A Rescue Plan for Freddie Mac and Fannie Mae

Come on! A bailout is hardly free enterprise. If they fail, they fail--just let free enterprise happen!

Your analysis and remedy seems reasonable. The government must prop up these financial organizations because they are critical to the mortage business. Politics aside, the US is weaker than it has been in years at least in the perception of the world. The weak dollar, transfer of wealth to the middle east, china, nigeria etc only makes it worse. We are still a can do nation but we must pull together more than we have in the past. Our cultural differences are minor compared to the train wreck of a broken economy, high interest rates and high unemployment. Let's roll up our sleeves and "git er done"!

The Fed not coming out with the truth until after the markets closed has all the makings of a conspiracy. This is nuts. I think it was an attempt to squeeze the shorts and prevent Freddie and Fannie from taking too much collateral damage in one day. This is financial armageddon. If somehow the investment banks manage to report better than expected earnings (or posting smaller losses than expected in this case) by using every accounting cheat in their arsenal, you can bet I'll be looking for a rally to short into. This is nuts, I'll say it again. The FDIC better get those printing presses ready. We've just begun to see the runs on the banks.

Protecting Fannie Mae and Freddy Mac is almost as bad an idea as the Smoot-Hawley Tariffs were during the Great Depression. When private capital markets began to balk at continuing their investments in housing, Freddy an Fanny picked up the slack and ultimately this was the cause of the insane housing bubble. These two organizations caused the mis-investment of trillions of dollars that could have gone into factories, research or any number of better things than making housing un-affordable. Now, after this waste of an almost inconceivable amount of wealth, we are supposed to protect Freddy and Fanny so that they can continue to destroy capital through more mis-investment. How can making the bubble bigger possibly help anyone? The only way out of this mess is to let Freddy and Fanny pass into history. These are terrible institutions guided by political favor instead of the market. Far from causing a depression, the death of these wealth destroyers assure that the recession will be short-lived because the capital will be there to rebuild. If a new house costs the new owner $1500 per month instead of $2500 there is a thousand dollars per month available for new purchases and this will create new jobs in new industries. New is the key here. It is into new areas that economy has to enter if it is to survive. The old economy is dying from entrepreneurial senility of the Fanny Mae / Freddy Mac kind. A home is not an investment, it is just a place to live. It should not appreciate in value any more than cars, clothes, electronics or anything else that doesn't produce wealth. A twenty year old house should cost less today in real dollar terms than it did when it was new. If a non wealth producing commodity appreciates in value you can be sure that the government is diddling with the supply or demand somewhere. Freddy and Fanny are just the most recent examples of this.

Great blog, but i couldnt understand where can i subscribe to your rss feed?

Did you say 260bn ? Wow - if I could potentially owe 260 billion and have at MOST ? 60 billion around to cover my debt ? well, I wouldn't. spells bad news. I don't expect Merril OR Citi will have good news. When Citi sold off their student loan unit 2 months ago - I thought, ok, if they sell off Citi Financial next, they're goin' under. So far no Citi Financial to my knowledge. That's their nastyburger sub prime unit, you see them in strip malls. The push CRA, they give 35% loans to people who can't afford them. Just an evil company, Citi. If Citi comes out and announces an earning loss, and has to go under, good riddance.

Hearing the sound bites in the interview here on this subject Ms Macdonald makes me think I'm watching Chris Walken here ! "Yikes" "Ouch" "Skyrocketing" Good stuff though, these two are in trouble - with the sub prime. How to buffer against the waste. I think you're on the money to stop and check this scene out ! But I think the resets coming is still the hottest subject out there.

One thing for sure 5.x trillion is desertly hillbilly money. for sure. indeed ? a mass equiv. to public debt in many ways ? making that 10 trillion now ON the books ? I just don't know. that's 4 to 5 OIF's according to budget predictions, maybe 3 to 4, if you don't skip the armor etc. so, everyone would ask, why again ? should I be even considered to pay for this ? and the answer is that you are (owen wilson tone of voice) it's that you're not. Still 5 trillion is a lot to even consider, I'm sure that's simply not an option in any sane world. Maybe rebundle everything with mineral rights if they're not included but I'm sure those ventures are included ? hmm Abu Dhabi has this 2.x trillion I read for investment in the US. 5 trillion ? Maybe they could get a deal, 33% on the USD - for 1.5 trillion cash in on say 1/2 of both companies combined or maybe a total buyout of one ? hmm... I mean to suggest approaching owning the US housing sector via these two offerings at crazy larry's low low prices today. You know the USD may still be pegged in the middle east, so Abu Dhabi can benefit I suppose approaching - but where is money like that ? that could just pour in, turn on those pumps of cash abu dhabi ? Who knows, maybe someone will say for one sake or another - we will pick up Freddie and the whole gang at the bus stop and then buy the whole bus. final price tag ? I bet a 50% score could be made either side. so what is it ? over $260bn written above in the article ? for toxic debt ? I don't know, I AM just waking up for the day and I to think if a buyer for the entire company could be found, foreign or not, problem solved if they bring real solutions. What would be wrong with having 1/2 of the US mortgages offshored in Abu Dhabi ? this would be in line with Saudi interests I observe to becoming the world's financial center. Maybe someone with even what ? 350 ? 400 billion tops in cash ? or able to buyout entirely ? why not, I wager plenty of solutions exist for sell offs of these companies. at HOW MUCH per share did I see ? $4 ? Sheesh, who might NOT be about saying, sure these two will resurface, count me in on acquiring as much as I can at Crazy Larry's basement prices. I don't offer brokerage services but if I did, calling them Crazy Larry's basement prices might create the perfect snow storm for a new client to be who will be investing more than they may have considered. When they walk out ? Crazy Larry's will have the deed to the home etc. Now, replace Crazy Larry's with what you want. the buyer of this 260 billion USD ? eh ? Does this mean nastyburger unload time at the fed ? to IT taking over this debt ? article said 2.5 billion pipeline into the blah blah.... 260 billion though is a different scenario I bet hmm - what ? loan services will be used heh - but drawing 1/4 trillion USD debt in loan product ? just to cover the toxic debt. hmm

from article: "I don’t think we are headed for a calamitous nationalization of these two giants. " I still ask why not sell off - I find irony on offshored US home mortgages in any excess of say- HALF ? ya think ? all for what ? What WOULD the stock holders settle for ? Well- no Microsoft for this yahoo in this case. except the alternative - one big fat loan from the fed for what ? min ? 260 billion ?

Looks like a no win situation. I like your promo commercials they are running on FBC. You write great blogs and do very well on TV. Congratulations!

Hey Liz, What's up Alexis's comments say Currently Closed was just a few posts on Gates Creative Capitalism - odd no content regarding chances are Gates and Buffett combined make most aspiring billionaires the trailor trash they are. Materistic, hollow beans that will NEVER sprout. Always after the yacht. When they get the yacht they think then they will impress their friends - and then ? they get the yacht and they DO impress their friends. Either way, Gates work in the Bill and Melinda Gates Foundation, and Buffett's work on contributions after he passes away are excellent contributions to how we can really make the best of being in deep black cold space - so far to date the only known planet eh ? trailor trash - most everywhere seeking BMW's - summer homes - 'things' for desperate people. Oh well - Alexis's comments say 'closed' so I thought I'd post that over here, then maybe it will finding it's way back to there. In fact ? I wager 1 day of Gates compared to the running around of so many on wall street to make it appear as if they came out ahead - whether lucking out on a short, WHO knows.... I still say - Gates practices - Buffett practice what I support - which is RESPONSIBLE capitalism. I say beware your teleological commitment to the source of the almighty dollar - without that - you're living in a fantasy land. That Warren is giving away 38 billion ? to some degree ? of all places he said it, was on Fox Business to respond to 'why' with: 'It was never mine' now that is someone that understand the function and value of money in life, and not life in money.

Did anyone see IndyMac today ? from marketwatch article: Regulators said the "immediate cause" of IndyMac's failure was a deposit run in recent days that began after a June 26 letter to the OTS and the FDIC from New York Senator Charles Schumer was made public. The letter voiced concerns about IndyMac's soundness. Gee one letter - one story one bank out of business Hope this senator doesn't have a list of banks he thinks are not so well off.

wha wha wha I guess down goes IndyMac no use of the borrowing window or too quick on the draw on the deposits. Amazing how one bad review cavalcades too. X is in trouble - now X IS in trouble. Run on deposits. Who's next ?

Great Article! We need more media outlets to bring us clear facts and real options to the financial struggles we are currently facing. When media outlets sensationalize in order to achieve ratings, it has a very damaging effect on the good of the country. We need calm thinking and then a rational response that will correct mistakes made. Placing blame and pointing fingers will not help the innocent Americans who are affected by the few greedy politicians and speculative investors who put us in this delicate and dangerous financial situation. The correct decisions will contain a lot of short term pain and there will be many innocent victims but long term the majority will prevail and come out financially more stable and a stronger country over all.

next time the govt wants to send out $100-billion stimulus, it should be used to recapitalize the banking sector as that is where the source of pain resides. a well funded capital market coupled w/ smarter regulation will right the ship. but at the end of this, there will be a much needed discussion on the market distortion that govt plicies like the gse, the ethanol mandates etc. a sad state to be in nonetheless.

Liz I can't thank you enough for your brilliant analysis not just in this story, but in all of your coverage of Wall Street. Through your writing you have helped so many people lead better lives, be it the IRS, taxes, bad accounting at companies that investors should avoid, Congress's wasteful spending. It's clear you are a humanitarian, and a gifted one. You aim to protect. I applaud you, I have been a big fan of yours for years, I think you're great. You are a beautiful person inside and out. Many thanks, and please keep these great stories, insights and analysis coming, we desperately need you!

# Comment by Sarah Wright Jul 13th, 2008 at 3:41 pm Liz I can’t thank you enough for your brilliant analysis not just in this story, but in all of your coverage of Wall Street. Through your writing you have helped so many people lead better lives, be it the IRS, taxes, bad accounting at companies that investors should avoid, Congress’s wasteful spending. It’s clear you are a humanitarian, and a gifted one. You aim to protect. I applaud you, I have been a big fan of yours for years, I think you’re great. You are a beautiful person inside and out. Many thanks, and please keep these great stories, insights and analysis coming, we desperately need you! yeah, what she said.

Wait a second How is it these two companies accrued 260 billion in bad toxic loan products ? Is there sane accountability being missed here ? who in their right mind bought or insured these loans ?

Before Paulson starts giving away stock purchase infusions and loan gateways to the treasury ? Maybe it should be spelled out of the near 300 billion HERE as well -remember CountryWide and BoA have their 300 billion problem too ( hmm last I recall, Bernanke had 600 billion to play with for bailouts, 300 + 300 - hmmm Just why would such a LARGE amount of BAD loans be allowed to be treated otherwise ? I'd say if there was mal intent and some yayhoo was sitting around making billions off this ? prosecute - nail em to the wall. Someone - SOMEWHERE is responsible for rubber stamping those 260 billion in toxic waste that's hurting these two companies. Maybe spread over departments, or different time periods with full rotation of the employees -heh - jk. I question who signed on for this toxic waste that's now bobbing up to shore.

For me at some point I might as well just get out the monopoly board.

In follow up with IndyMac and others to follow- and let's face it - the run on deposits happened as a mere flippant remark apparently - reckless perhaps by a US NY senator. I promote a change of the title to A Rescue Plan for the Federal Reserve ?

Or perhaps with cross-hairs on humor here a Rescue Plan for the FDIC

Apparently confidence is everything !

Our well managed govt. printing more of our fiat currency to help the well managed home loan/banking sector. Somehow i don't see this helping to strengthen the dollar. Maybe the govt. should just go after the few profitable industries the U.S. has left.

The first signs that Fannie/Freddie were experiencing "irregularities" surfaced well over a year ago.. Who are the Congressmen on the oversight committee?? And, where have they been?? This is another disgrace for Congress.. The oversight committee members responsible should be dismissed and jailed ...