Terminate Fannie Mae & Freddie Mac
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  1. #1

    Dec 2007
    Tierra del Fuego
    Tesoro.Fisher.Garrett
    3,297
    24 times

    Terminate Fannie Mae & Freddie Mac

    Thank you Marc, for allowing us to discuss financial type things here upon the Tnet forums.
    Generally speaking, economics and finance has always been a dry subject for me to endure.
    As of late, it has become quite interesting.
    BIG things happening.
    HUGE numbers.
    Whew!

    <clip>

    Terminate Fannie Mae and Freddie Mac

    I am a minority of one, or a very small number, in thinking that the failures of Fannie Mae and Freddie Mac are good news. These two companies should not exist.

    No private companies should have lines of credit to the U.S. Treasury, that is, U.S. taxpayers. No private companies should be linked to a government mandate that they facilitate affordable housing by buying up mortgages. No private companies should issue debts that investors believe may have an implicit guarantee provided by taxpayers.

    The only bad thing about these failures is what the Federal government may do next to keep them alive. The only bad thing is that the Federal government will probably make matters worse. This is a golden opportunity to end these enterprises once and for all. And doing that is incredibly simple!

    Any Wall Street investment bank can, in short order, produce a plan to restructure these companies and charge the appropriate (high) fees for carrying out that plan. The possible ways to restructure include sales of the assets, creating subsidiaries and selling them, spinning off subsidiary companies, and breaking up the company into several companies. Fannie Mae and Freddie Mac could also put their entire companies up for sale.

    Such restructurings are Wall Street’s bread and butter. The equity values of these companies have already fallen considerably. Their value in a restructuring may be quite small, but control does have a non-negligible value. The markets are already pricing the debts of these two giants at less than face value, despite the chance of an implicit guarantee or a taxpayer bailout.

    The debt-holders took a chance buying this paper. They should bear the consequences. Restructuring will reveal the true worth of these debt securities. Investors in these enterprises, both debt and equity holders, should not be bailed out by the taxpayers. These two companies made bad investments by buying mortgages that have gone bad.

    These two companies also issued too much debt to finance these investments, which gave them very shaky financial structures. The worth of their assets is less than the worth of their liabilities, which makes them insolvent. They are not yet bankrupt. They still have the cash to service their debts. These debts are by no means worthless. About 11.6 percent of money market funds are invested in agency debt.

    At current prices of these debts, news of money market troubles has not surfaced. If those prices fell by 10 percent, the money market losses would be a modest 1 percent. Any restructuring presumes what is not in evidence, which is that the Federal government has to sever completely its relationships with housing markets and specifically with Fannie Mae and Freddie Mac.

    There’s the rub. Congress won’t do this, unless seized by some unforeseen miracle of rationality. There are millions of Americans who may fear the dissolution of these companies. They will wonder where they will get mortgages from. There are hundreds of columnists who share this fear. Some will pretend to hold their nose while supporting a government bailout.

    Some will want to maintain the government’s interference in housing markets or even expand it as a matter of public policy. There is nothing to fear. The amount of money on the sidelines that is available for funding mortgages is tremendous. It can be coaxed into mortgages if the interest rates paid are high enough. A free market in mortgages will easily provide capital to creditworthy borrowers. But that too is the rub.

    The government wants to keep mortgage rates low so as to keep the housing industry going and to satisfy the voters who take out mortgages. The government does not want a free market in mortgages, and that is because neither voters nor the housing industry want a free market in housing. As long as there is a government that is empowered to interfere, the pressure to interfere will overcome the free market.

    Democracy just does not work, my friends! Sooner or later, in this case 70 years later, 70 years after Fannie Mae began, the system starts to break down. Call it what you will, democratic socialism or democratic fascism or both, democracy does not work. It doesn’t work in agriculture, in the military, in the space program, in the banking system, or in any other part of an economy. Sooner or later, depending on various particulars, blowups occur.

    Without the government in the picture, there is no way that Fannie Mae and Freddie Mac could ever have grown so large. Their balance sheet assets (and liabilities) total about $1.6 trillion. They have off-balance liabilities of another $3.5 trillion or so. How big is $5 trillion? The national debt of the U.S. is $9.5 trillion!

    It is almost unbelievable that these two companies could have run up debts that are more than half the size of the country’s national debt. But that is inherent in the chemistry of government + housing + debt guarantees. The housing market is huge, especially over time as the housing stock accumulates.

    By giving Fannie Mae and Freddie Mac an advantage in issuing debt, these companies came to dominate the housing finance market. There is no better time than now to end this absurdity. Freddie Mac faces huge losses, as much as $775,000,000. Its equity can easily be wiped out. That means bankruptcy. That is nothing to fear, either. That means that restructuring will be forced upon the company.

    The point is to let it happen and happen quickly and get the government out of the picture altogether. Naturally, this has not been what the government has been doing. Instead, it has done the opposite so far. Congress has passed a bill that awaits the President’s signature or veto. There will be a deal. The bill increases mortgage loan limits drastically. Smart move, guys. Pelosi wants them even higher, $730,000 instead of $625,000.

    Mr. Corruption himself, Chris Dodd, is the lead sponsor of the bill. Even as the stocks of these two companies approach $0, he reassures the public that the CEOs of Fannie Mae and Freddie Mac and Ben Bernanke tell him that they are not at risk of default. This is a bald-faced lie.

    Failure to face and state truths is a national addiction. The predilection to lie in the face of bad news is so ingrained that our leaders no longer can even detect the difference between what is true and what is false. They lie and they know they lie. But they also believe their lies because they believe their lies to be political necessities.

    Can liars even begin to think straight about what should be done that is in the long-run interest of the American public? If they could think straight, could they summon the courage to act? Democracy encourages lies, liars, and cowardice in the face of voters and payoffs. Democracy just does not work, my friends.

    Terminate Fannie Mae and Freddie Mac. Sever the relations with the government and let Wall Street, or investment bankers in San Francisco or Austin or Boston or Tallahassee do what they know best, which is restructure these companies. All the mortgages held or guaranteed by them will still be held and serviced, but by new companies and new investors. Problem solved.
    <eof>
    I am a pathological liar and a functional illiterate.

  2. #2
    us
    "The difference between genius and stupidity is genius has its limits."~Albert Einstein

    Jan 2007
    Tesoro Bandido II and DeLeon. also a Detector Pro Headhunter Diver, and a Garrett BFO called The Hunter & a Garrett Ace 250.
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    Re: Terminate Fannie Mae & Freddie Mac

    Fannie Mae and Freddie Mac are 2 businesses owned by the U.S. Government that have been so badly managed that they are begging for relief from the taxpayers. This is the exact situation that a National Health Care system will land in if we allow those idiots in Congress to set up THAT business.

    The U.S. Congress is the only job position that assigns "Expert" status to its members as soon as they are hired. Each member of Congress becomes an "expert" on all subjects just as soon as they are sworn in and this proves beyond a shadow of a doubt that Carl Sandberg was absolutely correct when he defined an Expert as "a fool who is a long way from home."

    On top of Chris Dodd and his idiocy comes Chucky Schumer causing a run on Indy Mac. Losers all.

    I just ran Spell Check on this post and three alternate words for "Schumer" were "Schemer" and "Scum" and "Scummier".
    "Dobie created the HUNGER............Von Mueller said, EAT". comment by HELM Associates on the dedication page of their book, Treaasure Lead Generation.

  3. #3

    Dec 2007
    Tierra del Fuego
    Tesoro.Fisher.Garrett
    3,297
    24 times

    Re: Terminate Fannie Mae & Freddie Mac

    Well, I'm not sure I agree with your detective work there, Shortstack...

    Click image for larger version. 

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    Fannie Mae and Freddie Mac were created by gubment, but shares are publicly traded on the stock market.
    They are private corps.

    For gubment to bail them out would be some sort of socialism/fascism here-to-fore undescribed, because all along, many private investors have made good returns from stock profit, but now when there is a negative, they should also incur those losses.

    Here's what I found....
    <clip>
    Fannie and Freddie shares have declined by about 80 percent this year. The slump in the two mortgage agencies has sparked a new catchphrase -- ``Too Chinese to Fail" -- based on the $974 billion of U.S. agency debt held by foreign investors, a fivefold increase since 2003.
    <eof>

    An injection of money by the fed only protects foreign investors!

    Oh, and keeps us well stocked with family homes at a $400k-500k pricetag!

    Have you seen where Pelosi wants to increase the loan guarantee amount to $630k or something like that?

    I'll tell yah buddy... NO ONE NEEDS to live in a $630k home!

    There is so much wrong with the picture it's beyond ludicrous.

    Best
    I am a pathological liar and a functional illiterate.

  4. #4
    us
    "The difference between genius and stupidity is genius has its limits."~Albert Einstein

    Jan 2007
    Tesoro Bandido II and DeLeon. also a Detector Pro Headhunter Diver, and a Garrett BFO called The Hunter & a Garrett Ace 250.
    4,314
    389 times
    All Types Of Treasure Hunting

    Re: Terminate Fannie Mae & Freddie Mac

    Quote Originally Posted by rmptr

    There is so much wrong with the picture it's beyond ludicrous.

    Best
    You won't get an argument from ME. If the Chinese, Japanese, and Saudis decide to cash in the US Treasury Notes that they hold, we are SCREWED. We whipped the Japanese in war; now they can destroy us using our own money. Wicked.
    "Dobie created the HUNGER............Von Mueller said, EAT". comment by HELM Associates on the dedication page of their book, Treaasure Lead Generation.

  5. #5

    Dec 2007
    Tierra del Fuego
    Tesoro.Fisher.Garrett
    3,297
    24 times

    Re: Terminate Fannie Mae & Freddie Mac

    Shortstack, there's something wrong with my criticism of your statement, yesterday.

    I can't figure it out...

    Today's news on google, there's a news item that Freddie Mac has applied to SEC for permission to sell common stock... but it's denied because FM is NOT sufficiently capitalized?

    Apparently they attempted this before, but there was a 5 billion dollar problem with the books?

    I'm really not sure what's going on.

    Seems to me, with THAT kind of money in question, everything about it should be very clear and concise.

    Yet it's NOT.

    Maybe Lasivian will step in here and explain things for me/us... he's pretty savvy on the numbers.

    Best
    I am a pathological liar and a functional illiterate.

  6. #6

    Dec 2003
    Western Schuylkill County
    MINELAB EXPLORER SE PRO ....... Garrett Pro Pointer…… Sovereign XS-2 Pro
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    Re: Terminate Fannie Mae & Freddie Mac

    Banks reportedly not taking IndyMac checks
    Finally able to withdraw their money, customers can’t open new accounts

    http://www.msnbc.msn.com/id/25719584/

  7. #7
    us
    Apr 2007
    N.E. of Atlanta
    684

    Re: Terminate Fannie Mae & Freddie Mac

    Do you realize how many people are provided jobs by someone buying or building a $630,000 home? A lot of blue collar guys, tradesmen and craftsmen rely on these type of homes to make a living. Reminds me of a saying " I never got a job from a poor man".. We should probably remember this when "we" are playing our left wing game of bash the rich and everything that they do! And yes rmptr, I know I got away from the gist of your post again .. Good luck, Gpurs....

  8. #8

    Dec 2007
    Tierra del Fuego
    Tesoro.Fisher.Garrett
    3,297
    24 times

    Re: Terminate Fannie Mae & Freddie Mac

    Hi Gpurs,

    Actually, (and I AM in the trades), there are somewhat LESS workers involved in the more expensive homes.

    The phases of construction are frequently 'swarmed' to facilitate a speedy construction loan schedule.
    Upon occupancy, the actual homeowner can re-fi at a better rate than the builder had for the construction loan.
    And, of course, the interest paid on the construction loan came out of the builder's profit.

    I've seen concrete crews of 8 - 12 on pour day, framing crews the same size, and rockers are 4 - 6.
    Siding and sheathers are 3 or 6, roofers 4 - 6, stucco crew is about 8 - 12.
    umbers and electricians usually work in pairs, painters 4 - 6.
    Windows, door and trim, floor coverings, and appliances are usually 2 guys on each crew.

    All that is for a production home in California 2k-3k sqft sold at $400-$600k. But all that's over!

    On a custom home hitting the block at 1 1/2 mil to 5mil, it would probably be the builder's hotrod crew of 4 doing the concrete, framing, siding and sheathing, then doors & trim. Pretty much the same for the other trades, as above.

    Construction quality is generally a bit better when you get up to 1 1/2 million per unit, but I've seen more than a few exceptions to that.

    On a very few jobs, where there are no time constraints, and a big moneybags client is not afraid of spending top dollar on materials or labor, some of the real artisans in the finish trades can do stunning work!
    These jobs end up being more work for just a couple fellows.

    Maybe it is leftist, for me to say so, Gpurs.
    But I'll re-state it. Nobody NEEDS a $630k home.
    Heck! Motel 6 has a bit more than you NEED, but I'll agree, the Ramada is sure nicer.

    The biggest part about that I don't like is that Pelosi feels the working man taxpayer, who may not be able to afford a home at any price, is now being asked to shoulder the burden of debt when the mortgage fails and fannie or freddie must pay on the default.

    I'm not sure my info is correct, but news today said Chinese investors are quickly buying up 2yr freddie mac notes that will pay them 18% since it looks like the fed is going to guarantee fannie and freddie.

    ...Too Chinese to fail... That's the new buzzword on the street!

    OK, I'll be underhanded and get real personal about it...
    Gpurs, would you tell me how you feel about our children paying off the national debt?

    Best
    I am a pathological liar and a functional illiterate.

  9. #9
    us
    "The difference between genius and stupidity is genius has its limits."~Albert Einstein

    Jan 2007
    Tesoro Bandido II and DeLeon. also a Detector Pro Headhunter Diver, and a Garrett BFO called The Hunter & a Garrett Ace 250.
    4,314
    389 times
    All Types Of Treasure Hunting

    Re: Terminate Fannie Mae & Freddie Mac

    rmptr,
    If you couple that 5 billion dollar "book problem" with that $300 million that the IRS cannot account for; SOMEbody has been taking in some serious cash through their backdoor.
    "Dobie created the HUNGER............Von Mueller said, EAT". comment by HELM Associates on the dedication page of their book, Treaasure Lead Generation.

  10. #10
    us
    Feb 2007
    East Central Florida WP
    Whites XLT / M6
    2,538
    19 times

    Re: Terminate Fannie Mae & Freddie Mac

    Let nature take its course.

    Terminate Fannie Mae and Freddie Mac? It appears they have terminated themselves.
    (As long as Uncle Sam does not reach into the taxpayers pocket for anothr bail out)


    Ray S
    Ray S ECenFL

 

 

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