Posted on 07/12/2008 4:58:27 PM PDT by BGHater
In good times, they were superfluous. Now they're only as good as their U.S. guarantee
Are Fannie Mae (FNM) and Freddie Mac (FRE) really too big to fail? That's certainly a widely held assumption across much of the political spectrum. Republican Presidential candidate John McCain voiced the conventional wisdom on July 10 when he said, "They must not fail." Democrat Charles Schumer, the New York senator, agreed, saying: "Markets should be assured that the federal government will stand by Fannie Mae and Freddie Mac."
On July 11, shares in the two companies briefly dropped about 50%, but recovered late in the session. Investors are concerned that if house prices continue to fall and foreclosures rise, losses on Fannie and Freddie's portfolios of mortgage-backed securities will force them to turn to the government for help. The condition for a government rescue, if one were needed, might force shareholders to lose their entire investments.
But while it's clear that Fannie and Freddie can't be allowed to go under abruptly, a good case could be made that the two mortgage financing giants headquartered in Washington's Beltway are part of the problem in housing (BusinessWeek, 6/26/08) rather than part of the solution. If that's so, then this might be an opportune moment to let them begin slowly to wither away.
(Excerpt) Read more at businessweek.com ...
IMHO, they were unconstitutional to begin with.
Perhaps some of what we are seeing is an orchestrated attempt to show just how bad things are?
Enron got bailed out by Bubba Clinton once or twice during his watch, and then they said to the new administration, “Hey, can ya bail us out again?” and were dismayed to find the answer was “No”.
The mortgage ‘crisis’ had no reason to exist, there was no reason for the banks to be doing what they did to create the situation.
And yet it exists.
Perhaps it exists solely to be a lesson?
I dunno, I’m not an economist.
But it does look like some of the info coming out is somewhat, “Hey, people, look at what your lenders are doing.”
Nice to see that there is finally some questions being asked. First, do whats necessary to get us through the next couple of years, and I am willing to concede federal involvement in that. Long term solutions to this credit crisi, however, should include the federal government getting out of the mortgage and mortgage insurance business.
F&F: they make money
1) retained portfolio,
2) guaranty fee,
3) ABS investments (partly a result of Barney Frank forcing them to buy subprime since F&F didn’t want to buy the loans)
Their losses are on (3). They could lose money on their retained portfolio is housing prices drop another 10-20%. But right now, they are not in trouble.
Typical media hysteria and various Wall Street firms trashing their competitors.
F&F: they make money
1) retained portfolio,
2) guaranty fee,
3) ABS investments (partly a result of Barney Frank forcing them to buy subprime since F&F didn’t want to buy the loans)
Their losses are on (3). They could lose money on their retained portfolio is housing prices drop another 10-20%. But right now, they are not in trouble.
Typical media hysteria and various Wall Street firms trashing their competitors.
You have a good heart ...
...”I am willing to concede federal involvement in that. Long term solutions to this credit crisis,...”
However this where we ALWAYS GO WRONG and GROW GOVERNMENT.
It's normal to feel bad but it's worse to have a totally socialized nation.
LOOK at what you wrote (above).
You don't want government IN the mortgage business, probably not the health care business and I presume the insurance business ... YET, you “conde” to government for the mortgage “crisis”. Once the government gets involved, it NEVER LETS GO and only EXPANDS to more.
No, as I have stated, I don’t want the government in the mortgage business. I simply don’t want any action now that will make things worse.
In other words let the free market system actually work instead of governmental interference? Heaven forbid!
IMHO incompetence, affirmative action managers ,mismanagement all had a hand in the financial demise of these behemoths.
The problem is. Is that Fannie Mae is a government subsidized entity that between Fannie Mae and Freddie Mac there is 13 trillion dollars in subsidized housing! That’s Trillion not Billion.
Eliminate the damn mortgage deduction already.
Call me a pessimist but I predict the opposite solution will be tried.
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