor. Fannie and Freddie are failing due to mortgage failures pure and simple.
We miss the point that it is the fundamental failures in our economy are central and the source of the problem.