July 24, 2008 10:24AM
Why You Should be Worried About the Rescue of Fannie Mae and Freddie Mac
By Elizabeth MacDonald
“In this present crisis, government is not the solution to our problem, government is the problem… It is no coincidence that our present troubles parallel and are proportionate to the intervention and intrusion in our lives that result from unnecessary and excessive growth of government.” – Ronald Reagan, Inaugural Address, January 20, 1981
The moves by the government to calm the waters over the perilous health of Fannie Mae (FNM) and Freddie Mac (FRE), the mortgage finance giants, have had a temporary Xanax effect on the markets, similar to the Federal Reserve’s shotgun marriage between JPMorgan Chase and Bear Stearns. This, despite the fact that the moves have kicked into high gear the haymaker of inflation now coming a cropper through family budgets.
What puts me near to having a stroke is when Congress thinks it can whip a fast ball by Americans by saying the moves to bolster Fannie and Freddie will cost $25 bn, in order to sell the $300 bn housing bailout bill.
The $25 bn number is a fake number, the cost will be dramatically higher. And it’s not just because the government’s estimate of the cost to taxpayers for the S&L crisis rose from an initial $50 bn to more than $124.6 bn (not inflation adjusted). Read to the bottom to find out why.
The Congressional Budget Office spitballed this one and came up with a best guesstimate based on its averaging out of what it thought the losses might be. The $25 bn tossup represents an average of the odds of no government money spent whatsoever (weighted at better than 50-50 odds, who is the fantabulist who cooked those odds up?), what the CBO believes is the smaller odds of spending in excess of $25 bn and then in excess of $100 bn (pegged at a rosy 5% probability).
More importantly, the $25 bn arises despite the fact that the Congress just this week sent in the Eliot Nesses from the Federal Reserve and the Office of the Comptroller of the Currency to go find out what the heck is really sitting on Fannie and Freddie’s books, as it clearly doesn’t believe the management at these two levered up examples of crony capitalism.
And don’t forget the history here, CBO’s estimates on the annual cost of tax code legislative changes (federal tax revenues gained or lost) are often way off by $150 bn or more.
But here’s what should concern you.
Instead of reining in their colossal, outsized portfolios which has caused such danger to taxpayers, the legislation went in the opposite direction. It would increase the statutory limit on the national debt by $800 bn, to $10.6 tn, as the two would now get to buy and back jumbo loans worth $625,000.
However, the House bill doesn’t force Fannie and Freddie to wipe out, or even cut, their dividends to investors in the event they draw down on the government’s line of credit, a pipeline into the Treasury worth $2.25 bn each, now expanded and open for the next year and a half. Treasury gets to make that call. Also, the two can use the securities they mint on their own to use as collateral when borrowing at a cheap $2.5% at the Federal Reserve discount window.
And nowhere to be found is any talk of capping the top execs’ pay at Fannie and Freddie. Last year, Freddie’s chief exec Richard Syron got paid about $19.8 mn even though shares in his company lost half their value. Fannie’s top gun Daniel Mudd got paid $12.2 mn in compensation, (with a $2.2 mn bonus).
I don’t know where to begin with the stink bombs, potholes and steam pipes bursting in these two reckless publicly traded companies, which have a total $5.3 tn book of business and another $3.3 tn off balance sheet. Why taxpayers now must now be forced to own a piece of these publicly traded disasters, who exhibit zero fiduciary responsibility, is beyond me.
The two have much higher leverage ratios than banks or hedge funds, but lower borrowing costs due to their implicit government backing, capital cushions they whittled down after they gunned their lobbying engines on Capitol Hill, showering elected officials with money.
Here’s a list–notice none of these issues are addressed in the housing bailout bill:
*Both have a total of a microscopic–did you see it, did you catch it?–$54bn in net worth, generally assets minus liabilities (don’t listen to the $81 bn figure tossed around for their total capital, that’s a pro forma fake number that doesn’t include certain losses).
*Teetering atop that razor thin wedge is a pyramid of debt.
*One stink bomb is the total of $260 bn in securitized assets backed by subprime and Alt-A loans, loans which sit in between subprime and prime. Those sums dwarf their capital positions.
*Freddie has $156.8 bn in level three assets, those illiquid securities it can’t get a pricetag on because no one wants them now. Remember, under US accounting rules, it gets to assign its own values to these assets, they could be worth more, they could be worth less.
*Fannie has $56.1 bn in level three assets, or about a seventh of its fair valued assets.
*Fannie and Freddie have combined debts of $1.59 tn, borrowings they made merely to operate their businesses. Again, that’s against just $54 bn in total net worth. Their guaranteed liabilities were 29 times their net worth at the end of the first quarter.
*They each have $2.25 bn pipelines into the Treasury, which the government now wants to expand. Forty years ago, when they went public, Fannie had debt of about $15 bn. Do the math against Fannie’s $804 bn in liabilities today, and the pipelines should be about $120 bn each.
Still believe that $25 bn figure Congress is selling you?
The right thing to do would be to pull the sheet over the two, put them in receivership and restructure their businesses. Restrain their portfolios, the two need statutory limits on their portfolios, put the guardrails up and do it now.
We’re not talking bankruptcy here, calm down banks and central bankers who hold Fannie and Freddie debt overseas, we’re talking about a restructuring that protects everyone, let the portfolios run off, or else you, foreigners, will be importing our inflation.
Congress must insist on showing a “profit” from this misadventure, beyond the equity you and I will now hold in these two via the government’s moves (taxpayer-owned stakes which are subordinated to other investors, but that’s for another day).
End note: Isn’t it interesting that Fannie and Freddie went public after former US president Lyndon Johnson, worried about the effect of the Vietnam War on the federal budget, moved both off of the government’s books, in an off-balance sheet, adumbrated move presaging Enron?
Remember for the first time in the late ‘60s, Congress changed the rules to let it get its mitts on taxpayer’s our Social Security funds, which it since spent on pork to buy votes.
The ‘60s were when all fiscal and monetary responsibility started to fly into a ditch, and when taxpayers were loaded into the backseat of Congress’s spaceship pointed directly at the center of the sun.
Read Reagan’s quote again at the beginning of this blog–it’s back to the future time.
Comment by Tommy Wagner
Jul 24th, 2008 at 11:15 am
You have the exact point. I never get responses to my explaination of a new species in congress- moronzos- a cross between bozos and morons! Will your article make the news?
Comment by Terryeo
Jul 24th, 2008 at 11:16 am
Personal independence, personal freedom, we all want these things. Government’s duty should aid us and not hinder us. Fanny and Freddie are selected businesses, whether they hurt us and fail or help us and prosper. Don’t let private enterprise be “bailed out” by big government because that is the first step on the road to government tyranny.
Comment by Bill Hunt
Jul 24th, 2008 at 11:20 am
Phil Graham was right, we’ve become a nation of whiners. God bless Rupert Murdoch and Fox News. The end is near.
Comment by DL
Jul 24th, 2008 at 11:21 am
Good thoughtful analysis scoping out the “rest of the iceberg” under that $25B tip we are being shown.
Comment by Ty
Jul 24th, 2008 at 11:21 am
“This, despite the fact that the moves have kicked into high gear the haymaker of inflation now coming a cropper through family budgets.”
What does that mean?
Comment by David
Jul 24th, 2008 at 11:24 am
No responses? The public doesn’t understand where congress is taking them and that is to the poor house. We have no stewardship in DC, no backbone and obviously no intelligence. Woe the the people who’s leaders have no character and do not represent the wishes of the people and only the wishes of the party. I am afraid this is on both sides of the isle. If you pray, now would be a good time!
Comment by Kelly
Jul 24th, 2008 at 11:26 am
I agree with much of the article - but the anti-government screed leaves out one key point: the government’s failure with regard to Fannie and Freddie as private companies was to regulate them responsibly on behalf of the American people - just as they failed to regulate the investment banks that are now disappearing into a financial black hole. Ronald Reagan was also a huge fan of deregulation of financial institutions, like GW Bush, and his administration also generated an unprecedented bill to the taxpayer by letting his rich banker friends rip off the public for all they could in the S&L crisis. The bill for Fannie, Freddie and GW’s broker buddies is going to be much, much larger — and it is *deregulation* that is the culprit at the hands of people like Reagan and Bush who don’t believe gov’t should defend the public’s interest against the monied class.
Comment by Tracy Horn
Jul 24th, 2008 at 11:27 am
Good article, Liz! I’ll bet you won’t see anything like this on any of the (other) major networks!
Why can’t we get more people interested in taking an active part in our government’s actions, and get them back to their proper role of being “the people’s servants”? I guess we all want “ice-cream and circus’s” too badly.
Comment by John Nakao
Jul 24th, 2008 at 11:27 am
Strongly worded but probably the most honest, direct editorial a major news publication will put out? The numbers are staggering, and I agree with the “shut them down” and structuring approach. If we are to call them GSE’s it is a half-way house that has confused the market from Day One. This piece is owned lock, stock and barrel by the U.S.A. (read: taxpayer). Anything going forward should be called U.S.A. (government guaranteed, and greatly resisted) or privately-owned and managed, with no bailouts for the owners.
Comment by theantibush
Jul 24th, 2008 at 11:28 am
So we’ve privatized gains and socialized risk. What a knot!
As for bail outs with tax payer money, why isn’t bushie screaming ‘we dont need socialized trading!’?
Ok, we let incompetent borrowers into the financial markets, manipulated by sleazy loan people.
Ok, we let incompetent people’s votes, manipulated by sleazy political advisors and ‘think tanks’, count the same as the competent.
Thus by normal distribution, the tail wags the dog.
Is it any wonder democracy in America is one of sub-prime leadership?
Until votes are weighed according to citizenship, time in country, community service, criminal record, education, and age, our sub-prime leadership crisis will continue unabated.
Comment by Deano
Jul 24th, 2008 at 11:29 am
I don’t think that I am the only one who believes this country is on a major, downhill slide. It seems there is nothing sacred when it comes to congressional members doing anything they can to save big money investors in this country in an attempt to garner the post-politics position they seek. Anytime they start messing with the natural ebb and flow of the economic system, it starts to go awry.
Comment by Steven
Jul 24th, 2008 at 11:29 am
I totally agree. They’re a solution to a problem that hasn’t existed for decades, making huge profits out of big too big to be allowed to fail. Either they should be nationalized and wound down, of left to fail on their own. Shareholders shouldn’t be given a huge hand out from taxes.
Just look at other Western countries, none have Fannie or Freddie equivalents, and the Northern Rock shambles in the UK, demonstrates what happens when government sticks their oar in. Sometimes short term pain, a big failure, is the best in the long term.
Comment by gary brunk
Jul 24th, 2008 at 11:33 am
GREAT ARTICLE!!! Too bad our local Tulsa FOX “talking heads” won’t air this.
Comment by Westcoaster
Jul 24th, 2008 at 11:35 am
This decision is avoiding the tough medicine that is needed to get the US back on track. Is the government going to bail out the individual consumers who spent too much at Old Navy or Home Depot? I totally agree with your position. Foreign debt holders must be reconsidering their positions.
Comment by Daniel Oakes
Jul 24th, 2008 at 11:37 am
Amen, if you ever decide to run for the Senate, please let me know. I would like to help in your campaign. Let the government stop devising various abstract means of ‘printing money’ in order to push the economic pain further into the future while generating inflation. That future pain becomes increasingly more intense under the wound salt of inflation than the pain to be realized now in dealing with the ever pervasive mal management of trusted assets. Let’s get back to a free market economy in which the gain and/or the loss is realized by the risk taker not the American tax payer.
Comment by David Row
Jul 24th, 2008 at 11:37 am
Same old story. Bailouts for the private companies are okay, but the semi-government agencies discussed here should be axed. Whats needed is more government intervention, not less. Maybe if the FOX (Bush or the Network) had been watching the henhouse before we got to this point, the chickens wouldn’t be running wild all over the barnyard.
Comment by Tom
Jul 24th, 2008 at 11:37 am
If these institutions, who actually required down payments or PMI, were the reckless lenders, please give me a list of the responsible ones.
Comment by Tom
Jul 24th, 2008 at 11:37 am
Finally someone in the press gets it…. and from Fox no less.
Comment by Tony Touch
Jul 24th, 2008 at 11:38 am
The best article on this debacule ever. Keep up the good work. BTW other countries are already importing our inflation.
Comment by david a belanger
Jul 24th, 2008 at 11:39 am
the real reason ( potatohead sect.paulson is doing this is that china and other country have a total of 1 trillion of the securitys fannie and freddie have. this is the only reason they have done what they have done..
still from americans to make their freind in china happy..
what a mess the congress has led us into. they need to let the cards fall.
just as the same banks are doing to millions of americans.
i just let my so call 400,000 dollar home i baught for 300,000 4 years ago go back to the bank, now that it is only worth 140,000 as todays best offer, what a joke. paulson should be hung high and dry.
Comment by Greedom
Jul 24th, 2008 at 11:39 am
You know ? When I say 25 Billion listed for buyout costs - I too thought - gee, that seems awfully low. Heck, it seems awful PERIOD, but low too !
While I agree with the article, it didn’t present issue of federalization of a US corporation as key issue why to question whether this is a responsible move for a troubled nation state.
Call me crazy, and some have ! I have always been a fan of germany styled federalization of the energy resources. I suppose there was that one town that had heating to all the homes, and that was that. Anyway - somewhere in there is a good move for humanity.
but federalizingh the mortgage brokers - what’s next ? federalization the banks ? I mean, what would follow that ? my god - Some Federal Reserve Bank would show up amidst record train robberies of record cash printing in the early 1900’s ! oh no !
By the way - I did observe the US started to print massive cash in the early 1900’s - ALSO the same time as - go figure- these massive train robberies - Only recently did it occurr to me that - yikes, these robberies ? were pulling down 10’s of millions - at that’s at 1900 USD ! Ask yourself - that REAL money, where’d it all go ? Who’s family inheritances have been poisoned by stolen cash !
Uh oh, in that case, if the US took the land from the Native Americans - who’d THEY Steal it from ? Looks like humanity is one pathological line of theivery after another - and we just don’t get it - we just keep taking. How is it we can rob ourselves - How can fail to discern when we are on a dangerous tangent usurping our energies that otherwise could be used to better the life of child.
Yes, the stink bomb is humanity ! Oh uh, maybe not.
Arthur Koestley says humanity is pathological, that religious wars, civil wars, you name it, that with nuclear weapons, we’re all wearing a time bomb around out neck.
And here births the internet out of Arpanet out of planning for a nuclear attack.
And here births Larry Craig’s big interest - nuclear energy out of technologies developed to blow ourselves to kingdom come. Hard to fit the right words in that prior statement.
25 Billion is low balling it.
Oh no, I can’t seem to use any words regarding Craig that can’t be turned into a euphamism.
The big problem with Fannie Mae or Freddie Mac buyout is - even IF you can accept Pualson getting the green light to allow the US Fed gov. just start buying stock in a company, and offering unlimited loans ? (Sounds like Paulson wants a countrywide mortgage here to take the money and fix Fannie and Freddie - IQ above 150 only on that one) is whether the US gov. can even AFFORD it.
At the end of the day, the forest comprises of trees. While the ‘taxpayers’ term is thrown around as if it’s more than an abstract noun collectively, what ? the US citizens have to pay off their mortgage and THEN pay off the debt of the mortgage company ?
Wow - when one goes to sign a mortgage - does the fine print now say “And - you are responsible to pay off the mortgage provider’s debt if it makes some mistakes”.
There are SO many reasons even considering bailing out Fannie and Freddie are dangerous.
For one ? IF nation states that have put their money into the SAFE HAVEN of FM & FM (FM^2 hereafter) ? get word that the US is considering bailing OUT FM^2 ? ALl the while the USD is at it’s WORST positioning ?
My god - and Treasury continues to state ‘confidence is most important feature’
Hey - if the US Federal Government is there to bail out corporations when they fail ? Gee ? Maybe they can bail out the citizens too ?
Ah, I see, the corporation is more important than the citizen in a corpocracy.
That is the real problem here, we live in a corpocracy all the while the Treasury and Federal Reserve pretend it’s something else, and when we have blips showing up on the radar that reveal the tight fit between Congress and Corporations - there really isn’t much to do but get a bag of popcorn and watch political/economic theory/ideologies unravel.
Odd, while China keeps oppression and attempts to move from communism/socialism towards capitalism, the US moves towards oh - nm.
One planet as seen from space, no one has dibbs on anything beyond that- hope you people have some seriously real dreams, in come cultures, the dream is considered the beginning of the day.
Comment by Greedom
Jul 24th, 2008 at 11:41 am
Not sure if prior submit made it or not - reposting. Please ignore this is the first one made it, I am thinking maybe if it’s too long, the server cuts it off ?
You know ? When I say 25 Billion listed for buyout costs - I too thought - gee, that seems awfully low. Heck, it seems awful PERIOD, but low too !
While I agree with the article, it didn’t present issue of federalization of a US corporation as key issue why to question whether this is a responsible move for a troubled nation state.
Call me crazy, and some have ! I have always been a fan of germany styled federalization of the energy resources. I suppose there was that one town that had heating to all the homes, and that was that. Anyway - somewhere in there is a good move for humanity.
but federalizingh the mortgage brokers - what’s next ? federalization the banks ? I mean, what would follow that ? my god - Some Federal Reserve Bank would show up amidst record train robberies of record cash printing in the early 1900’s ! oh no !
By the way - I did observe the US started to print massive cash in the early 1900’s - ALSO the same time as - go figure- these massive train robberies - Only recently did it occurr to me that - yikes, these robberies ? were pulling down 10’s of millions - at that’s at 1900 USD ! Ask yourself - that REAL money, where’d it all go ? Who’s family inheritances have been poisoned by stolen cash !
Uh oh, in that case, if the US took the land from the Native Americans - who’d THEY Steal it from ? Looks like humanity is one pathological line of theivery after another - and we just don’t get it - we just keep taking. How is it we can rob ourselves - How can fail to discern when we are on a dangerous tangent usurping our energies that otherwise could be used to better the life of child.
Yes, the stink bomb is humanity ! Oh uh, maybe not.
Arthur Koestley says humanity is pathological, that religious wars, civil wars, you name it, that with nuclear weapons, we’re all wearing a time bomb around out neck.
And here births the internet out of Arpanet out of planning for a nuclear attack.
And here births Larry Craig’s big interest - nuclear energy out of technologies developed to blow ourselves to kingdom come. Hard to fit the right words in that prior statement.
25 Billion is low balling it.
Oh no, I can’t seem to use any words regarding Craig that can’t be turned into a euphamism.
The big problem with Fannie Mae or Freddie Mac buyout is - even IF you can accept Pualson getting the green light to allow the US Fed gov. just start buying stock in a company, and offering unlimited loans ? (Sounds like Paulson wants a countrywide mortgage here to take the money and fix Fannie and Freddie - IQ above 150 only on that one) is whether the US gov. can even AFFORD it.
At the end of the day, the forest comprises of trees. While the ‘taxpayers’ term is thrown around as if it’s more than an abstract noun collectively, what ? the US citizens have to pay off their mortgage and THEN pay off the debt of the mortgage company ?
Wow - when one goes to sign a mortgage - does the fine print now say “And - you are responsible to pay off the mortgage provider’s debt if it makes some mistakes”.
There are SO many reasons even considering bailing out Fannie and Freddie are dangerous.
For one ? IF nation states that have put their money into the SAFE HAVEN of FM & FM (FM^2 hereafter) ? get word that the US is considering bailing OUT FM^2 ? ALl the while the USD is at it’s WORST positioning ?
My god - and Treasury continues to state ‘confidence is most important feature’
Hey - if the US Federal Government is there to bail out corporations when they fail ? Gee ? Maybe they can bail out the citizens too ?
Ah, I see, the corporation is more important than the citizen in a corpocracy.
That is the real problem here, we live in a corpocracy all the while the Treasury and Federal Reserve pretend it’s something else, and when we have blips showing up on the radar that reveal the tight fit between Congress and Corporations - there really isn’t much to do but get a bag of popcorn and watch political/economic theory/ideologies unravel.
Odd, while China keeps oppression and attempts to move from communism/socialism towards capitalism, the US moves towards oh - nm.
One planet as seen from space, no one has dibbs on anything beyond that- hope you people have some seriously real dreams, in come cultures, the dream is considered the beginning of the day.
Comment by Art Teal
Jul 24th, 2008 at 11:44 am
Your figurative spaceship to the Sun actually broke free of Earth’s graivity under Ronald Reagan. His Laissez-faire policies and monetary pandering to big business and Republican supporters is the root cause of this Freddie/Fannie mess. Reagan and today’s Republicans whine about Social Secuirty and Social Welfare but are perfectly content with Corporate Welfare. Reagan would argue for bailing out Freddie/Fannie and then try and explain why going forward they needed less regulation.
Comment by Don Fannin
Jul 24th, 2008 at 11:44 am
I have yet to be made to understand why these companies can’t be allowed to fail. I understand why banks can’t be allowed to fail their depositors would suffer and confidence in banks would suffer. Even Bear Stearns if allowed to fail, would have cause havoc in the markets where trades would be settled and some clients would loss money and once again cause a loss of confidence.
But Fannie Mae and Freddie Mac are not banks or even investment banks, they have no depositors to protect. All the people hurt would be risk takers, shareholders or bondholders they are being paid to take a risk, they did and got burned. Let go up in flames, that is capitalism.
Comment by Russ Miller, Ft. Worth, Tx.
Jul 24th, 2008 at 11:44 am
In addition to what your article points out, am I incorrect in believing that Fannie pays over 20 executives over $ 1,000,000.00 a year salaries and even more critical both Fannie and Freddie have not eliminated dividends to shareholders? Let the investors take their lumps just as the rest of us have taken our these past 12 months.
Comment by Stephen Bingemer
Jul 24th, 2008 at 11:44 am
I don’t believe your assessment of the government’s intentions are correct or complete. What could/will the government recover from bailing out Fannie/Freddie? Also, how will the affect the immediate and long-term economy?
I think there is a lot more at stake here than just the monetary part of this housing bill. We are seeing that the government is controlling more and more of our market; with the drastic reduction in interest rates, the value of the dollar decreased, our markets became inflated, and we are looking at an economic collapse vs. Europe and developing nations. Our economy looked so great several years ago because we were able to work on the backs of these developing nations, but now as we are becoming economic equals, it is showing that the US is dragging behind in manufacturing, R&D, and plan old hard work.
As far as the Fannie/Freddie bail out goes, I think it is a GOOD short-term solution to our economic problems, but an UNKNOWN long-term solution to our economic future. Even though we are lacking in a lot of areas, I believe the American economy can handle the added $200 billion debt that COULD be incurred by this buy-out. People want to keep their home, and this seems to be a solution that homeowners need. I’m not for big government, but I am for saving our “economic face” when it comes to our nations worth vs. any other nations. Our solution to all of our problems is the value of the dollar vs. the euro vs. the rest of the world’s monetary value. If we can solve this problem, then our economy will rebound back to being the world lender, NOT borrower…
Comment by L.Kurt Engelhart
Jul 24th, 2008 at 11:47 am
Why is it that some people can only think about government as “them?” This kind of thinking is avoidance of responsibility. Government is, or should be, about “us.” If “we” do something wrong, we must accept responsibility rather than trying to pin it on some partisan scapegoat. In the case of the housing crisis, the behavior of the present administration can be seen as a large contributor. Accepting responsibility means removing these incompetent or criminal persons from office and learning from the mistake that put them there. We cannot help making mistakes, but we should insure these mistakes are not intentional.
Comment by James Mason
Jul 24th, 2008 at 11:47 am
You da man there girlfriend!
Good job on distilling the angel’s breath from the grog. I’m still choking on the slag math discharged from our blessed yet freely illiterate press and media outlets.
If ye want to float bravo sierra past a really thick electorate, merely put some frosting upon that turd.
Again, top job there mate,
Keep kicking ass and taking names.
James.
Comment by tara
Jul 24th, 2008 at 11:48 am
The thing that makes me the madest about this situation is so many people working for these companys made so much money off of the backs of the suckers who thought they could make money from the houses they bought. Why dont the people who were making the most money from this help us pay down some of these loans?? I sure wish I could run my buisness and be backed by the government. opps Im sorry I dont think I did that right can I please have a bunch of money someone else has to pay back for me!!!
Comment by Greedom
Jul 24th, 2008 at 11:49 am
I actually re-read MacDonalds articles usually.
Missed this line:
“The ‘60s were when all fiscal and monetary responsibility started to fly into a ditch, and when taxpayers were loaded into the backseat of Congress’s spaceship pointed directly at the center of the sun.”
Well put.
I had to look up the word adumbrated though !
Thanks for the time on this article, sure that’s what you’re paid for - but I think Macdonald would still be bringing constructive criticism in attempts to better this world - or at least prevent it from getting worse ! Point here is, unless I’m missing something Ms. MacDonald, you really seem to be a part of your work, and seem to really snjoy it.
Comment by Don Knepler
Jul 24th, 2008 at 11:49 am
Send FEMA in to fix the two organizations. By the time the head hondos for the three
F’s get it together, it will be a 2012 campaign issue and one of the Clinton Bush
talking points. Ronald Reagan signed both my college diploma and my CPA certificate,
hence, similar thoughts, government fixes are fatally flawed.
Comment by Ken Kesler
Jul 24th, 2008 at 11:49 am
Your article is right on point. My question is “Who will bail the taxpayers out?
Welcome to the United Socialists of America.
Ken Kesler
Comment by Al Budynski
Jul 24th, 2008 at 11:49 am
Imagine a mafia boss saying to you, “In this present crisis, the mafia is not the solution to your problem, mafia is the problem… It is no coincidence that your present troubles parallel and are proportionate to the intervention and intrusion in your life that result from unnecessary and excessive growth of the mafia. Now, here’s what I’m prepared to do to keep you safe from the mafia…”
That’s how all extortion speeches start and Reagan started this whole extortion racket that the government has foisted on the tax payer. Notice how both the government budget and debt (essentially off budget government spending) exploded under Reagan. That’s not fixing the problem. Deregulation was a farce. There was no reduction in regulation, it was simply re-written to favor corporate interests.
Blaming the government for your problems is like blaming fire for burning down your house while ignoring the arsonist who started it.
Comment by Roger
Jul 24th, 2008 at 11:50 am
The current Fed lost its independence by injecting its own money into the current crisis. Actually, it is not its own money; Fed injected the public money and put all of us at risk. In the past, Fed intervened market by changing policies and interest rates. Economy has its own way to cycle ups and downs. It is foolish to put so much money at risk to “prevent” economy to normally complete its cycles. Respect the nature is important; do not just think human is in complete control. The Fed current effort will not prevent a recession; and actually in contrary, it will make this recession deeper and longer. Mr. Paulson has its own personal interst. Remember he came from the Wall Street.
The federal government and the Wall Street elites have an incentive of under-reporting inflation. In a slow economy, the portion of under-reported inflation will suddenly become part of the GDP growth (a virtually a name game). Also, by under-reporting inflation, federal government can avoid lots of payment on society security payment. So, keeping inflation high and not reporting it can really help corporations look good on balance sheet and help government of not paying what it should pay to genral public.
Democracy has many benefits. But, like everything on the earth, democracy has its own drawbacks. One significant drawbacks of democracy is that elected officials have too short time span in making public policies—most public officials are only thinking about next term election and all the effort is devoted to quickly address the current problems if they can or delay them to the next terms; no one is willing to take the hit by make a public policy that require some sacrifice of the current generation but can benefit generations to come. CEOs of publicly traded companies are only thinking about profit of next quarter or next year. Who is supposed to think beyond 10-year or 20-year horizon? This is the fundamental problem of democracy. This drawback is not correctable through the cycle of democracy itself. Mr. Paulson is exactly doing this. He always by asking a small piece to track the other party in to the game. Later, when situation worsens, the other party finds it is not possible of not continuing to get involved. The “unlikely for US government to get involved” and “for the next 18 months only”, and “total liability is $25B” are claims not way to adjust. Mr. Paulson can always come back to the table saying: “…after our last decision, situation has worsened and we need more help.” It is silly to see those Wall Elite and top government officials use this phrase so often; making it like that they have nothing to do with it. Please remember, they should be held accountable if things getting worse when we go down the route they advocated for us.
Look back to history, whether it is a Roam empire or dynasties in China, on average they lasted about 300-400 years: 100 years to grow; 100 years to enjoy prosperity; and 100 years to perish. I am not surprised that if US is already entered the declining phase. No matter how good a system is, just like no matter how healthy a person is, it will come to an end and another new cycle will begin.
Fed should not act as financial “God”. Fed and treasure secretary needs to look beyond the political horizon, for the benefit of the society and generations to come.
Comment by Carola Von Hoffmannstahl-Solomonoff
Jul 24th, 2008 at 11:50 am
And Bush’s resolve not to sign off on the “rescue” unless the CDBG handout to non-profits was removed, folded like a liar’s loan.
Comment by Lon
Jul 24th, 2008 at 11:52 am
At last, someone with the courage to speak out against a plan that is obviously presented to quickly appease a disgruntled public. And, at an unbelievable cost to the tax payer. It is this same type of government “group-think” that allowed these two lenders to exist unrestrained in the first place. By passing on the burden to the back of the donkey isn’t going to make his load any lighter, and will likely make him collapse sooner.
Comment by Cayetano
Jul 24th, 2008 at 11:55 am
Maybe the Fed initiative to help Fannie Mae and Freddie Mac help our present economic situation with tax payer’s money. Then what about the small businesses who are affected by this down turn. We have seen the Fed
lowering the rate to the bank to 2%, but the bank is not responding to consumers needs for lower rate for those who are still qualified. If this economy lingers longer, maybe the people who are now qualified may not be later.
CPI & unemployment is on the way up, the dollar is being devalued, and the Fed as it seems ignoring us consumer.
The help to Fannie Mae and Freddie Mac would be good, but please extend those low rate access to consumers.
Comment by don smith
Jul 24th, 2008 at 11:56 am
1972, my initial year as a residential real estate appraiser. Oh how simple, competent and professional mortgage lending was. Local, in house, prudent and personal. The only mortgage broker was SWD for FHA/VA. As the great Coach Vince Lombardi said ” its a simple game…block, tackle and hold on to the football” Well that is what we need to go back to in mortgage lending. OWNER OCCUPIED, 25-28% rule, local lending via FDIC financial institutions, elimate mortgage broker/wholesaler… the basics always have and always will work for a healthy business environment. A home is a place for family, friends and fond memories. Not a cash machine for fly by nite mortgage brokers and Wall St. hedge funds. Our neighborhoods are being devestated and we need to revise mortgage lending which will heal or neighborhoods around the USA!
Comment by Cayetano
Jul 24th, 2008 at 11:57 am
Maybe the Fed initiative to help Fannie Mae and Freddie Mac help our present economic situation with tax payer’s money. Then what about the small businesses who are affected by this down turn. We have seen the Fed
lowering the rate to the bank to 2%, but the bank is not responding to consumers needs for lower rate for those who are still qualified. If this economy lingers longer, maybe the people who are now qualified may not be later.
The help to Fannie Mae and Freddie Mac would be good, but please extend those low rate access to consumers.
Comment by Ben
Jul 24th, 2008 at 11:57 am
It’s getting really serious if Fannie & Freddie have to be bailed out. It just tells me that the government doesn’t have a clue whatsoever to save this moribund economy. I just cannot believe this is happening in the US with all the brightest minds and B-Schools still unable to figure out how to fix it. Either I am dreaming or it’s a conspiracy. You guys tell me!
Comment by James
Jul 24th, 2008 at 11:58 am
So I can’t say I totally get this (I took a macro econ class but that was a long time ago). Here’s what I think you’re saying to me:
DEBTDEBTDEBTDEBTDEBTDEBTDEBTDEBTDEBT
DEBTDEBTDEBTDEBTDEBTDEBTDEBT
DEBTDEBTDEBTDEBTDEBT
DEBTDEBTDEBTDEBT
DEBTDEBT
DEBT
$
Comment by Max Gersenson
Jul 24th, 2008 at 12:00 pm
Dear Elizabeth McDonald…the article you wrote exposing Fannie Mae and Freddie Mac does concern me…but I am lost in the relationships between the billions and trillions of dollars and how the government is putting the screws to the people with their complex wheeling and dealing. IN SIMPLE EVERYDAY LANGUAGE (omitting the cutesy talk) please distill the facts to the point where it is clear to me and the readers just how the government is going to screw us to the financial wall and then rip us off. I am,(sad to say) unable to connect the dots and fight the system of connivers in our government.
Comment by Misha
Jul 24th, 2008 at 12:00 pm
Reagan–our hero–is the one who started the multi-trillion-dollar Debt Monster on its way. Thanks RR!
Comment by Todd Hagans
Jul 24th, 2008 at 12:07 pm
I am also against the government stepping in on this Fannie, Freddie mess. Why should I and others who are responsible mortgage payers bail out the ones who sucked all the equity out of there homes, or bought a home out of their finacial means. We tax payers are the ones that will pay for this not the gov. . The government is totally out of control with spending. People need to wake up before they have total control of our lives.
Comment by Mr J Dean Birch
Jul 24th, 2008 at 12:09 pm
But Ms McDonald, what puts me near to having a stroke is a President who would appoint the CEO of an investment bank to Treasury Secretary of the US, and a student of Alan Greenspan,to head the Federal Reserve. Also Ms McDonald I find it more than just a coincidence that we have another 2 term Republican President, and another banking/financial scandal. I dont use that term loosely either.
Comment by Feudi Pandola
Jul 24th, 2008 at 12:09 pm
President Bush said yesterday that “Wall Street got drunk” in explaining the current credit crunch. The MBA Cowboys who dreamed up the whole notion of Fannie Mae, Freddie MAC, and Sallie Mae have to answer for this mess. The CEO’s for two of these companies left or were ready to leave with tens of millions in stock options, all paid on the backs of the borrowers and stockholders. The article implies that this mess was caused by the feds but the truth is that the mess was caused by a lack of regulation, nor too much regulation. Loans made with no income verification are just plain bad business and stupid. Common sense, basic financial management practices would have prevented this situation. Lastly, when I went to school, there was no such thing as an “off balance sheet” transaction. The AICPA should ban the whole concept of such a thing.
Comment by helena
Jul 24th, 2008 at 12:09 pm
excellent article !
Comment by Hal Smith
Jul 24th, 2008 at 12:11 pm
Two words
Ron Paul!
Comment by Brad Fleming
Jul 24th, 2008 at 12:12 pm
Mrs. MacDonald, you can’t possibly pen an article like this without being a Ron Paul advocate. I guess the references to President Reagan go down a little bit easier considering the average Fox informed/brainwashed crowd. Nevertheless, I enjoyed the article, keep up the honest reporting.
Comment by BA
Jul 24th, 2008 at 12:15 pm
Elizabeth MacDonald did a wonderful job of explaining the situation to her readers. As soon as I read the projected values of debt and government funding I thought it had to be a joke considering the value of assets and liabilites at the companies.
well written, thanks for sheding light on the situation
Comment by mrgreenlust
Jul 24th, 2008 at 12:16 pm
In case you have forgotten, Reagan ran up the national debt and spent tens of billions on lasers in space, an idea that went nowhere and had zero trickle down in technology because it was all just a big expensive pipe dream.
Stop crying and buy some FNM stock.
Comment by John Smith
Jul 24th, 2008 at 12:17 pm
Seems to me like neocons are taking USA to neocommunism. There is now talk of limiting the short trade of all stocks (short trade “protection” is what they call it) and changing the uptick rule from penny to ‘nickel or dime’. These things are ridiculous meddling with free market economy and the only thing I can equate them to is outright communism. I would never have expected to see these actions taken by the neocons. Are they intentionally trying to wreck the free US economy and turn this country into a communist dictatorship where government gets to decide what you can buy and sell and for how much? It didn’t work for the Soviet Union, it will not work for the neocommunists who have run over Washington.
Comment by Ray Stolp
Jul 24th, 2008 at 12:18 pm
It is a real pleasure to read something that tells the truth, insyead of the glossy faace put on this situation by the bloated congress. Thank you and keep up the good work.
Comment by James Beswick
Jul 24th, 2008 at 12:21 pm
Excellent article - very intelligently analyzed and argued. This crisis will be made significantly worse and substantially longer if the government starts trying to manage it.
Comment by Joseph Frisbie
Jul 24th, 2008 at 12:21 pm
So, how do think this mess should be handled? If you don’t have anything constructive, stick to reporting the weather.
Comment by Donna Ohl
Jul 24th, 2008 at 12:23 pm
The banks offered me sexy ARMs and interest-only loans when I purchased my home 4 years ago and I opted for the straight 30-year fixed, not wishing to gamble on long-term interest rates always being in my favor. I don’t even know what my home is worth and I don’t care as I owe a certain amount and when that is paid, it’s paid. It’s that simple.
I sleep easily, no matter what interest rates do, yet, I paid higher interest rates for that privilege; and, I might add, the taxpayers who are the ATM machine of the government pay, on average, more than half their income to taxes (factoring in federal, state, gasoline, sales, ss, and property taxes).
Why should I, after making good decisions which cost me money, and after losing more than half my subsequent income to taxes, have to now additionally shell out even more to protect companies and people who had no moral hazard in making money off of opposite and obviously seriously flawed decisions. Why should I again, be forced to protect the greedy?
There must be something seriously wrong with the people who need a bailout when interest rates move only a point or two in a period of years. Why must I again have to bail them out, all the while still paying my fixed 30-year mortgage rate?
Comment by Realista
Jul 24th, 2008 at 12:24 pm
CENSUS BUREAU REPORTS ON RESIDENTIAL VACANCIES AND HOMEOWNERSHIP
There were an estimated 129.4 million housing units in the United States in the first quarter 2008. Approximately 110.8 million housing units were occupied: 75.1 million by owners and 35.7 million by renters.
Of the 2.1 million increase in total housing units (since last year), 1.1 million were occupied and 1.0 million were vacant units. Of the 1.0 million additional vacant units from last year, only 20.5 percent were for rent or for sale.
The number of total vacant housing units, 18.6 million, was higher than the estimated number in first quarter 2007. Of these vacant housing units, 13.9 million were for year-round use and 4.7 million were for seasonal use. Approximately 4.1 million of the year-round vacant units were for rent, 2.3 million were for sale only, and the remaining 7.5 million units were vacant for a variety of other reasons.
Comment by Peter
Jul 24th, 2008 at 12:26 pm
I find it interesting that “our” government (of the people by the people) can bail out all these crooks in the loan industry yet, “Frequently, measures of major import . . . glide through these chambers with nary a whisper of debate” (George B. Merry) of helping “our” people like me who is losing my home. How about bailing ME out? All I need is a mere $250K and/or a job (I have a 4-yr degree). Where’s my corporate welfare “get of debt free” card?
Who does a guy gotta blow around here to get some help?
Comment by ukeyoner
Jul 24th, 2008 at 12:28 pm
I can’t believe there isn’t more outrage from the public on this topic. It’s also insane that our legislators can write a bill without knowing the depth of the problem. How come the best that the Congressional Budget Office can come up with is a 50-50 chance (a coin toss) of Fannie and Freddie needing the bail-out, and yet Fox Business seems to have summed up the actual risk pretty nicely. Once again, stellar leadership decisions from our leaders.
Comment by Eric Guggenheimer
Jul 24th, 2008 at 12:28 pm
I believe your missing the point altogether. We have peddled our sub prime loans through out the world and if the glass towers of US civilization were to fail, then confidence in the US Treasuries would collapse, leading to a flight to safety. None of our trading partners would want to hold US backed debt. Then what?
Your righteous indignation for government and there role in preserving the status quo is a bit one sided. I have seen Washington go from a town of dedicated public servants, to what we have now, it appears to be on a path of privatization (corporatization) the role of government has always been to make sure the public interests are defended.
Reagan was the beginning of the small Government revolution to mitigate legacy costs. The question is: is it right, or the right path? Well the post Regan military industrial build up cost us dearly. And so will the Bush legacy.
I wonder how far 10 Trillion one dollar bills, stacked on top of each other would go. Would it go to Mars maybe further. So here we go again, the second round of fiat spending with demographics that clearly will create the perfect storm. 1. Huge Federal Debt, Huge deficits in Social Security and Medicare.
So how do you recommend the public good be defended?
Comment by RationalAmerican
Jul 24th, 2008 at 12:29 pm
…unfortunately, since this appears on fox, it will simply be labled “fear mongering” by the majority of voting American, who don’t have the slightest clue how economies really work. With the growing Obamaification of America, we get dumber and dumber, and get closer and closer to being nothing but slaves for the state.
Get ready for The Great Depression II.
Comment by Andy
Jul 24th, 2008 at 12:31 pm
I do agree that socialism (this new legislation letting the government buy stock in Fannie Mae and Freddie Mac if it looks like their friends are going to take a loss) is essentially guaranteed to make the disaster worse AND leave us all paying the bill.
However, surely there is a conservative somewhere who can write a grammatically correct and stylistically pleasing article? The presentation of conservatives as unlettered lunatics does nothing to bridge the gap between their correct views on economic issues and the generally well educated intelligensia who got conned into believing in socialism by public education - many of whom do still remain open minded.
Comment by Rafferty
Jul 24th, 2008 at 12:37 pm
Add to the title “and support candidates like Ron Paul.”
Comment by dab
Jul 24th, 2008 at 12:37 pm
What does it all mean for li’l ol’ me who wants to (before I needs to) refinance 148k left on a 30yr fixed at 7.375% to get a lower monthly maynt?
Comment by Mike America
Jul 24th, 2008 at 12:42 pm
Dear Ms. MacDonald,
Granted the federal government has become corrupted. However, the corporate masters that allow you to hack out a living with your inane diatribes are the ones doing the corrupting. I think that rather than reiterate their equally inane mantra of “government is bad” perhaps you should look for truth in the good book: “Timothy 6:10.”
I hope you washed your hands after you typed this editorial.
Comment by H. Michael Oesterling
Jul 24th, 2008 at 12:44 pm
Makes one wonder how often and how long the government can fish out cash from it’s botomless “revenue” bag, and then think that it can solve every problem by throwing money at it. What will have to happen for govenment to become responsible again. Our capital may not be so invincible after all.
Regards
Helmut M. Oesterling
Comment by Sean Fulda
Jul 24th, 2008 at 1:41 pm
The author and many of the people writing comments have little or no understanding of just how important Freddie and Fannie are to the public. How good would it be for our country if suddenly 99% of people could not get a mortgage no matter what.
That is why Freddie and Fannie are so important. Without them, the banks could not write mortgages. Did you know all the banks sell the mortgages to Freddie and Fannie ?
Now you do and maybe now you understand why the government cannot allow them to fail. It would be tantamount to the government shutting down all our food stores.
I think its a great thing and I think both are healthy enough to survive on their own but the government is offering this carrot so Americans can still get a mortgage to buy a house. If Fannie and Freddie said we have enough and we dont want to buy more mortgages from the banks we would have no more mortgages. REMEMBER THAT.
Comment by Bobo
Jul 24th, 2008 at 1:42 pm
If Congress and the Bush Administration ran our Business for us(and they do, we call it a Republic, not a democracy), I’d go in and fire every last one of them. Then I’d take back the Constitutional Right of the Fed GOVT to coin it’s own money. That’s right, I’d fire the private company called THE FED. Then my business (the govt) would coin it’s own money interest free. I’d let Fannie Mae and Freddy Mac fail, and then I’d tell those folks in their homes that they can either move and rent for awhile or stay in their homes rent-free until my company had sorted it all out. What a boost to the economy to free up all that mortgage slave money. Then, I would get rid of interest rates altogether. Home prices would drop, as they should. Over time, prices would stablilize at a price that was actually really and truly affordable. When that happened I would offer folks who stayed in their homes their homes back at the stabilized price, interest free. Banks would no longer want to hold the mortgage because there would be no interest incentive. So if banks would not want to own the homes, eventually only builders would own them. They would then offer a portion of the profit off the sale of a house to the bank that gives the homebuyer the loan. So banks would compete for the loan. That is true affordability. The govt needs to abolish interest rates period and coin it’s own money.
So many Americans, including myself, saw this coming. But the media made fun of our message or ignored it, on the only outlet for getting the word out-the internet blogs.
The media is owned by the folks who also are shareholders in THE FED. Fire these guys, already.
Comment by Chuck Nardi
Jul 24th, 2008 at 2:14 pm
The problem is that the old lefty-righty arguments about the degree of government involvement in business, fail to take into account the emerging realities of the 21st century. History shows time and time again that pure laissez-faire attitudes of the government certainly permits the fox to be loose in the proverbial hen-house. Yet, with the ease of movement of capital that modern technnology allows, the government itself can do little to enforce control (at least, less than it could do before).
It is the duty of government to “promote the general welfare” of the people. That primarily means to me policies that protect and grow the country’s middle class. This is the group that has been continually squeezed out by the problems in housing, financing, energy and commodity pricing, and inflation in “basic” food, clothing, health, and education costs, until their remaining disposable income (which historically drove growth in the economy) becomes nil. If government action for Freddie and Fanny (& even Bear Stearns) protects and softens the blow to the general populace, then they did the right thing. I would even like them to go further, and see some action taken against the criminals in the corporate and financial sector. Invoke the RICO act that was used so successfully wielded against organized crime, generations ago. The old “mafia” had nothing compared to the corporate criminals of today.
Comment by Howard
Jul 24th, 2008 at 2:30 pm
I am not smart enough to understand all of this. I work for a living, and have very few investments.
What I do know is that I am tired of Government taking more and more of my paycheck to support stupidity! Why should I break my back working to bail out a bunch of financial people that have done a horrible job of loaning money? I did not get any money from these companies when they made a profit, why should I pay them money when they have problems?
Let them fail, or let them be bailed out by a consortium of businesses that want to own them and run them correctly.
Quit taking my tax money to support bail out stupid people, whether welfare or business bailouts!
Comment by William Carlson
Jul 24th, 2008 at 2:37 pm
Elizabeth Macdonald today you have just become my financial hero. I have been out of the market for the last eight months or so, and have recently considered investing my whole retirement savings in the two big F’s. Thank you for your heads-up analysis and now, I will continue to watch from the sidelines. Will
Comment by Jon Prince
Jul 24th, 2008 at 2:59 pm
I am gravely disappointed at Elizabeth MacDonald’s article, “Why you should be worried…”. It is one more example of one-sided reporting and fails to even attempt a higher view than the skeptical, critical one.
I worked at Freddie Mac as a Vice President of Investor Relations. Our division was downsized and my position was eliminated. I still own several hundred shares of both Freddie Mac and Fannie Mae and have worked closely with Freddie Mac executives for nearly two decades.
These two firms were created by acts of Congress and were intended, ultimately, to benefit Americans by developing a secondary mortgage market to encouraging home ownership. They are private companies, serving a public purpose. They accomplish their mission by purchasing qualifying loans made by banks and mortgage companies. The world could operate fine without them — they simply provide a marginally lower interest rate (i.e. compare the conforming vs. jumbo mortgage rates in your Sunday paper). About 1/2 of all Americans with mortgages have obtained their financing indirectly through FNMA or FHLMC.
Freddie Mac has issued recent statements about its current level of capitalization: see http://www.freddiemac.com/news/archives/corporate/2008/20080711_statement.html. There are criminal penalties now awaiting managements who withhold material information from investors. We must accept these internal assessments as credible.
Investors should not confuse the condition of the national housing market with the condition of Freddie Mac. Admittedly the two are highly interrelated, but Freddie Mac’s book of business is performing very well, reflecting its traditionally conservative underwriting standards. This conservative underwriting stance cost both Freddie Mac and Fannie Mae substantial market share as sub-prime loans boomed through the private label conduits from 2003 to 2007. To see this distinction for yourself, see http://www.freddiemac.com/investors/volsum/pdf/0508mvs.pdf [shown in Table 6]. Compare Freddie Mac’s delinquency rate with that of Countrywide, Washington Mutual, Wells Fargo, Wachovia, Lehman Brothers, Bear Stearns, US Bank, Bank of America and the other major lenders who have retained mortgage credit risk as do Freddie Mac and Fannie Mae. Freddie Mac didn’t sanction sub-prime lending - it never has.
One might be critical of the GSE’s conservative stance, given that they are ostensibly to be ‘out front’ in funding America’s housing needs and not holding back by funding only the safest of loans. The genius of the GSEs rests in the hybrid nature of the firms which combines the capital allocation discipline of free enterprise with a defined public purpose. Thus, the GSE foray into the mortgage credit spectrum is ultimately governed by risk-adjusted returns, and the GSEs bowed out of sub-prime lending, not only because they are ill-conceived loans, but also because the numbers simply never penciled out. As a rule, the GSEs are out front and have been, but the sub-prime mortgage was a key point of departure, where the GSE’s chose to break from the industry. Only when the go-go mortgages of this decade were sliced and diced into credit-protected AAA rated securities did the GSEs find any value and participate in measured portfolio investment.
GSE profits and executive compensation levels are not excessive - like all companies, they have had good years and bad years. The genius is that the government has outsourced this affordable housing finance to competitive free enterprise in a manner that is well regulated and that works.
I am pleased with Secretary Paulsen’s insistence that the oversight and public support of these organizations will be increased. They won’t use a cent of taxpayer money - they don’t need it, never have, and never will. Paulsen is visibly standing behind these organizations so international investors know we aren’t abandoning them. It is the housing market - not Fannie and Freddie, that is in trouble. If allowed to, these institutions can be a material part of the solution.
If your view is authentically patriotic, then stand behind your own criticism and ask that your next home mortgage not be funded by Fannie Mae or Freddie Mac. Thank you for the opportunity to contribute to the discussion.
Comment by Greedom
Jul 24th, 2008 at 3:02 pm
from a previous comment:
Comment by Ken Kesler
Jul 24th, 2008 at 11:49 am
Your article is right on point. My question is “Who will bail the taxpayers out?
Welcome to the United Socialists of America.
Ken Kesler
HA HA
indeed
and even worse - what if Abu Dhabi says “We don’t even WANT the US real estate anymore”
jk on that one
But it is true, when you buy a home today, you will pay mortgage AND you will also be paying at tax time to keep your FM^2 bailed out.
That’s like depositing in a bank on one hand, and paying bank robbers to go rob the bank with the interest you earned on the desposit.
Comment by Tom
Jul 24th, 2008 at 3:16 pm
There are very bad things on the horizon for the average person in this country. In the next 3 years there will be no middle class it will only be the very rich and the very poor. I feel that they should let fanne may and freddie mac go down. I feel that the 18 and 12 million in pay checks should be paid back.
Comment by Harold Thomas
Jul 24th, 2008 at 3:28 pm
An old saying goes that if you put 1000 chimps in a room with 1000 typewriters, eventually one will write Hamlet. The internet as a whole, and this discussion in particular, put the lie to that old saying.
Conspiracy theories, fears of a coming depression, class warfare!!!
Freddie and Fannie will survive without a bailout, unless the chicken littles in the media carry the day. This article does nothing to add to the discussion. Leave this sort of “huffing and puffing” to CNNs Lou Dobbs and those jerks over at MSNBC.
Comment by Louis Nardozi
Jul 24th, 2008 at 4:10 pm
If you don’t want to be part of the 300 billion dollar bailout ($1000 per family member) you should go to the Campaign for Liberty (click on my name) and state your support.
Comment by Robert
Jul 24th, 2008 at 4:32 pm
It’s amazing to me how little people know. The debt relative to the GDP is still a ways off to where it was after WWII and nothing completely collapsed then. Relax people, the US isn’t going to fall in your lifetime, your childrens’ lifetime, or grandchildrens’ lifetime. Come 2,100, anything is possible.
Comment by Brian
Jul 24th, 2008 at 4:35 pm
For all those who berate our greatest president Ronald Reagan, you only have yourselves to criticize for voting in Jimmy Carter and corrupt overspending congressmen. For all those with short-term memory, Carter is the one who caused all these messes in our economy which Reagan had to fix. The direct result of his efforts back in the 80s was an incredible turnaround in our economy the likes of which nowhere seen in the world. The only ones to blame are yourselves for being stupid and electing into place liberal-leaning, overspending, corrupt politicians who continue to ruin our country.
Comment by PCap
Jul 24th, 2008 at 4:39 pm
What happened to capitalism?
For decades now the US housing market has been quasi-socialized via the quasi-government agencies, now they want to completely socialize them. The best situation would have been for the government to wind them down and allow the current troubles to work through the system, so we can reach a bottom.
Only after you reach a bottom can you start to rebuild.
Comment by general public
Jul 24th, 2008 at 4:42 pm
Dear Senators that I vote for:
We are already hungry, laid off and without money. Please don’t tax me more to pay for those riches and their greed. Please don’t make me pay more taxes for bad policies that you are passing into laws.
Please just stop all these idiotic manipulations and stop stealing our hard earned money. I do not want to bailout Fannie and Freddie with my money. Why don’t you representatives and senators sell your houses and cars and pay for the bailouts.
Stop taking my hard earned money. Please
Comment by Terry
Jul 24th, 2008 at 5:49 pm
You are the only analyst on TV that grasps the situation, and has the guts to tell everyone what a sham most of our financial policies are. Thank you for always seeing the TRUE picture, and telling those watching and those that you interview what a terrible mess we have in Washington DC.
Comment by Rich Ingles
Jul 24th, 2008 at 6:32 pm
Dear Government,
YOu are fired.
Yours Truly,
voter
Comment by Stimey
Jul 24th, 2008 at 8:20 pm
Finnaly, a main stream media outlet that is willing to tell the truth about this idiotic bailout plan. Once the public wakes up to the fact that Wall Street has decided to cover their losses with our money NASCAR will get turned off and the pitchforks picked up.
Comment by S. Circle
Jul 24th, 2008 at 8:58 pm
OK, everyone here is mad…..I get it. Now lets do something about it. I’ve noticed that prime mortgages are held by prime individuals…..those who have sought to live a life by which liberty bequeathed from others, is enriched for others. You, like myself, are sick and tired of having no voice. So here is my thought.
What if we somehow organize through the internet. Then we as a group hold back a monthly mortgage payment for a pre-arranged month. We then make two payments on the 1st of the next month to bring ourselves flush again. I imagine there may be some penalties involved, I’m not sure. Now stay with me. Granted, it seems we haven’t accomplished much, but I think the disruption of the flow of money downstream to various profiteers might have beneficial consequences. We could create this disruption on selected future months if we found it necessary. The purpose of this endevour would be to demand from our elected officials some accountability in the form of fiscal responsibility.
Now this is simply a seed of thought. Most of you are smarter than me, so accept this as the beginning of an idea, if you think there is merit, add to it, or discount it as folly. Just thought I’d mention a possible idea, since all the gripes were taken.
Comment by DrDetroit
Jul 24th, 2008 at 10:44 pm
from a recent comment
(NOTE FBN - you might want to update your forum web side software here to allow for replies etc)
start-
Comment by Jon Prince
Jul 24th, 2008 at 2:59 pm
I am gravely disappointed at Elizabeth MacDonald’s article, “Why you should be worried…”. It is one more example of one-sided reporting and fails to even attempt a higher view than the skeptical, critical one.
-end
Jon Prince - I presume you mean Henry PaulsOn - ?
secretary of treasury ? note no caps there !
I have no idea on the ‘one sided’ bias - the article attempts to bring light to a very strange practice here - I for one am no fan of giving Paulson virtually unlimited stock buying power for FM^2 (fannie and freddie).
How strange is that ? that the fed gets to invest into FM^2 - at the same time bailing it out - and sure - like GM or BS - yeah, they’ll ‘turn a profit’ here, the fed that is.
BUT - that’s if things work out
If not, this decision will over-leverage the US ability to handle it otherwise.
THAT is the ‘watch out’ part. No doubt.
I don’t care if you sat in the same airport bathroom in a neighboring stall to a Fannie or Freddie exec - or were one - doesn’t matter.
What does matter is whether you think in principle the Treasury should be playing around with bailout plans here.
Not sure how you call this one one sided, but I just see a spotlight - and the content in that spotlight here.
Comment by Mike S.
Jul 24th, 2008 at 11:00 pm
fedupusa.org fedupusa.org fedupusa.org fedupusa.org —–> u want to act? try this site for great info.
Mike S.
Comment by David
Jul 24th, 2008 at 11:20 pm
I have been investing in gold(heavy) and Euros(lightly) for over 4 years now.
Paying off my taxes(about $3000) this year then I am out of here.
National debt skyrocketing and people want to stay to pay the large taxes in the history
of the world?
No way.
Comment by Chingus Foot
Jul 25th, 2008 at 1:32 am
We can bail out all the big wigs so that they don’t lose any money, but the poor SOB that loses his retirement because of the falling stock market or very low interest on Bank CD’s is SOL.
Comment by Mark
Jul 25th, 2008 at 11:37 am
Great article. You obviously know what you’re talking about and every taxpayer should realize the implications of this taxpayer bailout. That it is all about the Fed and the Treasury working together to save their friends on Wall Street.
Comment by Jay Jay
Jul 25th, 2008 at 12:51 pm
We’re dependant on Fannie and Freddie for home loans like a heroin addict is dependant on junk. You don’t therefore say never try to get off the junk. There were loans being underwritten before the GSE’s took over that sector of the market. They’ve pushed out the private activities that would have normally performed this service thanks to the advantages they enjoy with their ambiguous association with their rich uncle Sam.
The danger is that they’ve grown large enough to influence the very regulator that was supposed to be keeping them under control. From that point, there is nowhere to go but disaster.
Comment by Steve
Jul 25th, 2008 at 2:06 pm
Haha - you’re all for ‘Free Markets’ - when they work for you. When they don’t, you go whining to Papa Congress to fix it. Legally, Freddie and Fannie are private corporations so put your money where your mouths are - just let them go to the wall and let’s see how your wonderful free market sorts THAT out!
Comment by Ivy
Jul 25th, 2008 at 2:47 pm
I LOVE this………Bail outs ARE good! Especially banks - you know those poor banks and their greedy CEOs’ who looted and mismanage these banks - they NEED this bailout.
Bush (and the idiots he listens to) are just the latest and greatest thieves WE elect, then wonder and waste our time on this BS. It’s all phoney money (printed at will) anyway.
If you didn’t see this coming you have only yourself to blame - Bush Jr has NEVER been a success on his own. He’s ALWAYS been bailed out by someone………..so get use to it……..Bailouts ARE good and a few more are on the way!
Till November
Deal with it just like you do your trash….dump em in the trash can and don’t look back.
No news here……….the only saving grace is the NEW and IMPROVED Congress is coming along with the new President………..NO MORE REPUBLICANS! Say it again……NO MORE REPUBLICANS.
Let’s REALLY tax those poor CEOs / those poor Wall Streeters / those poor bankers and those idiots who want bailouts. Big taxes are what’s needed for these folks. Hit em in the wallet.
REMEMBER…….in CAPITALISM there are ALWAYS losers………..move along Mr. McCain………..you’re just another “Bush”man anyway.
You are just another “BUSHMAN” anyway.
Comment by Chris Davis
Jul 26th, 2008 at 2:19 am
The Housing Bill,
Well are we all ready for the Sales of the Housing Mrket to come to a Screeching halt. Why would that be, has anyone asked the Street how the market is, did you know in speaking with a Countrywide 70% of the Sales in Az, CA, NV, have all been FHA Loans, and also with Down Payment Assistance with Nehemia or Ameridream. Oct. 12 will be D-day for the Housing Market, all of the buyers that are needing a Down Payment and the Assistance are flocking to homes currently and have been as even in your articles the Housing Inventory in AZ has decreased from 22 month supply to 9 month supply. Oh the drop is because people has been saving up for the Down Payment I forgot and than they had been able to buy a home as the REO properties haven’t given any assistance at all. I challenge FOX Business, I challange anyone in Congress, as the explanation of Home Sales in Nov. 2008, you will see the activity of buyers drop and the activity from Investors go up, and the glut of homes will continue to stay and we will be out when? This Bill has no idea yes all of the Tax payers are cringing as we all will have this burden, but know one, know one has even talked about the elimination of the Down Payment Assistance programs through the sellers. Are you ready because the Investors will buy, the First Time Home Buyer will be gone, the sales in the market currently are from 85,000 to 300,000 in AZ, and all are using Down Payment Assistance from the sellers, as through the Charities. I hope all of you at Fox Business understand that the housing Market needs this incentive of DPA’s, the Builders of America needs this DPA’s. Why on earth does anyone think that the loans that FHA has provided insurance on in the past with these DPA’s are BAD? Has anyone even asked why FHA, if they thought these loans had been in bad shape as they have been in place since 1999 why wouldn’t they increase the Mortgage Insurance Premium, when the DPA’s came into place the Mortgage Insurance premiums went down from 2.25 upfront Financed to 1.5% upfront. Guess what the Brilliant Guys at HUD, they lowered the premium again to a risk base premium now 1.25%. It is 30.00 a month for a buyer to have additional upfront insurance, FHA didn’t even do any loans in Az in 2004-2007. I would bet my life that the percentage of loans in those three years had been 90% either 80/20 or another loan that took the LTV. to 100%. Know one did an FHA loan, so how on earth would they have any data that explains a high default ratio on the DPA’s. If the program has been in place since 1999, and property values started to increase in 2002-2004 would people be out of that good FHA loan and eliminate the Mortgage Insurance? The DATA from HUD has been completely wrong? The Housing Market is going to pick up for these next three months, because the Down Payment Assistance is going away Oct. 12th WOW this is going to be even worse, the inventory levels trust me will be back to a 22 month supply in three months any bets? That is going to happen if we don’t act on this Bill don’t let them take them away.
Chris Davis
State Mortgage
602-686-9752
Comment by LaVern Isely
Jul 26th, 2008 at 2:59 pm
Dear Ms. MacDonald,
Retired Senator Ernest F. Fritz Hollings was on another network and he wrote a book entitled, “Making Government Work.” He said that there are too many lobbyists in Washington right across from the Capitol(called K-Street) where they are writing the laws. Bailing out Freddie Mac and Fannie Mae isn’t going to work because, when the commercial banks are bailing out investment banks and the stock market, all you are doing in rewarding the criminals that started the problem in the first place. Get some teeth back into politics and reinstate the GLASS-STEAGALL ACT. If the politicians have forgotten what it is, then it is the media’s business to reinform them about why it was put in place in the 1930s to stop the problems that are also taking place now. The blogs are way ahead of the politicians as well as the media on how to solve the problems. What’s making Senator Obama interesting is if he can follow through and TAX THE HEDGE FUND DEALERS which he is proposing to do so he can pay for the tax proposals he has in mind. At that point we would know if those QUESTIONABLE DERIVATIVES are an income or an expense and the IRS would have to take a stand on what they are and who is going to enforce it. When IndyMac failed, the FBI was investigating 90 other banks that were in worse shape than IndyMac Bank. I would hope that we would not have to get President Franklin Roosevelt’s policies back again to close the banks and have a bank holiday to straighten out this mess.
Yours truly, Disgusted Middleclass Taxpayer, LaVern Isely
Comment by Jim Schortz
Jul 28th, 2008 at 10:48 am
Ivey is forgetting that the Democrats have had legislative majority for almost 2 years and have done NOTHING to prevent or cure any of this mess.. In fact Democrats have majority for over 50 of the last 70+ years.. There is plenty of malfeasance on both sides.. Give discredit where it is due, but don’t talk like this problem is somehow the entire fault of the Repubs…
Comment by DrDetroit
Jul 30th, 2008 at 2:38 am
I will clarify the ratio here of credit/debt.
50 to 1
That’s make $50k a year, have 2.5 million margin to work with in your life.
hmm
augh!