duh … because private sector is spending their own money.
I don’t disagree with the lofty arguments against gov’t takeover. In principle, they’re correct and should probably be applied going forward. But the nation (and I’d argue the Western world, as evidenced by a number of liquidity strapped EU nations) is in way over its heads. Without a careful handling of the situation, we could be talking about financial cataclysm that transcends moral and philosophical arguments.
“cfa_gremlin, that’s more misinformation. Alt-A loans were purchased by FRE and FNM, but were only a VERY small percentage of their books. The overwhelming majority of the portfolio consists of standard, credit-worthy loans. The problem is that the housing market has fallen around 20%, and caused billions of dollars of ACCOUNTING losses.” kkent - I’m not feeding misinformation and I’m fully versed in the operations and structure of the GSEs. Out of the 5 trillion on their books, $700 billion is Alt-A and subprime. These large figures are the result of faulty automated underwriting systems called DU and LP respectively, set to “way too easy” mode during the bubble years. I thought the GSEs were created to issue and guarantee 20% down, 36% Debt-To-Income, 30-yr FIXED mortgages? Why in the hell where they buying subprime and Alt-A and prime exotic mortgages when they were geared 70+ to 1? I ask again why these huge hedge funds and their investors, with UNRESPONSIBLE and/or INCOMPETENT executives, be bailed out at the expense of the taxpayer when they have done NOTHING BUT RUINED THE AMERICAN DREAM OF OWNING AN AFFORDABLE HOME FOR THE AVERAGE AMERICAN CITIZEN? These enterprises are going to be bailed out in a desperate attempt to stabilize housing prices when this is the worst thing that can happen for American homeowners. “The GSEs’ competition has either gone out of business, refuses to take on any more debt, or doesn’t have the capacity to issue more debt.” Well they are in this situation because they have no implicit govt guarantee on their debt. The investment community has embedded in their psyche that agency paper is implicitly guaranteed even though on the prospectus it clearly states “NOT GUARANTEED BY THE UNITED STATES, AND DO NOT CONSTITUTE A DEBT OR OBLIGATION OF THE UNITED STATES OR ANY OF ITS AGENCIES OR INSTRUMENTALITIES OTHER THAN FANNIE MAE OR FREDDIE MAC.” Why should investors in agency paper be bailed out and worse yet, if they do get bailed out, retroactively keep the agency spread on their coupon when the risk was CLEAR when investing in these securities? Even more worse, that pathetic socialist Bill Gross, is going to get rewarded by exploiting what will be an arbitrage opportunity if the bailout makes debt holders whole. The best bailout plan is this: 1) common and preferred shareholders are wiped out. 2) current debt holders are not made whole and as a result will take haircuts on their holdings 3) going forward the firms are partitioned and the U.S. govt will guarantee all newly issued GSE debt as long as it is 20% down, max 36% debt-to-income, and 30-Yr fixed. This structure PROTECTS the TAXPAYER and maintains liquidity in the housing market. JOEY D - thanks for reminding me to tone it down, but you got to understand that I am VERY passionate about these issues.
You’re very passionate about the issues and also dead wrong. So 14% of the book is Alt-A? Congratulations. That’s not the source to the GSE income hemorage–it’s the 20% decline in the housing market that has caused massive accounting write-downs and devaluation of the portfolio. Not bailing out the GSEs isn’t the best thing for the American homeowner. In fact, it’s the worst thing. It would be the best thing for American renters (of which I am one of them) once more than half of Americans lose more than half of their net worth (or all of it) and renters can then buy houses in cash. If you really think that’s good for the economy then you’re not rational enough to have a serious conversation with and you make all conservatives look like lunatics. Let me also add that you admit the private sector is basically out of business right now. So how would eliminating the GSEs re-shift housing to the private sector?
CFA_GRemlin - I agree with you. Unfortunately, the whiners got the ear of the policy makerss. The taxpayers are too stupid to understand that they just bought the farm.
Yeah, virginCFA, I’m sure you know better than the experts in charge what needs to be done. It’s the “whiners”–the whiners that don’t even exist. FRE and FNM employees and senior management have, if anything, been lobbying against takeover. It’s a total lie that “the whiners” have the ear of policy makers. Nobody–and I mean NOBODY–the admin, congress and the GSE employees, want to be federalized.
Press Statement by Mr. Paulson http://www.ustreas.gov/press/releases/hp1129.htm
Honestly, I do know better than the experts. That is why i haven’t lost a penny in this debacle. All it takes is common sense. OFHEO employs 200 people to oversee fannie and freddie yet they can’t figure them out. It’s a joke. The market is void of common sense right now. Wall Street is begging the gov’t with their same ole’ sorry line, “if you don’t help us we don’t know what will happen. It could be bad. It could melt down the whole financial system. It’s that bad. Blah blah blah.” Read your exact post!?! Or read spierce’s whining. Same scary stuff as before. Wait 10 years and rinse & repeat. Meanwhile, homeownership is at the same level it was a decade ago… lotta good it did! Let me assure you that there is VAST amounts of capital on the sideline waiting to sift through the crap that the GSEs & hedge funds created when the price is right. Currently, the price is low enough for the gov’t to step in because they’re totally ignorant and not spending their own money… just trying to smooth things out and get re-elected. It’s a shame. It’s really a shame that financial professionals like yourself are more worried about your job in the near term at a failed organization than you are about the long term efficiency and health of capitalism & our society! I need another cup of coffee now so I’ll stop ranting. Have a nice day.
“So how would eliminating the GSEs re-shift housing to the private sector?” The bailout plan I mentioned above implies your question need not be answered. “Not bailing out the GSEs isn’t the best thing for the American homeowner. In fact, it’s the worst thing. It would be the best thing for American renters (of which I am one of them) once more than half of Americans lose more than half of their net worth (or all of it) and renters can then buy houses in cash.” Houses are still not affordable for the average American. Median house price to income ratio is at 4.75 currently down from 6 while the historical average is close to 3. Housing prices will go down to that level no matter if the GSEs get bailed out. Supply and demand are simply not in equilibrium. To put it into perspective, from 1975 to 1998, inflation-adjusted median house price was 130,000 or so, from 1999 to 2005 that figure climbed to nearly 250,000 and is currently down at 210,000. Still a ways to go. What has been the dollar amount by which the GSE portfolios have swelled in this time period? Get the point? American homeowners who are facing foreclosure should just WALK AWAY. Get a lawyer and declare bankruptcy. Their credit will be worse off but who cares when that person can rent and in 3 years or so he can buy that same house for less than 40%, right? “You’re very passionate about the issues and also dead wrong” Prove to me I’m dead wrong. I want to see numbers. 20% house price declines for people w/ 20% down, 35% DTI, and 30yr Fixed mortgages would not be a problem. I want to see figures that prove that Alt-A and Subprime are no where near the $700 billion figure I “made up”? You can email me at email@example.com.
“Nobody–and I mean NOBODY–the admin, congress and the GSE employees, want to be federalized”…and especially not the taxpayers who are not all too stupid to know that this whole thing really sucks. Anyway, I don’t know exactly what Virgin means by “whiners” but if the gov’t “makes whole” the preferred shareholders, subordinated debt holders, homeowners who bought big houses on mortgages that were inappropriate, etc. then I completely agree with him. There’s lots of crazy talk out there about the gov’t backstopping every risk imaginable associated with leveraged home buying and using some theory of financial contagion and evil Wall Street to justify it. …I just read that statement from Lockhart and it doesn’t seem to me that they are surrendering to whiners. In particular, the common still exists theoretically but it’s toast. The preferred exists, but it looks pretty bad too. I really liked the last few paragraphs…
I read it. I’m not as smart as kkent or spierce but I’m left with 3 thoughts: 1. they snuck in a vague bailout of any banks still holding fannie & freddie pfds and/or common stock, and are still using that investment as capital. I remember that when fannie & freddie were originally created, only lending institutions could hold their stock. I guess some still are. 2. they’re buying more GSE mbs. This is smart… I mean what the heck? They’re already on the hook for the credit quality so by buying them with treasury money they’re not taking on any additional credit risk, just arbing. 3. this is my iffiest takeaaway point: This is a 1 year warning. 1 year from now we may become just as constipated as we are now.
Pardon my ignorance, but have any criminal charges been brought against anyone in this entire debacle since 2007? I have to think that some of what went on bordered on criminal if not outright criminal.
virginCFAhooker Wrote: ------------------------------------------------------- > I read it. I’m not as smart as kkent or spierce > but I’m left with 3 thoughts: > > 1. they snuck in a vague bailout of any banks > still holding fannie & freddie pfds and/or common > stock, and are still using that investment as > capital. I remember that when fannie & freddie > were originally created, only lending institutions > could hold their stock. I guess some still are. > Yeah, the text suggests to me that it is not very material. > 2. they’re buying more GSE mbs. This is smart… > I mean what the heck? They’re already on the hook > for the credit quality so by buying them with > treasury money they’re not taking on any > additional credit risk, just arbing. > Just new paper, I think. I also thought that was an odd section. What’s this business about “since the treasury can hold them to maturity we can’t lose money”? Huh? > 3. this is my iffiest takeaaway point: This is a > 1 year warning. 1 year from now we may become > just as constipated as we are now. It pretty much has to be a warning because Congress needs to solve this problem or extend the authority.
needhelp Wrote: ------------------------------------------------------- > Pardon my ignorance, but have any criminal charges > been brought against anyone in this entire debacle > since 2007? I have to think that some of what went > on bordered on criminal if not outright criminal. I don’t think criminal charges were ever even brought against Franklin Raines, a totally filthy a$$hole, IMHO.
Here’s the point of the PR… "We will not allow market price discovery of these filthy assets. "
A really good thing to do would be to arrest and publicly prosecute a lot of appraisers. Maybe they’d roll over on their bosses and it’d turn up something juicy.
What counntres are more favorable to emigrate to? I am not sure I have enough points for Canada although I havent looked at it in a while. I dont think you can just leave for China. Maybe the fence on the Mexican border would deny many Americans.
I agree. I think we should also arrest lots of local bankers who signed off on these mortgages. Also hedge fund executives who manipulated their prices. And those people who worked at the GSE’s like kkent who absolutely knew what was going on (actually, an important question is what did kkent know and when did he know it?). How about homeowners who knowingly took out mortgages they knew they couldn’t afford because the gov’t was backstopping them. In the end, they really caused this problem. If we granted innocent spouse immunity to people who rolled over on their spouses we might be able to prosecute some really high profile scofflaws (like Ed McMahon, maybe). I also think that Congress knowingly left ambiguity about the gov’t’s responsibility to make whole the debt holders. Maybe they did it because they personally profited from MBS holdings? If so, we should consider criminal charges against them. Imagine if Hillary Clinton has been quietly unloading FNMA paper from her IRA while watching this whole thing unfold. She’d be just as damn guilty as Martha Stewart.
Where do you guys think FNM and FRE will open on Monday? They were both down about 20% in Friday’s AH trading. My sentiment is that whenever the US government becomes involved it never bodes well.
yo guys, fun weekend, eh? haven’t done detailed calcs, but i heard $200B treasury wipeout somewhere (the $1B is just the down payment). that would imply 200B/5T = 4% collateral insufficiency based on the aggregate portfolio. even if you assume that all loans made pre-2003 are above water (collateral value sufficient to cover principal due), implying that 5 years of underwater loans. 5yr / 30 yr maturity => 15% of total 5T loan portfolio, adjusted upwards to say 20% or 25% to account for typical amortization profile based on loan ageing (oh shush, yes, its rough). so, 25% * 5T = 1.25T loan portfolio underwater. redo’ing 200B/1.25T ~ 15% haircut assumed for the post-2003 loans. sounds about right, what do you say? plus minus, you and i (and our spouses, lest sarah pokin gets upset and sends me to american siberia a.k.a. alaska) are funding around 200-250B of this porta potty mess. i just wanted to size up how much we’re paying via the lovely ACH withdrawal every April 15th. anyone have a higher bailout estimate to reset expectations lower? i almost lost my teeth laughing when i read the ‘…and maybe the treasury will MAKE money out of all this…’ i had to wipe the (happy? sad?) tears off my eyes. good one, henri et bennie, tres bon. merci pour le shaft. EDIT: oh bugger it. i ignored the initial equity buffer which should protect the initial x% decline in collateral value. too lazy to think right now…