Thread: Freddie and Fannie Takeover

bigann - 9/8/2008 at 04:11 PM

Does anyone have any thoughts on the government takeover of Freddie and Fannie Mae?

I get nervous when the government takes over anything.


bigann - 9/8/2008 at 04:32 PM

http://www.latimes.com/business/la-fi-fannie8-2008sep08,0,3276692.story


Fujirich - 9/8/2008 at 04:40 PM

Listen here:

http://www.npr.org/templates/story/story.php?storyId=94223417


alloak41 - 9/8/2008 at 04:40 PM

One more example of why things are messed up. Both CEO's were fired, but hit the door with a combined severance package of $24,000,000! We are ruled by a government that wants to punish achievement, but rewards failure.


bigann - 9/8/2008 at 05:01 PM

quote:
One more example of why things are messed up. Both CEO's were fired, but hit the door with a combined severance package of $24,000,000! We are ruled by a government that wants to punish achievement, but rewards failure.


I think your last sentence sums up things very well.

Good link fujirich.....here is another interesting article:

http://articles.latimes.com/2007/dec/09/opinion/op-fraser9


Gregallmanfan - 9/8/2008 at 06:04 PM

A few random thoughts:

Executive Compensation - can't comment intelligently without knowing what their employment contracts says. You don't get what you deserve, you get what you negotiate and these guys clearly negotiated their contracts well.

Gov't Takeover - my personal belief is that the housing markets have further to fall and the sooner the better. This only delays that, perhaps temporarily, perhaps the next economic recovery puts it off for good.

Here's the thing...Freddie and Fannie are the primary sources of liquidity in the mortgage market. By buying mortgages and then holding or selling them, this liquidity does some very important things for consumers:

Banks don't hold the loans they originate. If they did, they would be concentrated geographically and therefore riskier. So, they would charge more.

Mortgage brokers/originators originate mortgages for banks and direct to the secondary market (F & F are considered part of the secondary market). By having both direct lenders and brokers offering mortgages, consumers get better terms and lower rates/fees.

I don't personally support this buyout, I don't think that should be the government's role, but I think the impact is clear - without it the housing and lending crisis gets more severe in the near term. In the longer view, it could soften the landing or delay it. If you are a homeowner or prospective buyer, this is good news for you.


skyponydogboy - 9/8/2008 at 06:05 PM

The Gov'ment needs to stay out of it. They sure as hell aint bailin' my business out.
Bad decisions should be left at that...bad decisions..now there's another bad decision to add to the problem.....poor use of my tax dollars.
"Hey Congress, My gigs have really fallen off and I need about $100,000. to hire me some new musicians...how about sendin' me a check?"


Haisija - 9/8/2008 at 06:06 PM

quote:
The Gov'ment needs to stay out of it. They sure as hell aint bailin' my business out.
Bad decisions should be left at that...bad decisions..now there's another bad decision to add to the problem.....poor use of my tax dollars.
"Hey Congress, My gigs have really fallen off and I need about $100,000. to hire me some new musicians...how about sendin' me a check?"



I'll start practicing real hard.


Fujirich - 9/8/2008 at 08:05 PM

So far I think the gravity of this move is being very under-reported. This has very serious implications for the taxpayer, as well as speaking to the corruption of DC. In the very least this should be a shining example to everyone: when you let our government back something financially or take it over, no one cares about the costs.

This has been the playground of politicians for years; helping cronnies get cushy postions with giant bonuses, helping constituents in lower income ranges get mortgages they could never qualify for under normal circumstances, helping themselves to favorable loans, accepting fat campaign contributions, etc. All the while attempts at oversight were rebuffed by those same politicians, even while warning alarms were ringing.

Now that its on the verge of collapse, which would take much of the rest of our financial infrastructure with it (goodbye FDIC), we have no choice but to bail it out. Like so much of the credit crisis, the truth right now is that we don't know what this will cost the taxpayers. $50 billion? $200 billion? No one really knows.

The key will be to see if the federal government will do the right thing. That would be to break these giants into smaller portions, and sell them off to private companies as quickly as possible. Then, a clear notice must be sent out: "NO MORE BAILOUTS!" No matter what the company or industry, we can not have private profits but socialized loses. The market must work in both directions in order to get back the health.

This should be a clear sign of policy direction in the presidential campaigns. Whomever adhears to something like the above is being fiscally responsible. If they want to keep government involvement with these market functions, then watch out - it's your money they want to bet with.


SquatchTexas - 9/8/2008 at 08:21 PM

quote:
The Gov'ment needs to stay out of it. They sure as hell aint bailin' my business out.
Bad decisions should be left at that...bad decisions..now there's another bad decision to add to the problem.....poor use of my tax dollars.
"Hey Congress, My gigs have really fallen off and I need about $100,000. to hire me some new musicians...how about sendin' me a check?"



One of the few times Ill ever agree with you.... I dont believe the government needs to bail anyone out. People make their own mistakes and like you said, poor use of tax dollars. That said, so much real estate finances are tied up in Freddie/Fannie that to not bail them out, as I understand it, would be disasterous for the entire housing market.

Bhawk is well versed in all this. Maybe he will swing by and comment.


hotlantatim - 9/8/2008 at 10:41 PM

We're also reaping the rewards of bad Federal Reserve policy that artificially lowers rates and increases money supply, on top of the Federal Government putting pressure on the mortgage industry to "stop discriminating" against certain lower income people and to stop keeping people from "realizing the American dream."

This may help the market in the short term but this is no good development. As if the Federal Government wasn't big enough with enough power and influence on our lives already....


bigann - 9/8/2008 at 11:08 PM

http://www.foreclosuredataonline.com/blog/foreclosure-crisis/the-subprime-m ortgage-crisis-how-did-it-all-start/


An enlightening overview of the situation. I find it interesting that the people are losing their homes (and granted, they shouldn't have bought something they coudln't afford) and the people who invested in Fannie and Freddie in common stock are out of luck while in the meantime, everyone else makes out like a bandit with tax payer money.

I know it might be necessary, but there were a number of warnings about animpending crisis that might have changed the outcome had they been heeded. Now, the taxpayers are stuck paying for everyone else's greed.


SquatchTexas - 9/9/2008 at 01:38 AM

Palin is *ucking lost on this issue... unreal.


http://blogs.abcnews.com/politicalpunch/2008/09/a-confusing-com.html

quote:
A Confusing Comment on Fannie & Freddie From Gov. Sarah Palin

September 08, 2008 2:56 PM

Saturday in Colorado Springs, Colo., Alaska Gov. Sarah Palin said, "The fact is that Fannie Mae and Freddie Mac have gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help."

"Too expensive to the taxpayers?"

They're private entities.

Though they're private entities ultimately backed up by the taxpayers.

But the only way Fannie and Freddie are "too expensive to the taxpayers" is if you're talking about the bailout announced over the weekend.

Is that what she meant?

So, does "too expensive" mean that Palin opposes the bailout?

Or did she misstate how these entities function?

I asked the McCain-Palin campaign for an explanation.

Its response was to send an e-mail from domestic policy adviser Doug Holtz-Eakin:

“John McCain supports the steps needed to keep the financial troubles at Fannie Mae and Freddie Mac from further squeezing American families, and endorses the idea that management and shareholders should not benefit from government backing," Holz-Eakin said. "While details are not yet available, the actions taken today are consistent with those objectives. Fannie and Freddie have been the poster children for a lack of transparency and accountability, and remind us of the needed reforms to financial markets in general. We need to create jobs and get the economy going — and get way from the practice of sticking Main Street Americans with these bills. If elected, John McCain will continue his crusade for the right reform of the institutions. Sen. McCain will get real regulation that limits their ability to borrow, shrinks their size until they are no longer a threat to our economy, and privatizes and eliminates their links to the government.”

Right.

That doesn't really answer my question.

A McCain aide e-mails on background that Fannie and Freddie "have $5 trillion in exposure. They either own or insure this much in loans, as such, they are too big a part of the economy to be allowed to fail. Their failure would pose a systemic risk to the economy, which is why treasury is stepping in, and has committed billions in taxpayers to keep them afloat. They are too big, and now, too expensive."

So -- according to this aide, speaking on background -- Palin meant they are CURRENTLY too expensive, though presumably she supports the Bush administration's bailout.

What do you think? You buy that explanation?


bigann - 9/9/2008 at 04:18 AM

Candidates on the bailout:

http://money.cnn.com/2008/09/08/news/economy/easton_freddie_fannie.fortune/ index.htm?source=yahoo_quote


Fujirich - 9/9/2008 at 05:10 AM

quote:
Palin is *ucking lost on this issue... unreal.

Is there any limit to what you'll post as criticsm of Palin? Do you understand the ramifications of this takeover?

Her statemment is not incorrect. The taxpayers were already on the hook due to the first action taken to prop up Fannie and Freddie a month or more ago. Remember those? The Feds put in place some guarantees in the hopes that those would be enough to inspire private investors to keep money flowing into Fannie and Freddie. Just to be clear: federal guarantees = our tax money at risk. And once that happens, the one guarantee you can safely bet on is that they will use our money.

That plan didn't work. Private investors have remained reticent to put their money into Fannie and Freddie, thus the move this weekend to take them over and restructure. What were gurantees have turned into full ownership of something that private investors have been wary of and stopped investing in. So we now have a condition where, at the best, Fannie and Freddie's holdings will be broken up and sold to private companies - at a loss. At this point, no one knows how much loss. Our tax dollars will fund that loss.

It should have never come to this point, and this outcome is a last desperate move to keep the US credit markets from completely falling apart. Had the feds not done this, the volume of defaulting loans would take down many of the nation's biggest financial institutions. As they failed, depositers would want their money, creating a classic "run" on these banks. That would cause the FDIC to fail, because there is no way they have enough money to ensure all those deposits.

If all these things were allowed to occur, the signals to the world financial structure would be devastating. The US treasury would be seen as unable to keep it's commitments. Foreign credit would disappear. Who knows what that would mean for the value of the dollar, but it wouldn't be good. We're talking a financial avalanche that would have serious, worldwide implications.



This bloger obviously forgot about the guarantees that had been tried some weeks ago, already committing taxpayer monies. Palin did not mis-speak. In fact, these should have never been allowed to be connected with the Federal government to begin with.

By the way; one of the organizations who pressured politicians to lower the standards for Fannie and Freddie lending was none other than Acorn - Obama's old employer. So now we know at least one little part of what a community organizer does.



[Edited on 9/9/2008 by Fujirich]


alloak41 - 9/9/2008 at 05:40 AM

Another nice post, Rich. I always wondered why these two were publicly traded in the first place. Much less what the government was doing in the real estate business. I'm sure you noticed today that the market had a big rally, but these two stocks got hammered.


Fujirich - 9/9/2008 at 06:53 AM

The stocks got hammered because there's great uncertainty about how the common stock issues are going to be treated. Indications are that those with common issues are going to be hit with losses that the government won't back up, preferred shares will probably do better, and international investors (China, Japan, etc) will not suffer losses.

So along with whatever taxpayer absorbed losses there will eventually be, the common stock holders are gonna get hit. Which they should in most normal cases. But this is far from normal, as everyone always took assurance that the US treasury would back up all problems. No one ever saw the potential problems becoming as vast as they have.

So you have what were quasi-private companies, backed by government assurances, but far too open to political manipulation. Politicans, who rarely exert financial discipline (especially those in DC), used these companies to further a variety of political aims while at the same time turning a deaf ear to years of calls for investigation and cleanup. Like the investors, they all just thought; screw it, the treasury will back up any problems.

This isn't terribly different from management at a private company cooking the books, leading investors down a rosey path to get their money, and finally getting caught when it falls apart. Except in this case, the credit and faith of the US treasury is involved, plus the solvency of so much of the country's financial infrastructure. There was no choice but to step in. Do you think that any members of congress will be prosecuted because of their actions or inactions in regard to this? If it were a private company, that would surely happen. Not a chance here. And to think that some believe that corporations and CEO's can do more harm than the government - ha!

There's an interesting side story I read concerning those private investors and their options in all of this. Seems like there may be some potential for legal action by them against the feds because of this takeover and what its done to their investments. I won't pretend to understand it at present without further research, but its another angle that has to be considered in all this.

But what happens if housing values continue to weaken, defaulting mortgage rates rise significantly, and the fed boys don't act quickly enough to sell off these assets? A worst case scenario is that this drags the federal government to insolvency. We've tied the credit and faith of the US treasury to the condtions of the housing market. That should be a scary thought for everyone.


Gregallmanfan - 9/9/2008 at 01:56 PM

Good posts Rich.


rainy - 9/9/2008 at 01:59 PM

yes... very good posts Rich..


Fujirich - 9/9/2008 at 02:15 PM

I'm still amazed by how little explanation seems to be included in the general media about what's going on here. And overall, how underplayed this story is in the headlines. I'm not usually a conspiracy theorist, but it feels like a concerted effort is being applied to keep the public in the dark about just how serious this is.

I'm sure there will be some in-depth analysis that starts to come out in the coming weeks, but right now its not "front and center", as you'd expect something this serious to be.

Aww heck; it only brings with it the potential for a country-wide, if not worldwide financial collapse, with the best possible outcome being that the US taxpayers will be on the hook for probably hundreds of billions. But its being treated like just another Washington "whoopsie".


SquatchTexas - 9/9/2008 at 02:40 PM

quote:
Is there any limit to what you'll post as criticsm of Palin? Do you understand the ramifications of this takeover?


Yes, I do. You also laid it out quite well here. The problem is that neither Palin nor McCain echo your statements with regards to previous bail out efforts. Either its not to the degree that you or they think or they dont understand the issue. Given McCain has admitted he knows little about the economy, Im not surprised.

quote:
Her statemment is not incorrect. The taxpayers were already on the hook due to the first action taken to prop up Fannie and Freddie a month or more ago. Remember those? The Feds put in place some guarantees in the hopes that those would be enough to inspire private investors to keep money flowing into Fannie and Freddie. Just to be clear: federal guarantees = our tax money at risk. And once that happens, the one guarantee you can safely bet on is that they will use our money.


Of course. Just like they are using our money to bail out individuals that got ARMs and cant afford to make the payments now.

quote:
By the way; one of the organizations who pressured politicians to lower the standards for Fannie and Freddie lending was none other than Acorn - Obama's old employer. So now we know at least one little part of what a community organizer does.

[Edited on 9/9/2008 by Fujirich]


So, theres a myriad of reasons why Palins statement isnt correct, but we have to drag Obama into it because of a company he USED to work for lobbied the government to lower lending standards? If Im not mistaken, dont the individual lenders bear some responsibility for the decisions they make?


Bhawk - 9/9/2008 at 02:53 PM

quote:
I'm still amazed by how little explanation seems to be included in the general media about what's going on here. And overall, how underplayed this story is in the headlines. I'm not usually a conspiracy theorist, but it feels like a concerted effort is being applied to keep the public in the dark about just how serious this is.



I have a ton more feedback to add to this thread, but I've got one killer workday...dratted work getting in the way...

I will say this. This story is underplayed. Waaaay underplayed. However, few things say "boring" to the general public than financial news, no matter how much it might affect anyone's life.


bigann - 9/9/2008 at 04:22 PM

quote:
I'm still amazed by how little explanation seems to be included in the general media about what's going on here. And overall, how underplayed this story is in the headlines. I'm not usually a conspiracy theorist, but it feels like a concerted effort is being applied to keep the public in the dark about just how serious this is.

I'm sure there will be some in-depth analysis that starts to come out in the coming weeks, but right now its not "front and center", as you'd expect something this serious to be.

Aww heck; it only brings with it the potential for a country-wide, if not worldwide financial collapse, with the best possible outcome being that the US taxpayers will be on the hook for probably hundreds of billions. But its being treated like just another Washington "whoopsie".



The lack of coverage concerns me also. When the people aren't being told what's going on, it makes me wonder what's being hidden. I'm going to throw something else out here that's been a question I've not yet been able to answer.....who, exactly, is the money source behind the Federal Reserve? I was totally surprised several years ago to discover itis not our Federal government.


nebish - 9/9/2008 at 04:53 PM

CNBC has been talking about it quite a bit, but only from the market angle, not the potential financial crisis it has contributed to. I found some interesting stories on the net.

Here is one take on the situation from Peter Schiff, a guy I've seen on the TV financial shows. I even bought his book. He is quite a pessimisitc individual, but perhaps rightfully so.

quote:
Treasury Secretary Henry Paulson, the man who said that subprime was contained and that the Bazooka in his pocket would never be used, now assures us that the bailout of Fannie Mae and Freddie Mac will be costless to taxpayers. Despite the near euphoria that the plan has sparked on Wall Street, the move will go down in history as the biggest policy blunder of all time, and will be credited as a pivotal point in the financial collapse of the American economy. The ultimate cost to Unites States citizens will be in the range of hundreds of billions of dollars, perhaps more.

The original idea that gave birth to Freddie and Fannie, which is to make housing more affordable to average Americans, should now be seen as farcical. Their new goal is to keep housing prices high. Absent Freddie and Fannie, housing prices would fall sharply and the mortgage market would stabilize. Americans would once again be able to buy affordable houses with mortgages they could actually repay –just like their grandparents did. Instead they will keep overpaying for houses, burdening themselves with excessive payments in the process, and ultimately sticking taxpayers with the bills when they default.

In contrast to Paulson’s continuous misreading of the market, I have consistently predicted the failure of Freddie and Fannie. I did so in my book Crash Proof, and in numerous speeches, commentaries and television appearances. I also was quick to point out that Paulson’s Bazooka would not remain holstered for long.

There is absolutely no substance to Paulson’s insistence that based on the government’s first claim on the future profits of Fannie and Freddie, the plan offers protection for taxpayers. There will be no future profits, just more heavy losses. Americans will now have unlimited ability to continue to overpay for houses and commit to mortgages they can’t afford. In fact, the plan insures that eventual public sector losses will vastly exceed those that would have befallen the private sector in a free-market resolution.

Paulson claims that his goal is to stabilize the mortgage market. But the best way to do so would be to allow housing prices to fall to a market clearing level. As long as home prices remain artificially high, the risks of mortgage lending will keep credit tight, and the high costs of mortgage payments will keep potential buyers on the side-lines. With private lenders justly cautious, the government intends to hold open the lending spigots, without the pesky concerns over losses or financial risk. The hope is that the new lending will prevent home prices from falling further. It won’t work. The government “solution” will simply delay the fall of artificially high home valuations and temporarily preserve the illusion of prosperity.

In order to preserve current home prices, the government will be forced to maintain the lax lending standards that got us into this mess in the first place. Since all the losses will now be borne by taxpayers, those lax standards will be much more problematic. The moral hazard that existed prior to this bailout has become that much more hazardous. Every mortgage now insured by Fannie and Freddie is the equivalent of a U.S. Treasury bond. This allows anyone to borrow on the full faith and credit of the U.S. government so long has the money is used to buy a house. In addition, mortgage lending will now be a government function, run with Post Office-like efficiency.

Of course the biggest collateral damage caused by Paulson’s bazooka is the large hole ripped through the already tattered U.S. Constitution. If the government can do this, does anyone believe there is anything it can not do? In effect the Federal government now has absolute power to corrupt absolutely.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.”

http://www.europac.net/externalframeset.asp?from=home&id=13922



And another where Peter was interviewed for the story in the SF Chronicle.

quote:
Like profligate cousins you can't bear to see penniless, Fannie Mae and Freddie Mac are getting a bailout from their good old Uncle Sam - the same deep-pocketed fellow who already rode to the rescue of Bear Stearns and depositors at IndyMac.

Now that the government has established a precedent for outright rescues of tottering financial titans, where else might it need to intervene? The potential trouble spots are wide-ranging and, well, troublesome.

There is also the question of just what will happen long-term with Fannie and Freddie.

"They're presenting this as fairly temporary, but once you've jumped on the back of the tiger, how do you climb off?" said Kurt Eggert, a law professor at Chapman University in Orange and a former member of the Fed's Consumer Advisory Council.

It's unlikely that every one of these situations would reach crisis level, but observers said they expect some of these issues to rear their heads in coming months:

Housing still deteriorates
Nobody says the Fannie/Freddie bailout is a panacea that will miraculously halt the free fall in real estate values.

"This bailout doesn't address the fundamental problem that housing prices have dropped significantly, and many people are in mortgages whose value is greater than the value of their house," said Sam Alberts, financial restructuring partner at White & Case, a Washington, D.C., law firm. "The market is still very saturated with properties (for sale). I don't think we're out of the woods yet."

In fact, some observers say the housing crisis could get worse if the government continues Fannie and Freddie's current lending policies. While the entities tout their strict underwriting guidelines, which include requiring full documentation of income, "you can still buy a house with only 3 percent down," said Peter Schiff, president of Euro Pacific Capital in Darien, Conn. "That's tantamount to nothing down" and creates a breeding ground for more foreclosures down the road.

What tools are left in the government's arsenal? Precious few.

Just weeks ago, Treasury Secretary Henry Paulson asked Congress for the right to use taxpayer funds to shore up the two entities but said the pledge alone would be enough.

"When it was obvious it was a giant disaster, he went to Congress and said, 'Give me this giant bazooka I'll never have to use,' " Schiff said. "Well now he's already emptied the cartridge; there's no more ammunition."

Pension funds need aid
Both public and private pension funds have extensive holdings in the stock market, hedge funds and other battered sectors, including, of course, Fannie and Freddie themselves, whose shareholders are now effectively wiped out.

"When (pension funds) do their reporting for next year, I think they will look much worse," said Dean Baker, director of the Center for Economic and Policy Research in Washington, D.C. The government already has a backstop for pension funds that get into trouble: the Pension Benefit Guarantee Corp., which is funded by insurance premiums from funds, assets of funds it takes over and investment income.

However, if enough funds, or big-enough funds, go belly up, Baker could foresee the guarantee corporation having to go to Congress, hat in hand, to request more money.

Moreover, the agency's limits mean that many pensioners won't end up with the benefits they were counting on. "High-end workers like pilots with six-figured pensions get badly nailed if they're over the top of the guarantee" offered by the agency, Baker said. "Early retirees like auto industry workers who started at age 18 and are out after 30 years would collect their pension at a much lower rate."

Major banks fail
Failures at small banks continue to trickle through the system, at perhaps once a week. IndyMac was the biggest bank to date to go belly up - but nobody thinks it will be the last.

"It certainly is in the realm of possibility" that another major bank will fail, Eggert said. "Not just through its own direct mortgage exposure but indirectly through investments and securities (backed by home loans). I won't name names, but there are certainly plenty of whispers."

Automakers need cash
Faced with slumping sales, General Motors Corp., Ford Motor Co. and Chrysler LLC want $50 billion in low-cost U.S. government loans. While they say this is not a bailout, the three are expected to use the Fannie/Freddie intervention as an argument that they, too, deserve government assistance.

Foreign investors pull out
The United States relies on immense capital infusions from overseas investors. If those investors lose confidence in putting money here, the economy could be devastated.

"All hell would break loose," Eggert said. "It would have a disastrous impact."

He hastened to add: "I'm not arguing this is going to happen, but this is the risk. It's why Treasury felt they had to step in now; they're trying to calm the markets and convince investors the U.S. will fix things."

Schiff does think this doomsday scenario could happen.

"The government wants to maintain the illusion the world will support America forever," he said. "The world will figure it out. They'll flee. No one will want to buy our Treasurys; no one will want our debt. What good is a U.S. government guarantee when it's U.S. dollars? It's not gold bullion; it's just something you can run off a printing press. It will be just like Zimbabwe - hyperinflation and a collapsed economy."

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/08/BUOB12Q9MV.DTL




Here is one from a month ago that foresaw this coming after legislation went through Congress earlier this summer.

http://www.napavalleyregister.com/articles/2008/08/06/opinion/commentary/do c48992a31b9fe5852633599.txt



Gregallmanfan - 9/9/2008 at 05:00 PM

Rich I'm surprised at the coverage too. I'm in the commercial finance business and at an industry trade meeting last night I came away with the distinct impression that lenders' balance sheets are under tremendous pressure that is going to be reflected in less credit available to borrowers and what is available will be much more expensive to justify the capital allocation.

I think there are many financial institutions on shaky ground, the housing market has room to fall, job numbers stink and we have potentially higher gas/heating oil prices coming in the winter. It seems like we're on the precipice of even worse economic issues.


alloak41 - 9/9/2008 at 06:09 PM

The way this is being described in the news as a "takeover" is not accurate reporting. FNMA was founded as a government agency in 1938 as part of The New Deal.


DerekFromCincinnati - 9/9/2008 at 06:30 PM

quote:
quote:
--------------------------------------------------------------------------- -----
Palin is *ucking lost on this issue... unreal.
--------------------------------------------------------------------------- -----


Is there any limit to what you'll post as criticsm of Palin? Do you understand the ramifications of this takeover?

Her statemment is not incorrect. The taxpayers were already on the hook due to the first action taken to prop up Fannie and Freddie a month or more ago. Remember those? The Feds put in place some guarantees in the hopes that those would be enough to inspire private investors to keep money flowing into Fannie and Freddie. Just to be clear: federal guarantees = our tax money at risk. And once that happens, the one guarantee you can safely bet on is that they will use our money.

That plan didn't work. Private investors have remained reticent to put their money into Fannie and Freddie, thus the move this weekend to take them over and restructure. What were gurantees have turned into full ownership of something that private investors have been wary of and stopped investing in. So we now have a condition where, at the best, Fannie and Freddie's holdings will be broken up and sold to private companies - at a loss. At this point, no one knows how much loss. Our tax dollars will fund that loss.

By the way; one of the organizations who pressured politicians to lower the standards for Fannie and Freddie lending was none other than Acorn - Obama's old employer. So now we know at least one little part of what a community organizer does.



Squatch, you are so in over your head on this issue it is unreal. Your Leftist brain is not fit for micro and macroeconomic discussions, as its obvious from this post. But, please keep harping on palin. keep it up, keep it up, keep it up.

Excellent posts, Fuji.

quote:
The way this is being described in the news as a "takeover" is not accurate reporting. FNMA was founded as a government agency in 1938 as part of The New Deal.



The point of Freddie and fannie is to let outside investors provide the capital for lower proced mortgages so that tax payer money isn't used. That just changed completely. This bailout, however, is the last wall of defense. If this doesn't work, then even bigger problems will arise, which still could happen. The crazy thing about Freddie and fannie is that the both of them have about HALF of all mortgages in the U.S. tied up between them. It is hard call to make, as I lean towards letting bad businesses fail. For instance, Bear Stearns should have been allowed to go under. Period. The unprofitable big airlines should be allowed to go under because newer ones who will do it right will take their place (Although some care should be given to the manipulatuion of retirement funds of the workers of the larger and older airlines). If Freddie and Fannie go under completely, the affect on outstanding mortgages woud not only be severe, but on the brutal credit crunch for all consumers that would follow would spread and affect the economy around the world. To his credit, Warren Buffet and others predicted this years ago.

As for this topic not being covered on the airwaves, I would send you to a show that is not to miss in the Charlie Rose Show on PBS, along with The Journal show broadcast daily by DW-TV from Germany also on PBS.

DH


Fujirich - 9/10/2008 at 02:08 PM

Here's a decent analysis piece on the mess we've gotten ourselves in. Scary stuff to be sure -


quote:
A desperate but necessary bailout

The Treasury's intervention to shore up Fannie Mae and Freddie Mac allays the fears of foreign investors, but turning around the US economy will take something close to a miracle.

By Jon Markman

The government's stunning takeover of troubled mortgage titans Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) on Sunday was sold to the public as a prudent, measured attempt to restore order to the U.S. housing market and keep people in their homes.

But look an inch beneath the public-relations job that most media outlets have accepted and you'll find the sad spectacle of a desperate borrower trying to stay one step ahead of its creditors.

The new plan put forward by Treasury Secretary Hank Paulson is a bailout all right. But not of Americans in Kansas and California who have lost their homes to foreclosure. Not by a long shot. Instead, it's an expensive ploy to keep the sovereign wealth funds and central banks of China, Kuwait and Singapore from foreclosing on their Fannie Mae and Freddie Mac debt and plunging the U.S. economy into chaos.

Announced on the first weekend of the new pro football season, the deal amounts to a frantic Hail Mary pass. It was a throw Paulson never wanted to make, as it exposes taxpayers to unlimited losses and violates every rule in the capitalist playbook, yet circumstances left him with few alternatives.

Twisting the Treasury's arm
Major foreign investors, including more than 60 countries' central banks, hold more than $1.4 trillion in securities of U.S. agencies such as Fannie and Freddie, and they were getting extremely nervous as the two companies teetered on the edge of insolvency this summer. So were major U.S. financial institutions such as JPMorgan Chase (JPM, news, msgs) and Pimco, prompting the chief investment officer of the latter, Bill Gross, to pen a scathing article last week that warned of a financial "tsunami" if the U.S. Treasury failed to act quickly to guarantee their investments.

In late July, the Financial Times reported that the U.S. Embassy in Kuwait called that country's sovereign wealth fund managers to assure them of the soundness of U.S. agencies' bonds after the Kuwaitis announced they were not planning to buy the bonds in the future.

Around the same time, Yu Yongding, a Chinese economist and former adviser to China's central bank, warned that if the U.S. government allowed Fannie and Freddie to fail and international investors were not compensated adequately, the consequences would be “catastrophic."

He added: "If it's not the end of the world, it is the end of the current financial system."

Over the top? Not really, for U.S. mortgage loans had become the foundation of what Pimco co-CEO Mohammed El-Erian called the "global liquidity factory." If payments were scuttled, trillions of dollars that were borrowed against them in debt derivatives would become worthless, an event that had the potential to bring down countries, not just companies.

Now that Paulson has made his play, Americans are exposed to incredible danger. If that sounds like hyperbole, do the math:

Of the $4.7 trillion in U.S. debt already in private hands through last week, $2.4 trillion, more than half, was held by foreign investors. The Paulson plan to take over Fannie and Freddie adds an additional $5.4 trillion to U.S. debt, of which $1.4 trillion is owned by foreigners. Thus Paulson has committed to doubling U.S. debt and increased foreign exposure by around 50%.

This is plainly a troublesome matter on its face and may affect the country's overall sovereign credit rating. Now add to this exposure the likelihood of a sharp rise in demand for funds from the Federal Deposit Insurance Corp. and increased demands from the Federal Home Loan Bank system -- and consider that the U.S. faces slowing tax revenues from falling incomes amid swelling joblessness and recession -- and you begin to understand the size of the risk Paulson is taking in our behalf.

A bad choice -- and the only one

Satyajit Das, a credit derivatives expert based in Australia who first helped us understand this mess a year ago (see "Are we headed for an epic bear market?"), concludes that it may mean the end of the U.S. dollar as the world reserve currency, which creates a different set of problems.

Yet Das has looked at the problem inside out and concluded that the Treasury secretary had little alternative. "What Paulson is doing is trading today for tomorrow -- struggling to survive to be able to come back and fight another day," Das concludes.

So will the plan work?

It can, so long as it enjoys a bit of luck and isn't blocked by impatient stakeholders both at home and overseas. But it has a tough bar to clear for success: It not only must keep U.S. home prices from deteriorating further, but also must break the logjam of commercial and consumer credit and kick-start stalled domestic economic growth. The stakes, and expectations, may be impossibly high.

Though the plan allows the companies to avoid bankruptcy, it's uncomfortably close to what Japan tried in the 1990s to keep many of its faltering banks afloat in the tragic aftermath of its own lending bubble. That practice, intended to prevent stakeholders from losing face, created "zombie" entities that bled the country dry for the next decade. The drain stemmed from the government floating billions of dollars' worth of new bonds to create the money to shore up the companies' capital bases, and that crowded out investment dollars that could have gone into more-productive activities, such as starting businesses or expanding factories.

The plan for Freddie and Fannie bypasses the Fed by creating a "conservatorship" for the two organizations that own more than half of U.S. home mortgages. This is like the receivership of a forced bankruptcy -- in which court-appointed experts run a business in place of disgraced former management and untangle all the screw-ups -- but it's a touch more genteel.

Technically, the Treasury plan changes the capital structure of the organizations by guaranteeing their $5 trillion in senior debt and inserting a new class of high-yielding secured debt between equity and that senior debt. The plan slightly expands the ability of the two banks to increase their mortgage-backed-security businesses now, though it requires them to shrink their portfolios of business dramatically after 2010 to a maximum of $250 billion from the current maximum of $850 billion.

This idea produced a big sigh of relief to all the Asian and European fund managers who own the senior debt even though, at the same time, it basically wiped out the equity shareholders -- mostly mom-and-pop retail investors here at home. The shares will remain listed on the New York Stock Exchange for reasons that only legal scholars and penny-stock scammers can understand, as the Treasury apparently wishes to maintain the fiction that they will be worth something one day.

Both stocks will be removed from the Standard & Poor's 500 Index ($INX) at the close of business Wednesday. Freddie Mac will be replaced by business software company Salesforce.com (CRM, news, msgs). Replacing Fannie Mae: industrial supplies maker Fastenal (FAST, news, msgs).

The best-case result

If the Treasury plan works like a dream instead of this nightmare, foreign debt holders will be so excited to buy newly guaranteed Fannie and Freddie debt that they will compete like crazy to buy it -- driving down the yield that must be paid as enticement. That could have the effect of cutting U.S. home mortgage rates by as much as a full percentage point.

Combine lower rates with lower gasoline prices, higher consumer confidence and falling home prices and you can visualize an incredible resurgence in buying, which would slash the vast inventory of unsold homes that's impairing the residential construction industry and get homebuilders revved up again.

Analysts at ISI Group in New York did some math and figured that if you take July's median home price at $204,000, pay 20% down and get a 30-year mortgage at 6.4% interest, the after-tax monthly payment is $795, which is 20.7% of the average American's after-tax income -- a very low level, historically. The National Association of Realtors' housing affordability index is showing the same thing: It's already a good time to buy a house due to price deflation, and if the Treasury's weekend intervention chops mortgage rates, we could be on the verge of a real upside surprise for the economy and the market.

The catch? Well, unfortunately, this plan would have worked a lot better a year ago than now because what started out as a mortgage crisis back then has since metastasized into a broader debt crisis. The litany of woes and negative feedback loops is familiar by now, but just for old times' sake I'll note that falling house prices led to foreclosures among overleveraged homeowners, which in turn led to massive losses at overleveraged banks, which in turn have withheld credit from businesses, which in turn has led to reduced production, which in turn has led to the biggest increase in layoffs in two decades, which in turn has put big smokin' holes in consumers' balance sheets and which has led, finally, to widespread problems with credit card loans, car loans and student loans.

As a result, even though a lot of families would love to obtain a mortgage at the lower rates made possible by the new Treasury deal, a rising number of breadwinners are simply disqualified from buying houses because they're out of work or afraid of losing work, or their credit scores are too messed up to qualify for loans.

Now you know why I called the plan a Hail Mary. Start praying.




http://articles.moneycentral.msn.com/Investing/SuperModels/a-desperate-but- necessary-bailout.aspx


Gregallmanfan - 9/10/2008 at 02:21 PM

quote:

So will the plan work?

It can, so long as it enjoys a bit of luck and isn't blocked by impatient stakeholders both at home and overseas. But it has a tough bar to clear for success: It not only must keep U.S. home prices from deteriorating further, but also must break the logjam of commercial and consumer credit and kick-start stalled domestic economic growth. The stakes, and expectations, may be impossibly high.



Nice article, thanks for posting.

I'll speak to the "logjam" on credit since lending is what I do. Unless the regulators encourage banks to lend, and capital becomes available to lenders, it's not going to happen any time soon. Both structure and pricing discipline are back, I'm seeing loans priced at 200-400 bp higher today than 14 months ago on terms that are much more conservative, and that's if credit is available at all. Lenders are VERY skittish right now.

Now, the mortgage market is priced and underwritten differently - but since the success of this bailout is going to be largely determined by home prices, I would expect there to be some other government incentive to prop up/raise home prices. Whereas the Tax Reform Act of 1986 helped start the bust of the late '80s/90s, a tax code change that helped real estate could spur a boom. More restrictions on foreclosures and easier bankruptcy would help too, as would programs to make buying more affordable. I don't support these, but they wouldn't be a surprise.

Greg


SquatchTexas - 9/10/2008 at 02:30 PM

quote:
Squatch, you are so in over your head on this issue it is unreal. Your Leftist brain is not fit for micro and macroeconomic discussions, as its obvious from this post. But, please keep harping on palin. keep it up, keep it up, keep it up.

Excellent posts, Fuji.


Whether you admit it or not, Palin is proving to be a problem. This issue is just yet another example. And spare me your economic acumen Mr. Greenspan. Fuji is clearly heads above even you.


lolasdeb - 9/10/2008 at 04:36 PM

quote:
Here's a decent analysis piece on the mess we've gotten ourselves in. Scary stuff to be sure -
Thanks for sharing this article, Fuji.


spacemonkey - 9/10/2008 at 04:50 PM

quote:

There's an interesting side story I read concerning those private investors and their options in all of this. Seems like there may be some potential for legal action by them against the feds because of this takeover and what its done to their investments. I won't pretend to understand it at present without further research, but its another angle that has to be considered in all this.

But what happens if housing values continue to weaken, defaulting mortgage rates rise significantly, and the fed boys don't act quickly enough to sell off these assets? A worst case scenario is that this drags the federal government to insolvency. We've tied the credit and faith of the US treasury to the condtions of the housing market. That should be a scary thought for everyone.





This really annoys me. The holders of preferred stock (banks and other institutions) will get relief
while the individual investor is likely screwed.

Another example of how the corporations own and control the gov't.


Fujirich - 9/10/2008 at 04:53 PM

I'd just say this Squatch in Palin's defense on this issue; the taxpayers have always been the backup for the guarantees offered by the Treasury to Fannie/Freddie. Further, when the first plan to prop them up was enacted earlier this summer, the taxpayer was put somewhat further on the hook for these guarantees. Now, with full federal ownership it's all or nothing.

Given all this, I don't think Palin mis-spoke in her response, since there has always existed some implied level of taxpayer back-up for Fannie/Freddie. Could she have given a more complete answer, explaining the rationale for her statement and educationing the public in the process? Well sure - that would have been great. But I have to believe that when you're on the campaign trail, with 50 mics and video cameras there to pick up everything you say and do, a shorter answer is probably a better one given the circumstances.

We had people running for office that explain themselve too much and they end up being ridiculed for being too wordy, too complicated. Obama suffers a little from this. I - and probably you - tend to like it when someone tries to educate the public and takes time to offer a more thorough explanation. But I don't think the general public and especially the media like it as much.

There are certainly issues to be concerned with Palin about, but I don't think this is one of them. It's kinda like the extreme Bush haters in recent years. To hear some of them he's responsible for every negative development across the globe. That's no more true than Palin being worthy of attack on everything she's done or said.

What is more important is what the campaigns are saying about their stance on this issue. Like the media coverage, their comments have been surprisingly few. I guess an issue as important as the potential destruction of the US ecomony, if not the world's, doesn't warrent much interest these days. Amazing that Obama's "lipstick" comment is getting more press today than this. Goes to show how truely distracted much of the public is.

BigAnn's link earlier in the thread was a good one: http://money.cnn.com/2008/09/08/news/economy/easton_freddie_fannie.fortune/ index.htm?source=yahoo_quote

These may be early positions that will go through refinement, but McCain's team is clearly talking about the correct solution here. Shrink these companies (meaning to sell off large portions), and privitize them. The longer they stay intact and under federal control, the more likely that problems will arise and potentially sink us all.

Obama's comments concern me. When his team discusses "looking out for the homeowner" it may indicate a desire to keep some political control (what got us in this mess to begin with) and to pander to low and middle class voters. I have sympathy for them too, but when it's a choice between some people loosing their homes and the destruction of the US and/or world economy, the choice is obvious. So far, he's on the wrong side of this, but more needs to be heard from him. The choices are between terrible and catastrophic, and I think terrible is the correct course- albeit a very painful one.

We need to brace ourselves for more situations like this in the future. After mis-spending and over-borrowing for decades, our government is running out of alternatives to keep paying for the good times. From entitlements to social programs to services we've taken for granted all our lives, there's going to be plenty of cut backs and un-met promises in the future years.


Fujirich - 9/10/2008 at 04:59 PM

quote:
This really annoys me. The holders of preferred stock (banks and other institutions) will get relief
while the individual investor is likely screwed.

Actually, from what I understand in reading more since I first posted on this, all equity investors are probably going to get hit with the losses: common and preferred. I think part of what's going on today with Lehman Brothers is tied to their expected Fannie/Freddie preferred stock losses. The bond holders will probably be the only ones safe, and most of those are foreign creditors that we must protect in order to have any hope that they will continue to do business with us.

A lousy set of options, isn't it? Thank decades worth of congressional and Federal Reserve policy and inaction for the fix we're in.




[Edited on 9/10/2008 by Fujirich]


kdick - 9/10/2008 at 05:07 PM

Based on the massive size of the debt obligations outstanding it had to be done (should have never been privatized in the first place). That being said, as many have stated it opens up the door for many industries to follow. My guess is the Auto Industry comes knocking before the election looking for some relief. The precedent that has been set here is enormous. stay tuned


bigann - 9/10/2008 at 05:12 PM

I'm going to throw something else out here that's been a question I've not yet been able to answer.....who, exactly, is the money source behind the Federal Reserve? I was totally surprised several years ago to discover itis not our Federal government.

It appears we have people posting here who know more about banking than I do and I really have been wondering about the Federal Reserve. I've been trying to track it down for a while now and have made very little headway.



alloak41 - 9/10/2008 at 05:16 PM

quote:
I'm going to throw something else out here that's been a question I've not yet been able to answer.....who, exactly, is the money source behind the Federal Reserve? I was totally surprised several years ago to discover itis not our Federal government.

It appears we have people posting here who know more about banking than I do and I really have been wondering about the Federal Reserve. I've been trying to track it down for a while now and have made very little headway.





The Fed is shrouded in secrecy. The minutes from their meetings aren't even available to look at until five years after the fact.


Brendan - 9/10/2008 at 05:28 PM

What could be much more worrisome than this is if our government has to step in any way to keep Lehman Brothers from failing. Anybody care to guess what their potential counterparty exposure is? Here's a clue. The term starts with the letter "T" and ends with "illions". Note the "s" on the end... Makes Bear look like a local bank.

Can we let Lehman fail?


Gregallmanfan - 9/10/2008 at 06:14 PM

quote:
What could be much more worrisome than this is if our government has to step in any way to keep Lehman Brothers from failing. Anybody care to guess what their potential counterparty exposure is? Here's a clue. The term starts with the letter "T" and ends with "illions". Note the "s" on the end... Makes Bear look like a local bank.

Can we let Lehman fail?


Wow Brendan, that's staggering...the credit markets are absurdly tight already, frog's ass watertight....add counterparty mix to a balance sheet already battered by credit and interest risk??? Ohhh baby......


bigann - 9/10/2008 at 06:36 PM

Here's something interesting I found a while ago.

http://www.save-a-patriot.org/files/view/whofed.html


lolasdeb - 9/10/2008 at 06:44 PM

quote:
I'm going to throw something else out here that's been a question I've not yet been able to answer.....who, exactly, is the money source behind the Federal Reserve? I was totally surprised several years ago to discover itis not our Federal government.
Here's a half way decent explanation of the Fed Reserve operations, Ann.

http://www.frbsf.org/publications/federalreserve/monetary/MonetaryPolicy.pd f

and the Feds themselves (if you want to know who the banks and/or other financial resources are for reserve funds, etc):
http://www.federalreserve.gov/
quote:
Whether you admit it or not, Palin is proving to be a problem. This issue is just yet another example. And spare me your economic acumen Mr. Greenspan. Fuji is clearly heads above even you.
Since there are about 100 threads currently in the WP dealing with this years elections would it be possible to keep the politics out of this thread (at least the REP v.s. DEM finger pointing) so that it can remain a source of information and discourse on the important topic at hand which is Freddie and Fannie takeover? Please? Thanks!


Fujirich - 9/10/2008 at 06:49 PM

quote:
I'm going to throw something else out here that's been a question I've not yet been able to answer.....who, exactly, is the money source behind the Federal Reserve? I was totally surprised several years ago to discover itis not our Federal government.

It appears we have people posting here who know more about banking than I do and I really have been wondering about the Federal Reserve. I've been trying to track it down for a while now and have made very little headway.

The Fed is the money source. They won the rights of control and creation of the US currency back in 1913. They are not a department of the Federal government. Instead, they are made up of a variety of large banks and financial institutions, and as alloak41 indicated, there's some mystery and secrecy to the makeup of the group. Consider that for a moment: the US government does not control it's own currency.

If you want to know more, watch this -

http://video.google.com/videoplay?docid=-466210540567002553

It's kinda long (about 40 minutes), but it's one of the best reviews of the history of money, the banking system, and the Federal Reserve that I know of. The source is the Mises Institute, a group of economic conservatives.


lolasdeb - 9/10/2008 at 06:53 PM

quote:
Here's something interesting I found a while ago.

http://www.save-a-patriot.org/files/view/whofed.html
One look at this does a good job of providing some insight into affect Lehman failure could have.


Gregallmanfan - 9/10/2008 at 06:56 PM

quote:
quote:
Here's something interesting I found a while ago.

http://www.save-a-patriot.org/files/view/whofed.html
One look at this does a good job of providing some insight into affect Lehman failure could have.


I'll have to read this at home, my company's security program banned it as "militancy and extremist"


lolasdeb - 9/10/2008 at 07:04 PM

quote:
quote:
quote:
Here's something interesting I found a while ago.

http://www.save-a-patriot.org/files/view/whofed.html
One look at this does a good job of providing some insight into affect Lehman failure could have.


I'll have to read this at home, my company's security program banned it as "militancy and extremist"
Interesting on the ban - wonder if it was the site or the document. It's just a flowchart of some Federal Reserve's banks/directors/corp influences but it demonstrates how entrenched Lehman Bros is in the NY Banking world (and thus Fed Reserve).

[Edited on 9/10/2008 by lolasdeb]


bigann - 9/10/2008 at 08:04 PM

This is a really good thread and I thank you all for the information and links. It would be nice if more people tried to understand how our economy is run and by whom.


lolasdeb - 9/10/2008 at 08:07 PM

quote:
This is a really good thread and I thank you all for the information and links. It would be nice if more people tried to understand how our economy is run and by whom.
I agree, Ann - these are things that affect us all as US Citizens.


DerekFromCincinnati - 9/10/2008 at 08:08 PM

quote:
spare me your economic acumen Mr. Greenspan. Fuji is clearly heads above even you.


Absolutely true, and that still leaves you way behind.


SquatchTexas - 9/10/2008 at 08:36 PM

quote:
quote:
spare me your economic acumen Mr. Greenspan. Fuji is clearly heads above even you.


Absolutely true, and that still leaves you way behind.


Im not the egotistical ass that parades around here pretending to know more about everything than everyone else and attacking others that dare to offer up their experiences and personal knowledge. Unlike you, I readily admit when I dont know about something, such as deep issues regarding economics. You go read a Forbes article and then try to pass yourself off as some kind of half-ass expert, attempting to wow everyone with your knowledge. Most of us see right through you. You are easily the greatest bullshiat artist Ive ever seen, hands down.


bigann - 9/10/2008 at 08:43 PM

During my recent google searches I found a link for one particular reason. It appeared to be an antisemitic site with some heavy sounding music with guttral singing remeniscent of German influence that showed how many of the people sitting on the Federal Reserve are Jewish. I turned the sound off right away and only watched the first part of the video because it was so obviously a hate filled rant. However the information about the members of the Fed was interesting.

I don't see any grand Jewish conspiracy here , however, the interesting thought was perhaps the membership of the Jewish directors might provide a clue to some hitherto unknown ties to Israel that put our Israeli foreign policies into perspective.


CEEJ - 9/10/2008 at 09:38 PM

quote:
We need to brace ourselves for more situations like this in the future. After mis-spending and over-borrowing for decades, our government is running out of alternatives to keep paying for the good times. From entitlements to social programs to services we've taken for granted all our lives, there's going to be plenty of cut backs and un-met promises in the future years.


Just what do you believe government is? It's as if you assign it the powers of a deity. Are you suggesting that the individuals who took the loans, the private corporations who pushed them, the private investors who made boatloads of cash on the industry and the private power elite who have decried and shredded the legitimate role of industry regulation, had nothing at all to do with the crisis at Fannie and Freddie? Right....Please tell me I have completely missed your point. It seems that every post and comment you ever make, ultimately ends up in the overly simplistic conclusion that government is the source of all problems.....pure evil - your antichrist, so to speak........This only serves to seriously undermine your credibility, in general. It's too bad, because so many other points you make are compelling, accurate and thoughtful.

Governments, corporations, families and churches are intimately interwoven social constructs, which are means for people to organize and meet their needs through collective action. Its nice and tidy, I suppose, to choose one of these institutions as a scapegoat for all problems. However, if you really look at the situation, the institutions merely reflect the will and conscience of the people who create and manage them. The simplistic argument that "government is always to blame" is akin to asserting that the gun is somehow responsible when a person uses it to murder another. It makes little sense and distracts from the point at which true culpability exists. Is this your intent?

Peace.

Erik





[Edited on 9/10/2008 by CEEJ]


lolasdeb - 9/10/2008 at 09:42 PM

quote:
During my recent google searches I found a link for one particular reason. It appeared to be an antisemitic site with some heavy sounding music with guttral singing remeniscent of German influence that showed how many of the people sitting on the Federal Reserve are Jewish. I turned the sound off right away and only watched the first part of the video because it was so obviously a hate filled rant. However the information about the members of the Fed was interesting.

I don't see any grand Jewish conspiracy here , however, the interesting thought was perhaps the membership of the Jewish directors might provide a clue to some hitherto unknown ties to Israel that put our Israeli foreign policies into perspective.
Interesting. Wonder if the site was sponsored by a white supremist group because that almost sounds like their slant? I wouldn't think that there was any Jewish conspiracy involved here but it appears that there were some connections to Hitler early on (like other financial types affairs with many of the robber baron folks).


bigann - 9/10/2008 at 10:01 PM

Please don't misunderstand what I was trying to say.....I'm just wondering if we have legitimate financial ties to Israel that are reflected in the membership of the Federal Reserve. It would go a long way to explaining aspects of our foreign policy if our finances were mingled in some way with Israel. It's just curiousity on my part.


lolasdeb - 9/10/2008 at 10:04 PM

quote:
Please don't misunderstand what I was trying to say.....I'm just wondering if we have legitimate financial ties to Israel that are reflected in the membership of the Federal Reserve. It would go a long way to explaining aspects of our foreign policy if our finances were mingled in some way with Israel. It's just curiousity on my part.
Gotcha.


DerekFromCincinnati - 9/10/2008 at 10:05 PM

Wow. We have the sentence - "I don't see any grand Jewish conspiracy here" - followed by the sentence - "..perhaps the membership of the Jewish directors might provide a clue to some hitherto unknown ties to Israel that put our Israeli foreign policies into perspective."

OK


bigann - 9/10/2008 at 10:24 PM

Just because there might be legitimate ties with Israel that may be reflected by the members of the Federal Reserve doesn't mean there is a conspiracy. It means there may only be a piece to the puzzle of who actually owns the Federal Reserve or, more importantly to me, where the money is coming from. If there was a large Irish representation I'd look for the same ties to Ireland. No reason to make it what it's not.


Fujirich - 9/10/2008 at 11:27 PM

quote:
quote:
We need to brace ourselves for more situations like this in the future. After mis-spending and over-borrowing for decades, our government is running out of alternatives to keep paying for the good times. From entitlements to social programs to services we've taken for granted all our lives, there's going to be plenty of cut backs and un-met promises in the future years.

Just what do you believe government is? It's as if you assign it the powers of a deity. Are you suggesting that the individuals who took the loans, the private corporations who pushed them, the private investors who made boatloads of cash on the industry and the private power elite who have decried and shredded the legitimate role of industry regulation, had nothing at all to do with the crisis at Fannie and Freddie? Right....Please tell me I have completely missed your point. It seems that every post and comment you ever make, ultimately ends up in the overly simplistic conclusion that government is the source of all problems.....pure evil - your antichrist, so to speak........This only serves to seriously undermine your credibility, in general. It's too bad, because so many other points you make are compelling, accurate and thoughtful.

Jezz Erik; we don't hear from you in ages and you step in firing both barrels in a thread that's just trying to make sense of what's going on with this Fannie/Freddie thing, why it's being so under-reported, and what the ramifications really are. Everything ok? You doing alright? Has the AC quit wherever you are today?

The point of that sentance is to extend what's happening with this Fannie/Freddie thing into other, future government-related concerns. The action taken to put these companies into conservatorship was the last stop on a list of bad options. It puts our Treasury, and the future financial soundness of our economy at great risk. It will likely cost hundreds of billions to US taxpayers. That's if we're lucky and it doesn't spin into complete failure.

The policies of these companies were set by Federal Reserve monetary policy, market conditions, and congressional influence. Since they have always been untimately backed-up by the Treasury it bred a culture of "who cares, the government's got our back". Unfortunately this is not uncommon in regard to many federal programs and departments, to which a mountain of debt, mis-spending, and financial abuse would attest. The regulation oversight that you mentioned have been ignored in recent years by congress, because the money was flowing which was good for them and their constituents.

If these were fully private companies, many of these folks would be facing prosecution. Because it been so intertwined with the federal government, the same people who so beautifully influenced it into the shape it's in today will help decide what happens as we go forward. Nice, huh?

I don't deny the need for social organization and direction via some form of government. But in our case, the accumulation of power at the center is creating many of our country's problems. Duties that were not spelled out in the constitution as core responsibilities are among the biggest failues: social programs, education, energy, entitlements, etc. These are either performing badly, on the path to financial ruin, or both. Some believe that they can be funded or managed back into health. I don't agree. To me, that's like giving more money and a free hotel room in Vegas to someone with decades of known gambling addiction, hoping that they can be cured.

Back to the statement you picked out, the question is: when does the money run out? How much longer can we expect foreign creditors to keep funding our government's commitments? In recent weeks, foreign credit managers were already talking caution or outright withdrawl. That was one of the biggest reasons behind the takeover of Fannie and Freddie - to settle foreign concerns. How long do you think the Social Security and Medicare payments will be made if Treasury bonds are no longer bought by foreign investors?

The feds have very few financial options remaining to keep the current level of spending afloat. Only one option remains at some point: serious cuts and restructuring of spending. Since over 50% of the federal budget is now on social programs and entitlements, do you think those will remain untouched?

I have no problems with government, per se. I just don't like one that wastes our money, lies to its citizens, and creates future commitments that are unsustainable. A change of administration or congress is not going to fix this. But the odds are good that this will fix itself as financial realities impose themselves and a serious re-structuring via downsizing or outright default will force the issue.




[Edited on 9/11/2008 by Fujirich]


bigann - 9/10/2008 at 11:35 PM

Very insightful post, fujirich. Thank you.


CEEJ - 9/11/2008 at 06:23 PM

quote:
I have no problems with government, per se. I just don't like one that wastes our money, lies to its citizens, and creates future commitments that are unsustainable. A change of administration or congress is not going to fix this. But the odds are good that this will fix itself as financial realities impose themselves and a serious re-structuring via downsizing or outright default will force the issue.


Thanks for the kind words of concern, and yes, things are going fantastic for me right now. Although, based on the cynicism you express in the statement above, one might direct the same question to you. Unfortunately I have little time these days to participate in discussions here. As to "firing both barrels", I am not sure what you are talking about. We have been debating these issues off and on for a long time. My tone, and the points raised are no different than the past exchanges we have had. If I came across too strong, I apologize, but one of the reasons I enjoy debating with you is that we have always been direct and assertive with one another. If you now choose to characterize this as some kind of overzealous aggressiveness on my part I will gladly ignore your posts in the future. No problem at all, as my time and energy can be put to much better use. Just let me know.

The Bush administration inherited a significant budgetary surplus and just eight years ago the national debate focused on whether it should be distributed back to tax payers through tax cuts/rebates, plowed into social security, national infrastructure or used to help create a more sensible and stronger health care system. All of these were good options for strengthening the nation, and at that time, we had been managed by our leaders into a very sound fiscal position. Need I remind you what has happened to that position since? Of course, a change in administration and Congress can make a huge difference..... this notion lies at the core of our concept of freedom and democracy. Although, I could see how those wishing to make a case against it might argue that change doesn't really matter. Is that your intent?

Anyway, thanks for your response. I still don't see where your analysis recognizes the very real culpability and responsibility of other parties involved in the Fannie/Freddie mess. In your world, everything always seems to boil down to "government's" shortcomings alone, which is certainly not a unique view. While problems with government are very real and a concern we both share, it is really only a part of the story.....a symptom of deeper societal problems. Guess I need to just give it a rest. No problem at all.

Peace.

Erik






[Edited on 9/11/2008 by CEEJ]


bigann - 9/11/2008 at 08:40 PM

That certainly knocks the wind out of the people arguing that Bill Clinton slashed the defense department budget. Seems from the article he wanted more money for defense....a whopping twenty billion a year. The Iraq war is heading toward three trillion dollars. Interesting 'what if' path to explore.

I wonder, if we add up all the money spent for government funded bail outs of corporations how the economy might be doing.

http://www.usatoday.com/news/topstories/2008-03-27-704724874_x.htm


jerryphilbob - 9/11/2008 at 09:35 PM

The Crash of 1929 mirrors today. Many of the safeguards to prevent such a thing from happening again were removed in the past few years.

http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929


jerryphilbob - 9/11/2008 at 09:52 PM



http://www.youtube.com/watch?v=khP49ykg96E&feature=user


Fujirich - 9/11/2008 at 10:45 PM

quote:
While problems with government are very real and a concern we both share, it is really only a part of the story.....a symptom of deeper societal problems. Guess I need to just give it a rest. No problem at all.

Erik; I'm with you 100% on this. "Government" is only reflective of our society at large, and as such we get what we deserve given the choices we make. I'm not sure what other direct forces you'd like to include in the responsibility for this mess, but I'm always interested in your thoughts.

I do feel we are not serviced very well by the media or our public servants in regard to discussing the seriousness of our government's fiscal position. If I'm adding a little bit of counterbalance to that, so be it. Human nature seems to be such that until the wheels come completely off, we don't pay much attention. Nothing I see tells me we're backing away from that position, hence the concern.

I always enjoy the debate with you, my friend


CEEJ - 9/12/2008 at 06:54 PM

quote:
I'm not sure what other direct forces you'd like to include in the responsibility for this mess, but I'm always interested in your thoughts.


I outlined the other participants in my previous post. They include 1) individual borrowers who, for whatever reason, assumed levels and/or types of debt they had no business touching. No matter what government's role was, it certainly didn't force any of these people to sign mortgage papers, some of whom had no business signing in the first place 2) the aggressive mortgage brokers and financial companies that sell products to people they know are extremely risky, and likely, not in the best long term interest of the borrower or nation. 3) investors making tons of money from real estate speculation, who seem to believe they should be shielded from the risk associated with their behavior 4) the same big money investors who apply public pressure via media and political lobbying to gut the role of government regulation and turn the US mortgage industry into something resembling more of a Vegas-style gambling operation. 5) Spineless, blowhard politicians who cowtow to big money interests. So, of course, government is intermixed in all of this, and its culpability is both undeniable and significant, but it is certainly no unilateral player.

As to our inability to deal with things more proactively, I believe it is less "human nature" as it is a tendency of Americans, in recent decades, to retreat into their own personal lives, and small circles of friends and family while disengaging from the difficult and challenging broader issues of citizenship, public life and community building. I certainly don't lay claim to this thesis on my own. It is a concept spelled out by a national author/activist/consultant who I admire and respect a great deal named Richard Harwood in his book Hope Unraveled. http://theharwoodinstitute.org/

I am pleased you are still interested in continuing our discussion and debate and wish you a safe weekend.

Peace.

Erik





[Edited on 9/12/2008 by CEEJ]


bigann - 9/12/2008 at 09:08 PM

I outlined the other participants in my previous post. They include 1) individual borrowers who, for whatever reason, assumed levels and/or types of debt they had no business touching. No matter what government's role was, it certainly didn't force any of these people to sign mortgage papers, some of whom had no business signing in the first place 2) the aggressive mortgage brokers and financial companies that sell products to people they know are extremely risky, and likely, not in the best long term interest of the borrower or nation. 3) investors making tons of money from real estate speculation, who seem to believe they should be shielded from the risk associated with their behavior 4) the same big money investors who apply public pressure via media and political lobbying to gut the role of government regulation and turn the US mortgage industry into something resembling more of a Vegas-style gambling operation. 5) Spineless, blowhard politicians who cowtow to big money interests. So, of course, government is intermixed in all of this, and its culpability is both undeniable and significant, but it is certainly no unilateral player.

I agree with all of the points listed above. Until we have a degree of personal responsibility for problems in this country it will be difficult if not impossible to make any headway solving some of the serious issues facing us today.


nebish - 9/13/2008 at 04:14 AM

Another one bites the dust? A disturbing recuring theme...

quote:

Emergency meeting held to discuss Lehman Brothers

September 12, 2008 11:09 PM ET

Associated PressAll Associated Press news

WASHINGTON (AP) - The Federal Reserve Bank of New York held an emergency meeting Friday night with top Washington policymakers and major financial institutions to discuss the future of Lehman Brothers.

The meeting, which was attended by Treasury Secretary Henry Paulson, was held at the offices of New York Federal Reserve Bank president Timothy Geithner. The meeting was confirmed by Fed spokeswoman Michelle Smith.

Smith refused to disclose what financial institutions participated in the meeting or whether the group had reached any conclusion over how to resolve the crisis facing Lehman Brothers.

She said that in addition to Paulson and Geithner, Christopher Cox, the chairman of the Securities and Exchange Commission, was in attendance for the discussions.

The private sector participants were described by Smith only as "senior representatives of major financial institutions."

However, the Wall Street Journal reported on its website that this group included Morgan Stanley chief executive John Mack and Merrill Lynch chief executive John Thain among others.

Earlier in the day a person familiar with Paulson's thinking said that the treasury secretary was opposed to the use of any government money to bail Lehman Brothers out of its financial difficulties.

Lehman Brothers, the nation's No. 4 investment bank, was racing to find a buyer two days after it laid out a restructuring plan it said would raise badly needed money it lost on bad bets in real estate holdings.

The person, who spoke on condition of anonymity because of the sensitivity of negotiations, said Paulson believes the Lehman situation is different in two critical aspects from the government-assisted rescue of Bear Stearns back in March.

This person said that Paulson believed that financial markets have been aware for some time of the difficulties facing Lehman and have had time to prepare and the Fed is now allowing investment banks in need of emergency loans to borrow directly from the Fed just as commercial banks can do.



Fujirich - 9/13/2008 at 04:57 AM

Jezz nebish, I've been hearing - like I'm sure many of us had - about Lehman since last week. But this.... yikes

It doesn't portend very well, does it?

Henry Paulson is one busy guy lately. I can only imagine what it must be like to be him. There's a man for whom the expression "weight of the world on his shoulders" is more literal than metaphoric right now.


Bhawk - 9/13/2008 at 05:01 AM

We may be at the dawn of a new age of Corporate Socialism, and Democrat vs. Republican really has nothing to do with it at all.


Fujirich - 9/13/2008 at 05:30 AM

With the Fannie/Freddie takeover, the government now literally owns - or at least partially owns - half the private real estate in the country. I think the Feds will partner with elite financial institutions to work out the Fannie/Freddie thing, with the net result being that the financial elites will effectively run the country. I'm not sure if that's corporate socialism, but I guess if it's backed up with government guarantees funded by taxpayer money, its pretty close.

Just look at all the bailouts over the past year+. Most all of the bigger financial institutions have received help. If they let Lehman fail, it might be the first to not get a helping hand. But that also might be a sign that there's simply no funds left to prop them up in a believable manner.

One of my favorite quotes about the mindset of elite bankers comes from Mayer Rothschild: "Give me control of a nations money supply, and I care not who makes it laws".

The Federal Reserve (a group of private bankers) and the Treasury seem to be working well together to put the financial elites in control of almost everything they could want.


Gregallmanfan - 9/13/2008 at 11:12 AM

Much like the bank takeovers of the 80s/90s, I think any buyer of Lehman would expect some sort of government assistance. That's built into shoppers expectations just like discounting at Wal mart now.


nebish - 9/13/2008 at 12:05 PM

With 11 banks going down this year (13 since August 07) and giant Washinton Mutual teetering, I've wondered about my regional bank's health, which frankly isn't good (under $5 a share). Some basic info with Q&A on bank failures and the FDIC:

quote:
WASHINGTON - Amid the recent collapse and government seizure of savings and loan giant IndyMac Bank and heightened anxiety this week over the financial stability of No. 1 thrift Washington Mutual Inc., consumers are concerned about the safety of their bank deposits.

As of June 30, Seattle-based WaMu and its subsidiaries had assets of $309.73 billion and $181.92 billion in deposits. By comparison, Pasadena, Calif.-based IndyMac had $32 billion in assets and $19 billion in deposits when it was shut down by federal regulators on July 11.

If Washington Mutual were to tumble, the magnitude of its failure would dwarf the largest bank collapse in U.S. history — that of Continental Illinois National Bank in 1984, with $33.6 billion in assets.

Besides IndyMac, 10 more federally insured banks and thrifts have failed this year and were closed by regulators, compared with three in all of 2007. Federal banking officials say more institutions are in danger of collapsing as turbulence from the housing slump, mounting defaults on mortgages, and the yearlong credit crisis continues to pile on soured loans for banks.

But officials also are assuring depositors that accounts are secure: Some 98 percent of the 8,450 government-insured U.S. banks and thrifts are strong, and $45.2 billion is in the federal deposit insurance fund — replenished by premiums paid by the institutions.

Still, Federal Deposit Insurance Corp. Chairman Sheila Bair has said she will propose next month to FDIC directors an increase in premiums charged to banks and thrifts.

Some questions that bank customers may be asking:

Q. What is the maximum dollar amount that can be insured at my bank? Does it vary based on the type of accounts involved?

A. The basic insurance amount is $100,000 per depositor per bank. Individual retirement accounts, or IRAs, held in banks are insured up to $250,000. In addition, you may qualify for more than $100,000 in coverage at one bank if you have deposit accounts in different ownership categories, such as single accounts, retirement accounts, joint accounts and revocable trust accounts.

Q. What if my family has multiple individual accounts of those types, but our total deposits exceed the limits?

A. If the accounts are properly structured, a married couple could have as much as $1.1 million in deposits fully insured at one bank, according to the FDIC. With accounts for two children added, up to $1.5 million could be covered.

Q. If my bank closes, what happens to my money in deposit accounts that exceeds the insured limits?

A. You become essentially a creditor of the failed bank. You will eventually recover some of your money, but the amount can range anywhere from 40 cents on the dollar up to a full 100. Recovery of the money could take months. At IndyMac, there are an estimated $541 million in deposits of the total $19 billion that exceed the insurance limits.

Q. How has that worked out for past bank failures?

A. The average return for a depositor in that situation has been about 72 cents on the dollar, according to the FDIC. The amount that depositors recoup can depend on the amount and quality of the failed bank's assets.

Q. What else happens if my bank is shut down: Will the ATMs work? Will my automatic payments for mortgages, utilities and the like be affected?

A. Automated teller machines normally remain available after a bank closure. Checks will be processed as usual, services such as online banking and safe deposit boxes will continue to be available, and interest on accounts will accrue at the current rates. Terms of loans from the bank won't change, according to the FDIC.

Q. What can I do now, before any possible closure of my bank, to protect my assets?

A. The best way is to structure the accounts carefully. The FDIC has a calculator on its Web site, called the electronic deposit insurance estimator, or EDIE, that can help determine how much money, if any, in deposit accounts exceeds the insurance limits.

http://www.cnbc.com/id/26663182/for/cnbc/


Fujirich - 9/13/2008 at 04:11 PM

quote:
A. The average return for a depositor in that situation has been about 72 cents on the dollar, according to the FDIC. The amount that depositors recoup can depend on the amount and quality of the failed bank's assets.

I wonder how the IRS treats losses like this. I would assume they could be written off, at least recapturing a portion of the loss, but who knows.


bigann - 9/13/2008 at 04:15 PM

A lot of you posting in this thread know a heck of a lot more about this than I do so I'm going to throw something out for discussion in the form of a 'what if' scenario.

What if.....as stated above....with the takeover of freddie mac and fannie mae the government owns about half the real estate in the country......and what if, with the bank take overs , the government ends up controling a large chunck of the money in the country either directly or indirectly.....and say a president decided to declare martial law and maintain his control of the country in the form of a 'dictatorship'.......how vulnerable would we be and could this happen?


jerryphilbob - 9/13/2008 at 04:20 PM

A soft form a fascism has already taken control in this country. The USA as we knew it is dead.


bigann - 9/13/2008 at 04:22 PM

That's what I've been thinking for a while now and I'm concerned about this latest turn of events.


jerryphilbob - 9/13/2008 at 04:36 PM

Things are starting to happen a little too fast.


DerekFromCincinnati - 9/13/2008 at 07:41 PM

Come on, people. We are not near that right now. In fact, because of the interconnectedness of the problem, if they did not step in then the bank failures would have spread beyond America to Europe and the rest of the world. The nightmare scenario would have been to not step in and save Fanne and Freddie. Your fascist martial law scenario is based on the government being in the mortgage business??


bigann - 9/13/2008 at 08:02 PM

Found this in another thread....seems to fit in with the 'what if' scenario.

http://www.michiganmessenger.com/4076/lose-your-house-lose-your-vote


CEEJ - 9/14/2008 at 01:32 AM

The silence from the supposed free market capitalists on this board is incredible. Where are all of the libertarian idealogues? In a true free market system there would NEVER EVER be a company that is so big and so important that we cannot let it go under. If bad decisions were made, or too much risk was taken, the natural demise of these company and the losses of the investors/managers should be allowed to take their course. As we are beginning to discover, propping the losses is like stepping into quick sand. Perhaps it is time for the billionaire bankers, junk bond kings, hedge fund managers etc., etc. to reap some of what they have sown the past twenty years. If foreign investors are involved, so be it, looks like they might have to face losses as well. If my investments begins to tank, I am damn sure no one will come and bail me out.

Peace.

Erik




[Edited on 9/14/2008 by CEEJ]


Gregallmanfan - 9/14/2008 at 02:12 AM

Erik, in another thread someone noted that Lehman's counterparty risk could be in the trillions. TRILLIONS. The problem with that is there are probably very healthy financial institutions with huge exposure to Lehman on derivative transactions etc and if Lehman goes down, their fatal disease could cause anything from a mild cold to a critical condition at almost any healthy institution in the country. And just like a disease, it spreads to those not even in direct contact with Lehman.


DerekFromCincinnati - 9/14/2008 at 02:28 AM

quote:
The silence from the supposed free market capitalists on this board is incredible. Where are all of the libertarian idealogues? In a true free market system there would NEVER EVER be a company that is so big and so important that we cannot let it go under. If bad decisions were made, or too much risk was taken, the natural demise of these company and the losses of the investors/managers should be allowed to take their course. As we are beginning to discover, propping the losses is like stepping into quick sand. Perhaps it is time for the billionaire bankers, junk bond kings, hedge fund managers etc., etc. to reap some of what they have sown the past twenty years. If foreign investors are involved, so be it, looks like they might have to face losses as well. If my investments begins to tank, I am damn sure no one will come and bail me out.

Peace.

Erik





Number one, this issue has not been ducked but discussed in detail. Number two, I said I was for Bear Stearns going under. Number three - my first thought was to let Fannie and Freddie suffer the same fate but when you look into the interconnectedness on a worldwide scale then I would have stepped in as well. As it, these two 'companies' were started so that home loans would stay lower in cost and so outside investors could come in and supply the funds for the loans and hopefully make money along the way without using tax payer funds. The sh*t hit the fan due to predatory investors and the citizens who didn't read the fine print of the loan they were taking out and the basic premise of outsiders fundsing Freddie and fannie went out the window when the money was pulled.

So Ceej, take a stand. All of what you posted, do you believe in that or not?


bigann - 9/14/2008 at 02:34 AM

quote:
The silence from the supposed free market capitalists on this board is incredible. Where are all of the libertarian idealogues? In a true free market system there would NEVER EVER be a company that is so big and so important that we cannot let it go under. If bad decisions were made, or too much risk was taken, the natural demise of these company and the losses of the investors/managers should be allowed to take their course. As we are beginning to discover, propping the losses is like stepping into quick sand. Perhaps it is time for the billionaire bankers, junk bond kings, hedge fund managers etc., etc. to reap some of what they have sown the past twenty years. If foreign investors are involved, so be it, looks like they might have to face losses as well. If my investments begins to tank, I am damn sure no one will come and bail me out.

Peace.

Erik

[Edited on 9/14/2008 by CEEJ]


I agree with everything you've written.


Fujirich - 9/14/2008 at 03:32 AM

I think we all wish it were so simple as to let a few banks and investment firms take responsibility for their actions and have the market make their judgements Erik. Many of the folks who speak to financial matters here have commented in this thread already. None of us like what's happening, but there's no alternative.

I believe the financial elites are the real power brokers in DC now. Who controls our money supply and currency? Not our government. The Federal Reserve is no more "Federal" than FedEx, even though they occassionally report to congress and the President gets to appoint the govenors. That's all window dressing. Our government gave monetary control to this group back in 1913. Since that point, we've moved further and further from an economy based on something tangible (gold) to the fiat currency we have today. Interestingly enough, that's the same year the 16th amendment was passed, reversing the constitution's stance on apportioned taxation and permitting the federal income tax on individuals. Quite a stellar year for the citizens of the US, wouldn't you say?

So we now have a situation where our government can't keep up it's insane spending unless we have foreign creditors, those creditors demand guarantees of repayment and are feeling increasingly less secure about those, credit markets whose investment money is the engine of our economy also depend on similar guarantees, and the Treasury and Federal Reserve are running out of believable ways of keeping up the facade.

The roots of this intertwining of private financial concerns with public guarantees goes back too far and is way too advanced to be undone or stop now. It either stabilizes or collapses, and either way we're all on the hook for the result.


bigann - 9/14/2008 at 03:50 AM

Again, I bow to the collective intelligence of most everyone who has posted and ask....what can we, as individuals do to protect ourself from the potential fallout from this mess?


Gregallmanfan - 9/14/2008 at 04:13 AM

Bigann, Rich says an interesting thing, "it either stabilizes or collapses, and either way, we're all on the hook for the result."

I mentioned in this forum many moons ago that I thought at some point in our lifetime, we may seriously consider our federal government defaulting on its obligations. That the burden on us and our children might be so great, that we essentially declare bankruptcy. Cities have done it. Other nations have done it. I suggested I would default to those countries hostile to us and perhaps not everyone. I was roundly beaten about the head and dismissed like the little guy in Benny Hill.

Now with the gov't assuming the obligations of Fanny, Freddy, investment banks and other financial institutions, plus the unprecedented run up in the national debt, I suggest again, that some day, we as a nation may have to seriously consider stiffing the rest of the world. And I would point out that while the early financial institutions were able to get foreign investment rather quickly, that well seems to be drying up. I think that could say that the rest of the world does not consider us to be a great credit risk right now either. I had lunch on Thursday with some business colleagues from NY and this idea came up and I was not the one to throw it out. So at least someone other than me has considered this stunning possibility.

As far as protecting yourself, well, FDIC insurance covers $100,000 a depositor. I'd spread my money around banks to stay under that. Not sure what SIPC covers for investment/brokerage accounts. Ann, if you're really worried about a huge melt down, I'd stay out of real estate, stocks and bonds and stay very liquid, in insured accounts, until this shakes out. It really depends on your risk appetite, the waters could be very rough for a while and taking some chips off the table might not be a bad idea.

Here's a thought though, the bet on Freddie/Fannie is really that the real estate market will stabilize and bounce back. That would stem the tide of foreclosures and writeoffs. If you were the government making this huge bet, and you thought you could help your odds a bit, wouldn't you? Well, they can. Real estate values are dependent on a lot of things including: the tax treatment of it, interest rates, homebuyer programs, job growth (tax and spend does that) etc. It's not unreasonable to think the gov't may backstop this bet by doing something that will spur the market back.


Fujirich - 9/14/2008 at 04:14 AM

quote:
what can we, as individuals do to protect ourself from the potential fallout from this mess

Got any gold coins? In the ultimate meltdown, easily transferrable gold will probably be the only form of payment universally accepted.


bigann - 9/14/2008 at 04:18 AM

As far as protecting yourself, well, FDIC insurance covers $100,000 a depositor. I'd spread my money around banks to stay under that. Not sure what SIPC covers for investment/brokerage accounts. Ann, if you're really worried about a huge melt down, I'd stay out of real estate, stocks and bonds and stay very liquid, in insured accounts, until this shakes out. It really depends on your risk appetite, the waters could be very rough for a while and taking some chips off the table might not be a bad idea.

This echoes some advice I was given a few weeks ago and I appreciate your reinforcing some of the things I've been thinking about taking care of. I read an article that mentioned FDIC insured accounts would possibly receive up to 76 cents on the dollar if they have to cover the loses....maybe less depending on the severity of the situation. Have you heard anything similar?


Gregallmanfan - 9/14/2008 at 04:23 AM

quote:
As far as protecting yourself, well, FDIC insurance covers $100,000 a depositor. I'd spread my money around banks to stay under that. Not sure what SIPC covers for investment/brokerage accounts. Ann, if you're really worried about a huge melt down, I'd stay out of real estate, stocks and bonds and stay very liquid, in insured accounts, until this shakes out. It really depends on your risk appetite, the waters could be very rough for a while and taking some chips off the table might not be a bad idea.

This echoes some advice I was given a few weeks ago and I appreciate your reinforcing some of the things I've been thinking about taking care of. I read an article that mentioned FDIC insured accounts would possibly receive up to 76 cents on the dollar if they have to cover the loses....maybe less depending on the severity of the situation. Have you heard anything similar?


I'm not sure about that. I know in the bank failures of the 80's/90's they paid every dollar up to the $100,000 and some beyond that. Also, I worked at two banks that failed and both contacted every depositor over the limit to get them to withdraw down to the 100K.

If you're asking what would happen if the FDIC became insolvent, then 76% coverage must be someone's hypothetical guess at what they COULD pay. But the intent is to pay 100% on accounts up to 100k. I would have to read the article to really understand what they're getting at.


Fujirich - 9/14/2008 at 04:30 AM

A question Greg - if we have failures on the scale we're talking about, does the dollar have any value left? It's just a piece of paper, after all, backed with nothing but universal agreement that it's worth something and can be traded for other things.

If that belief disappears, FDIC insurance won't matter. Your earlier post mentioned other countries who have gone through this. Hyper inflation usually occurs at some point before complete collapse, meaning the currency is deemed either worthless, or worth far less than it used to be.

Even if we just devalue the dollar at some point, the panic would be epic.


Gregallmanfan - 9/14/2008 at 03:19 PM

Yes Rich, it's funny but after typing last night I went to bed and in the shower this morning it kind of hit me that in practicality, what we would see is a dollar in free fall. Weird the way your sub-conscience reasons things out without you.

I really hope that that we find a way to stabilize this and our musings here are just hypothetical.


nebish - 9/14/2008 at 03:19 PM

quote:
quote: what can we, as individuals do to protect ourself from the potential fallout from this mess


Got any gold coins? In the ultimate meltdown, easily transferrable gold will probably be the only form of payment universally accepted.


I buy 1/10 American Eagles when I can. I went around to 3 local coin shops I've bought at before and only one store had any form of gold coins a single 1/10, which I bought. I got it for $80 out the door (we have to pay tax on that stuff in Ohio), the guy said he lost money on it which I believe. Gold has dropped quite a bit lately as the dollar has strengthened. Or as most suggest the dollar isn't any stronger, but foreign currencies are weaker. Any way gold is down and it seems like there are alot more buyers than sellers, at least in my location. I'll be looking to acquire more.

If, and when, the economy turns around gold is a terrible investment, but it does give some peace of mind when things are rough.


bigann - 9/14/2008 at 05:04 PM

I have some St. Gauden $20 gold pieces and a $5 gold piece I've been hanging on to. Now I'm gathering up all my scrap gold....just in case. It's not much but it makes me feel better. My goal now is to get everything paid for.......should there be any kind of actual depression that will go a long way toward weathering the storm .


CEEJ - 9/14/2008 at 05:15 PM

quote:
So Ceej, take a stand. All of what you posted, do you believe in that or not?


What the.....? Of course I believe it. Why would I take the time to write something I don't believe? Is it that difficult to understand? Free market capitalism ceases to exist when participants are shielded from risk, no matter how "big" the consequences might be. These are actions of market manipulation, occuring on an unprecedented and extremely dangerous scale in history. The more this industry is shielded from its past decisions, practices, and stupidity, the more painful it will be when it is time to pay the piper. There is no ducking it by waiting for "stabilization". It's pretty basic.

It figures this crap is happening in the waning moments of the Bush administration.

Peace.

Erik


CEEJ - 9/14/2008 at 05:39 PM

quote:
Again, I bow to the collective intelligence of most everyone who has posted and ask....what can we, as individuals do to protect ourself from the potential fallout from this mess?


bigann -

I don't have many financial investments. So, in that sense, I don't have much to lose.

By far, my most significant wealth derives from the time I've invested in my three kids, my relationship with my wife and my work in the community (I am a 20 year+ community organizer, by the the way). The older I get, by the way, the more pleased I am with this path. I see the lives of my friends, family and peers who have invested so much in material gain, power and monetary wealth. They can absolutely keep those lives as they are generally pretty hollow and empty in the end.

Peace.

Erik




[Edited on 9/14/2008 by CEEJ]


bigann - 9/14/2008 at 06:14 PM

If your significant wealth is what you've invested in your family, then you're a rich man. Everything else is just 'stuff'. I think no matter what happens, you're going to be okay. I'd like to think I've invested wisely in those I love and we'll all be okay too.


Brendan - 9/14/2008 at 11:05 PM

Take note...

As of right now, all indications point to Lehman filing for bankruptcy in the morning. We'll see what that brings. Paulson is adamant that there will be no government funds involved in any bailout...There will be major implications in the capital markets.

In an interesting turn of events, it looks like Merrill may be bought by Bank of America. Crazy times....

Erik, I'll take a stab at your question in the morning as to letting the market allow these firms to fail (as we may start seeing soon...)


lolasdeb - 9/15/2008 at 06:22 PM

bumping for Brendon's answer (and to move topic to front)


bigann - 9/15/2008 at 06:26 PM

While we're waiting for Brendan, anyone want to take on the topic of credit card debt and the current state of affairs with the credit card companies? The very fact that Bank of America....a large credit card company...has the resources to take over another bank raises a number of questions in my mind.


alloak41 - 9/15/2008 at 06:36 PM

quote:
While we're waiting for Brendan, anyone want to take on the topic of credit card debt and the current state of affairs with the credit card companies? The very fact that Bank of America....a large credit card company...has the resources to take over another bank raises a number of questions in my mind.


Maybe Joe Biden could weigh in. These Delaware based companies have had him in their hip pocket for years, much to the detriment of the average card holder.


bigann - 9/15/2008 at 06:38 PM

Joe doesn't post here so I guess we'll have to muddle through the topic on our own.


alloak41 - 9/15/2008 at 06:50 PM

Very sore subject, Ann. Here's what they did to me.

For over twenty years, I NEVER missed a payment and was NEVER late for a payment. Not one time...A few years back, I started getting notices that my rates were going from, say, 7.9% to over 20%, and there wasn't a damn thing I could do about it. They entice people into using their product then, regardless of whether the customer is holding up their end, change the rules drastically later in the game.

What they did was perfectly legal, but not very good business, IMO.


bigann - 9/15/2008 at 06:56 PM

I have to agree and tell you I think credit card companies are the modern day equivilant of financial vampires. My grandchildren, who are underage, have gotten offers of credit cards. I started keeping up with all the credit card solicitations I've received since Octobr and if you stack them up, the pile is almost ten inches tall.

It was difficult to ween us off of them, however now we use our debit card for hotels, etc and have one gas card.

I resent the new credit card laws and I am angry that congress saw fit to pass new bankruptcy laws in favor of the credit card lenders.


Bhawk - 9/15/2008 at 06:57 PM

quote:
I resent the new credit card laws and I am angry that congress saw fit to pass new bankruptcy laws in favor of the credit card lenders.



Well, the credit card companies actually wrote most of the provisions. Good to be connected...


Fujirich - 9/15/2008 at 07:07 PM

quote:
What they did was perfectly legal, but not very good business, IMO.

This is a perfect example of your elected officials working against your interests and for the financial elites who really run the country.

Many years ago, you might have noticed that banks started moving their credit card operations to some places that would have never been considered banking centers in the past. If memory serves correctly, I think Citibank was one of the first, moving to South Dakota, or someplace like that.

Wy did they do that? Because they were inticed there by a change in the state's laws which permitted them heretofore unthoughtof levels of credit card interest. Where maximum's had been in the teens, SD permitted rates well into the 20's. That's about 25 or more years ago, and since then, everyone's gotten in the game. I'm not sure there even is a legal cap anymore. The laws guiding how they can raise rates and under what circumstances have also been loosened.

Every once in a while you hear a politician raise their voice against these policies, saying they have to put restrictions in place. Yeah, right. The banks and financial elites run the country, and it will be even more obvious as time goes by. Everything is tilted in their favor.


Bhawk - 9/15/2008 at 07:07 PM

quote:
For every one person that had a legit bankruptcy claim, there were about 10 who were abusing the hell out of the system. Lawyers telling people to go out and max out their credit cards - THEN pull the plug. Though the bankruptcy laws vary from state to state, lawyers have been good at installing loopholes to do such a thing.

No difference in that than going into Wal-Mart and stealing products.


In the case of Chapter 7, you are correct. Chapter 13 is a whole 'nother deal.

Not just the lawyers, BTW. The Eastern District of Tennessee, for example, was getting quite the reputation for being very anti-creditor, denying claims from creditors left and right. (When I was in the subprime biz, I used to do operational audits on the BK department, among other things, and the BK guys used to crow about that quite loudly)


Bhawk - 9/15/2008 at 07:12 PM

quote:
quote:
What they did was perfectly legal, but not very good business, IMO.

This is a perfect example of your elected officials working against your interests and for the financial elites who really run the country.

Many years ago, you might have noticed that banks started moving their credit card operations to some places that would have never been considered banking centers in the past. If memory serves correctly, I think Citibank was one of the first, moving to South Dakota, or someplace like that.

Wy did they do that? Because they were inticed there by a change in the state's laws which permitted them heretofore unthoughtof levels of credit card interest. Where maximum's had been in the teens, SD permitted rates well into the 20's. That's about 25 or more years ago, and since then, everyone's gotten in the game. I'm not sure there even is a legal cap anymore. The laws guiding how they can raise rates and under what circumstances have also been loosened.

Every once in a while you hear a politician raise their voice against these policies, saying they have to put restrictions in place. Yeah, right. The banks and financial elites run the country, and it will be even more obvious as time goes by. Everything is tilted in their favor.


I will say one thing, Rich. Lenders got what they deserved with the ARM loan. That loan product, in its essence, is doomed to fail.


Brendan - 9/15/2008 at 07:22 PM

Thanks for the reminder...I work in the Biz, so it's been a little hectic this morning


The following is my opinion. I'm not putting it out there as gospel, so take it however you want. A bit of background...I have been in financial services for over 16 years. Sales, trading, compliance, management, you name it. I'm currently involved in the Alternative Investments side of the business. Hedge funds, private equity, real estate, managed futures and so on. (Ooooo, evil hedge funds, I know. ) I'm on the distribution side. I am not a fund manager.

Let me start by saying that in theory, I believe in letting these companies fail. I think that would be the healthiest thing to happen for the long term. Our current capital markets structure is flawed and there is way too little confidence in the larger firms. We're seeing that now with LEH and MER. Some of lack of confidence is well founded, some of it is panic driven. Once the mere thought of one of these companies failing is established, it's hard to stop.

All that being said, I don't think people (myself included for that matter) fully understand what the ramifications could be of letting large firms like this fail. It's not just the hedge fund managers, junk bond kings, etc. who will feel this. Everybody will. Everybody. Regardless of whether you have investments or not. Any large scale bank failures can and will have global implications. The dollar will in all liklihood be demolished. Capital will dry up much worse than it is now. Large businesses could fail. Small and mid-size businesses will fail. The overall economy will tank unlike anything you've ever seen. Millions of jobs will be lost. It could be calamatous.

So, I'm torn. In the long term, it would be best. The economy would rebuild. It would take a very very long time and would be extremely painful. Moreso than you (or I) can imagine. I have kids. I don't know if I want them to be subjected to that. But, it probably will have to happen at some point.

A more moderate way to handle it is to allow the markets to be "propped" temporarily by someone while we work on a solution. Should it be the government? Ideally, no. Foreign investors? Nothing wrong with that, but they're not going to come to our rescue forever, and BTW, they're feeling this now so their capital is going to dry up to some extent as well. The other problem is that the solution is elusive and we haven't shown any real initiative in finding one except for throwing more money (that we don't really have) into the system. That's really only making it worse.

I don't have the answers. As I said, I think the freemarket way would be best. But it will really suck.


Bhawk - 9/15/2008 at 07:31 PM

quote:
Thanks for the reminder...I work in the Biz, so it's been a little hectic this morning


The following is my opinion. I'm not putting it out there as gospel, so take it however you want. A bit of background...I have been in financial services for over 16 years. Sales, trading, compliance, management, you name it. I'm currently involved in the Alternative Investments side of the business. Hedge funds, private equity, real estate, managed futures and so on. (Ooooo, evil hedge funds, I know. ) I'm on the distribution side. I am not a fund manager.

Let me start by saying that in theory, I believe in letting these companies fail. I think that would be the healthiest thing to happen for the long term. Our current capital markets structure is flawed and there is way too little confidence in the larger firms. We're seeing that now with LEH and MER. Some of lack of confidence is well founded, some of it is panic driven. Once the mere thought of one of these companies failing is established, it's hard to stop.

All that being said, I don't think people (myself included for that matter) fully understand what the ramifications could be of letting large firms like this fail. It's not just the hedge fund managers, junk bond kings, etc. who will feel this. Everybody will. Everybody. Regardless of whether you have investments or not. Any large scale bank failures can and will have global implications. The dollar will in all liklihood be demolished. Capital will dry up much worse than it is now. Large businesses could fail. Small and mid-size businesses will fail. The overall economy will tank unlike anything you've ever seen. Millions of jobs will be lost. It could be calamatous.

So, I'm torn. In the long term, it would be best. The economy would rebuild. It would take a very very long time and would be extremely painful. Moreso than you (or I) can imagine. I have kids. I don't know if I want them to be subjected to that. But, it probably will have to happen at some point.

A more moderate way to handle it is to allow the markets to be "propped" temporarily by someone while we work on a solution. Should it be the government? Ideally, no. Foreign investors? Nothing wrong with that, but they're not going to come to our rescue forever, and BTW, they're feeling this now so their capital is going to dry up to some extent as well. The other problem is that the solution is elusive and we haven't shown any real initiative in finding one except for throwing more money (that we don't really have) into the system. That's really only making it worse.

I don't have the answers. As I said, I think the freemarket way would be best. But it will really suck.



You just described in a nutshell why I made a career shift from financial services/mortgage to healthcare...people still gonna get old and sick...


alloak41 - 9/15/2008 at 07:31 PM


Maybe these companies should be offered some type of loan guarantees, similar to what Chrysler received. That was not really a free ride, since Chrysler had to pay all the money back plus interest (and did so in full and early, as a matter of fact.)

That would be a lot of fun to be in charge of! Turn the tables and make the banks into the debtors. Change the rules in the middle of the game, charge hidden fees, use font sizes the size of an ant's eyelash, hammer them with universal default, ect...Make it impossible!


Brendan - 9/15/2008 at 07:35 PM

quote:
You just described in a nutshell why I made a career shift from financial services/mortgage to healthcare...people still gonna get old and sick...
As crazy as it is, I still love it. Wouldn't do anything else. Well, I'd be a bartender in South Beach.

[Edited on 9/15/2008 by Brendan]


Bhawk - 9/15/2008 at 07:59 PM

quote:
quote:
You just described in a nutshell why I made a career shift from financial services/mortgage to healthcare...people still gonna get old and sick...


You're gonna make a whole lot less money if we get socialized medicine......


Nah. I'm on the Administrative side, analysis, data, reporting, etc. I'll be fine.

Besides, as I can see from a front-row seat for Medicare and Medicaid issues every day, we pretty much have socialized medicine now...


Bhawk - 9/15/2008 at 08:00 PM

quote:
quote:
You just described in a nutshell why I made a career shift from financial services/mortgage to healthcare...people still gonna get old and sick...
As crazy as it is, I still love it. Wouldn't do anything else. Well, I'd be a bartender in South Beach.

[Edited on 9/15/2008 by Brendan]


I hear ya there!


Bhawk - 9/15/2008 at 08:16 PM

quote:
quote:
quote:
quote:
You just described in a nutshell why I made a career shift from financial services/mortgage to healthcare...people still gonna get old and sick...


You're gonna make a whole lot less money if we get socialized medicine......


Nah. I'm on the Administrative side, analysis, data, reporting, etc. I'll be fine.

Besides, as I can see from a front-row seat for Medicare and Medicaid issues every day, we pretty much have socialized medicine now...


That's cool. At least you got out of the mortgage abortion, though! I feel so sorry for what all of those (well - the ones who were trying to do it honestly) people have gone through in the last year or so.....


You know, I'd love to write a book about my time in subprime. Thing is, the company I worked for is still in business, at just 1/100th of its former size. The confidentiality agreement is still binding. I got me some tell-all!


bigann - 9/15/2008 at 10:15 PM

Well, the stock market ended on a dismal note. BAC is down 7.15 last I looked. When a credit card company is down, you gotta think the rest of the place is in trouble.


lolasdeb - 9/15/2008 at 10:42 PM

BAC is not really what I would consider a 'credit card company'. They are the largest bank in US - #2 among commercial banks from Fortune 500 and #9 among all corporations. They are a bank that issues credit cards - like just about every other bank that I'm aware of. I think if they have the assets, that the CountryWide buy was a smart thing... as someone else in this thread mentioned, that is a notable mortgage portfolio. Re BOA - they do have some very aggressive marketing campaigns - I receive regular advertising and card offers, anyway. I don't have a card or any other type of account with them so I can't say what their business practices are from a customer standpoint. I think re: today - couple of hard blows in US Stock today between Lehman and Merrill Lynch so BOA closing down is not a surprise - I'm guessing this is the case with many stocks.


bigann - 9/15/2008 at 11:54 PM

I think they're either closely connected with or are Citibank and Citibank really pushes the credit card part of their organization. I hope it was a good move for BAC today. I just found out that Dad bought a lot of BAC stock for his portfolio before he died and I keep an eye on Mom's stocks now that he's gone. $7.15 per share is about the biggest drop I've seen on any of the shares......it kind of takes your breath away.

Anyone else either lose or know someone who has lost a lot in the market today?


Brucebcd - 9/15/2008 at 11:58 PM

I lost about $13.65 in the market.

two pounds of bacon.

a quart of o.j.

and about a dozen eggs.


bigann - 9/16/2008 at 12:00 AM

quote:
I lost about $13.65 in the market.

two pounds of bacon.

a quart of o.j.

and about a dozen eggs.





The dollar just doesn't go as far these days as it used to does it?


Gregallmanfan - 9/16/2008 at 03:19 AM

quote:

Maybe these companies should be offered some type of loan guarantees, similar to what Chrysler received. That was not really a free ride, since Chrysler had to pay all the money back plus interest (and did so in full and early, as a matter of fact.)

That would be a lot of fun to be in charge of! Turn the tables and make the banks into the debtors. Change the rules in the middle of the game, charge hidden fees, use font sizes the size of an ant's eyelash, hammer them with universal default, ect...Make it impossible!




Be it equity or loan guarantee, the Fed was pretty clear, they opened the discount window to investment banks etc. so the bailouts could end. The government won't be insuring against risk in the future, as it shouldn't.


bigann - 9/16/2008 at 05:34 AM

http://knowledge.wharton.upenn.edu/article.cfm?articleid=1812

I thought this was an interesting article.


lolasdeb - 9/16/2008 at 07:16 PM

quote:
I think they're either closely connected with or are Citibank and Citibank really pushes the credit card part of their organization.
Don't think that Bank of America and Citibank are one and the same - they have developed from entirely different originating banks and acquisitions. Both do market credit card portion of their business heavily but BOA was somewhat of spearhead to VISA whereas Citibank was part of the MasterCard group of banks.

[Edited on 9/16/2008 by lolasdeb]


Gregallmanfan - 9/16/2008 at 07:32 PM

Deb is correct, BofA (BAC) and Citi are completely different entities.


bigann - 9/16/2008 at 07:32 PM

I think you're right....now that I'm not so tired I reread the article I was going on and they are two separate entities, thank you for correcting the disinformation....I still hate Citibank.....and I suppose I'll have to learn to love BAC.....they're going to end up owning everything at this rate.


Gregallmanfan - 9/16/2008 at 07:33 PM

Bigann, you asked about this a few days ago:

FDIC Chairwoman Blair said banks are safe and sound, according to Reuters. Blair added that insurance funds for deposits will be adequate to absorb any losses. http://finance.yahoo.com/marketupdate/overview?u


bigann - 9/17/2008 at 02:52 AM

http://www.fdic.gov/bank/historical/history/vol1.html

Here is another interesting link. It's a more comprehensive article about banking.


crossroad_blues - 9/17/2008 at 03:10 AM

quote:
Bigann, you asked about this a few days ago:

FDIC Chairwoman Blair said banks are safe and sound, according to Reuters. Blair added that insurance funds for deposits will be adequate to absorb any losses. http://finance.yahoo.com/marketupdate/overview?u



Agree. The financial system itself, is sound.

Freddy & Fanny have been backing sub-prime loans due to government policy http://ibdeditorial.com/IBDArticles.aspx?id=306370789279709 , and sucking in traditional mortgage lenders, to their ultimate denouement. There had to come a tipping point.


bigann - 9/17/2008 at 03:36 AM

http://money.aol.com/news/articles/_a/bbdp/us-will-provide-85-billion-loan- to-aig/173343


nebish - 9/17/2008 at 04:07 AM

With some of the dust settling I'm checking around to see what exposure some mutual funds had to Fannie, Freddie, Lehman, AIG, etc. I'm sure you'll want to do your own research, but this seems to scratch the surface on what funds had what exposure.

Excerpt from 9/10 on Fannie/Freddie:

quote:
Of course, there were numerous professionals who never thought it would come to this. According to news reports, SEC filings and press releases, there were plenty of mutual funds that were probably holding shares right up until the deal was completed. Dodge & Cox, Legg Mason and American Funds are listed as holders of shares in either company. In most cases the positions were small or part of diversified portfolios, and we won't be able to tell when or if they sold until the next round of filings. Nevertheless, in a down year like this we're sure these funds would have preferred a different outcome.

http://www.smartmoney.com/fundinsight/index.cfm?story=20080910-fannie-fredd ie




Excerpt rom 9/15 on Fannie/Freddie:
quote:

We also thought it would be interesting to take a broader view and look at which fund families as a whole have the most exposure to Fannie and Freddie stock.

The following table shows the top 10 families by that measure, with the total combined asset base of each family's mutual funds and the percentage of those assets in Fannie and Freddie, as of each fund's most recent portfolio.

Fund families with most exposure to Fannie Mae and Freddie Mac:

Total assets*(*In millions) and % in Fannie and Freddie

Schneider Funds $342.1 6.50%

Thompson Plumb $330.4 5.47%

Bhirud $0.3 3.43%

Bullfinch $5.7 1.94%

Weitz $3,345.5 1.28%

Chaconia Funds $13.9 1.24%

Monetta $66.3 1.23%

Roosevelt $40.2 1.05%

Yacktman $284.8 0.86%

Dodge & Cox $140,263.1 0.72%

The two top shops here, Schneider and Thompson Plumb, are boutiques with just a few funds (two for Schneider, three for Thompson), and in each case, as we just saw, one of those funds is among the top 10 holders of Fannie and Freddie.

The list also contains several small boutiques with one or two funds holding positions that are smaller but enough to stand out in this context. For example, the Bhirud family's one fund, tiny Apex Mid Cap Growth (BMCGX), holds both Fannie and Freddie and just missed our top 10, while Chaconia's one fund, Chaconia Income & Growth (CHIGX), has smaller positions in both stocks.

The two largest fund families on this list, Weitz and Dodge & Cox, are notable in other ways. Both are well-known as value shops whose managers like to own out-of-favor stocks. Though neither one had any individual funds among the top 10 holders of Fannie and Freddie, their funds often tend to hold such beaten-down former blue chips.

Dodge & Cox Stock (DODGX), in particular, has held significant positions in a number of stocks hit hard by the mortgage crisis, such as Wachovia (WB, news, msgs) and American International Group (AIG, news, msgs), which the managers feel have been unduly punished.

It remains to be seen how those bets will pan out; both were hit hard last week. But the fund's bet on Fannie and Freddie has turned out to be a losing one. Dodge & Cox's familywide stake of 0.72% in Fannie and Freddie may not look all that impressive at first glance, but that represents about $1 billion in market value -- almost all of which is gone now


Complete story from 9/15
quote:
If you own a mutual fund, you're probably wondering how the latest financial sector developments affect your investments. In a separate article, my colleague Christine Benz discusses investor safeguards in place to protect you in some respects, but the stock market's reaction is a whole different ballgame. While the latest developments underscore the severity of the problems facing financials, there's also a lot of noise and fear in the market. We think sticking with a long-term financial plan and remaining patient amidst this storm is the best course of action (or nonaction). Even so, there are some funds that are more exposed than others, so we've tried to isolate funds most affected below.

Big Holders of Lehman Brothers
Stockholders of Lehman Brothers (LEH) are hurting the most. The stock, which traded as high as $62 within the last year, is now down to pennies on news that it has filed for bankruptcy. The table below shows which funds had the most concentrated exposure to Lehman as a percentage of their assets.

Big Lehman Holders

Category
Portfolio
Date % Exposure

Fidelity Sel Brokerage & Inv (FSLBX) Financial 07-31-08, 5.27%
Morgan Stanley Fin Svs B (FSVBX) Financial 06-30-08, 3.22%
Legg Mason Partners Ag Gr A (SHRAX) Lg Growth 06-30-08, 3.19%
API Efficient Frontier Value C (YCVTX) Mid-Blend 05-31-08, 2.45%
Ehrenkrantz Growth (EKNGX) Lg Blend 03-31-08, 2.34%
ING Legg Mason Partners Ag Gr I (IMEIX) Lg Growth 06-30-08, 2.29%
Saratoga Large Cap Value I (SLCVX) Lg Value 06-30-08, 2.28%
Oppenheimer Quest Balanced* (QVGIX) Mod Alloc 04-30-08, 2.24%
Osprey Conc Lg Cap Val Eq Instl Lg Val 06-30-08, 2.1%
Pioneer Select Growth A (PSEFX) Lg Growth 07-31-08, 1.82%

Data is as of the most publicly available portfolios. * Oppenheimer has told us that Quest Balanced's position in Lehman Brothers was 0.45% of assets at the end of August.

As the table above shows, the more meaningful damage was contained to funds that specialize in the financial sector. Legg Mason Partners Aggressive Growth (SHRAX) held the most significant position by a diversified fund. That fund, managed by Richard Freeman, owned 1.7% of the company's outstanding shares as of June 30, 2008. The fund's stake dated back to 1995 and Freeman had been hanging onto Lehman, saying the company has gone through other hardships and managed them well. He also pointed to its strong franchises and investment banking business. We still like the fund and think Freeman is a talented investor, but Lehman will go down as a mistake for him. Even so, Freeman has had plenty of stock-picking wins over the years to give us confidence in his approach. Moreover, Lehman made up 3.2% of the fund's assets, so the impact will be limited to roughly that amount.

When we took a broader view to see which fund families as a whole have the most exposure to Lehman stock we found the impact on fund families to be pretty benign. Vanguard topped the list in terms of absolute dollars invested, but none of its funds individually had too large a bet.

American International Group
Behemoth insurer AIG reportedly intends to raise $40 billion, a move that could be highly dilutive to shareholders as that amount is greater than the company's market capitalization at the end of Friday. The end result for AIG and its stockholders is still highly uncertain, so it's unclear what the ultimate impact will be on funds that own it. The table below shows the funds with the most concentrated positions as a percent of their assets.

Big AIG Holders

Category
Portfolio
Date % Exposure

Fidelity Select Insurance (FSPCX) Financial 07-31-08, 16.7%
Clipper (CFIMX) Lg Blend 06-30-08, 6.05%
Fidelity Growth & Income (FGRIX) Lg Blend 07-31-08, 5.39%
Grisanti Brown Value I (GBVFX) Lg Blend 03-31-08, 5.32%
Haverford Quality Growth Stock (HAVGX) Lg Blend 04-30-08, 5.3%
Diamond Hill Fin Long-Short A (BANCX) Financial 07-31-08, 4.89%
Capital Advisors Gr (CIAOX) Lg Growth 03-31-08, 4.31%
Bristlecone (BVPFX) Lg Value 05-31-08, 4.26%
Thompson Plumb Growth (THPGX) Lg Blend 06-30-08, 4.24%
Fidelity Select Financial Services (FIDSX) Financial 07-31-08, 4.07%

Data is as of the most publicly available portfolios.

Clipper Fund (CFIMX) has a concentrated stake in AIG and has been paying for it with its returns. The fund has lost nearly 28% thus far in 2008, and that's before today's prices are reflected in its NAV. The advisor to Clipper, Davis Selected, has made AIG a sizeable bet across its other funds, too, Selected American (SLASX) and NY Venture (NYVTX). The stake is larger here because Clipper is intentionally more concentrated in management's best ideas. The managers told us earlier this summer that they had even been adding to ugly holdings, such as AIG, because they felt it was further along in purging its balance sheet of poor investments and still had considerable long-term earnings power. Unfortunately, the situation at AIG only continues to worsen beyond most investors' expectations.

Fidelity Growth & Income (FGRIX) has a large stake in AIG as well and it is proving to be another falling knife for the fund. Manager Tim Cohen had pointed to valuation as a key reason for owning AIG. Unfortunately, he had similar sentiments about Fannie Mae (FNM) and Freddie Mac (FRE), which have also tanked.

Merrill Lynch
The Merrill Lynch takeover hasn't ended up looking so dire for investors in Merrill's stock. The proposed transaction, a $50 billion all-stock trade where each Merrill share will be exchanged for 0.8595 shares of Bank of America stock, looks like it will leave Merrill stockholders with a small premium. Bank of America's stock price closed at $33.74 on Friday and even though it had traded down into the $27 dollar range Monday, it still is worth more to Merrill shareholders than Merrill's $17.05 closing stock price on Friday. The biggest fund owners are listed below:

Big Merrill Lynch Holders

Category
Portfolio
Date % Exposure

Natixis Harris Assoc Lg Cp Val A (NEFOX) Lg Blend 06-30-08, 4.84%
Morgan Stanley Fin Svs B (FSVBX) Financial 06-30-08, 4.74%
MassMutual Select Focused Val A (MFVAX) Lg Blend 05-31-08, 4.62%
Foresight Value Mid-Val 03-31-08, 4.55%
JHT Fin Svs Trust Series III Financial 07-31-08, 4.45%
JHT Fin Svs Trust Ser I (JEFSX) Financial 07-31-08, 4.45%
Clipper (CFIMX) Lg Blend 06-30-08, 4.42%
Davis Financial A (RPFGX) Financial 06-30-08, 4.17%
Natixis Harris Assoc Foc Val A (NRSAX) Lg Blend 06-30-08, 4.03%
MMA Praxis Core Stock B (MMPGX) Lg Blend 08-31-08, 3.86%

Data is as of the most publicly available portfolios.

Before you decide on any of the securities mentioned in this article, become a Morningstar.com Premium Member and read our in-depth Analyst Reports on them. As a Premium Member, you'll gain complete access to our investment research--including our Fund Analyst Picks and Highest-Rated Stocks lists--conducted by more than 130 Morningstar analysts, as well as our award-winning suite of portfolio management tools, such as Portfolio X-Ray.

http://news.morningstar.com/articlenet/article.aspx?id=253125




lolasdeb - 9/17/2008 at 03:45 PM

Thanks, nebish - good info.


nebish - 9/17/2008 at 06:06 PM

Not sure whether to keep posting here or to move over to Bhawk's thread...

Is the sky falling? Money market fund "breaks the buck", huge spike in gold...

quote:
BOSTON - The assets of a money-market fund that held $62 billion three months ago have fallen below a safety benchmark intended to ensure investors who put money in can get it all back. It is just the second unsettling instance in which a fund has exposed investors to potential losses in the nearly four-decade history of money-market funds.

Reserve Management Co.'s announcement that its Reserve Primary Fund had "broken the buck" after its assets fell sharply because of soured investments in Lehman Brothers Holdings Inc. marked the first such investor exposure to money-market losses since 1994.

New York-based Reserve said the value of $785 million in debt securities issued by Lehman and held by the Primary Fund were written down to zero as of Tuesday afternoon — a consequence of Lehman's collapse and bankruptcy after the federal government failed to bail out the investment bank over the weekend.

Money-market funds normally maintain assets of at least $1 for every dollar invested in funds, and are supposed to return interest to investors in the form of dividends.

Money funds are normally seen as among the safest investments after cash and bank deposits because they're required under federal regulations to invest only in low-risk securities. However, they lack the federal deposit insurance that other safe investments such as bank accounts offer. Consequently, money funds typically offer smaller returns than investments such as stocks, though they have become increasingly popular amid recent market turmoil, and enable investors to easily put money in and take it out when needed.

Reserve said Tuesday night that "unprecedented market events of the past several days" had reduced the value of the fund's holdings to 97 cents for each $1 put in by investors — an event known as "breaking the buck."

Investors who put in orders to remove money from the fund before Tuesday afternoon will get their money back at $1.00 a share. As for redemption orders that came in after 3 p.m. EDT (1900 GMT) on Tuesday, the amount they get back depends on the fund's daily share price calculated at 5 p.m. — a price that could vary depending on the performance of the fund's investments, and ability to raise capital to bring the asset level back up.

Reserve said Tuesday night that effective immediately, investors redeeming cash from the fund will not receive their money until as long as seven days later — the maximum allowed by law.

Calls to Reserve for further comment rang busy on Wednesday morning.

According to the company's Web site, the Primary fund held $62 billion as of June 30 — an amount that is likely smaller after Lehman's collapse. The Primary fund was the very first money-market fund when introduced in 1970.

Overall, Reserve oversees more than $124 billion in products including mutual funds, bank products and government-insured deposit accounts, serving millions of accounts, according to its Web site.

In the case in 1994, investors in the Community Bankers Mutual Fund ultimately lost about 4 cents on the dollar. And the fund was for a group of bankers, not retail investors.

In most instance in which a fund is in danger of breaking the buck, the fund's parent firm supplies cash from its own holdings or finds money elsewhere on the open market to maintain an adequate fund balance, said Peter Crane, president of Westborough, Massachusetts-based Crane Data, publisher of the money-market fund newsletter, Money Fund Intelligence.

"Most funds would take action long before the $1 net asset value was jeopardized," Crane said.

But Reserve "is really an anomaly, because they are one of the few advisers that is privately held, and doesn't have a large financial institution as a parent," Crane said.

Crane said in the past 14 months, the managers of 21 money funds have stepped in to supply additional cash to avoid breaking the buck. Crane said he was aware of three such "support events" this week alone, involving the money-market funds of Wachovia Corp.'s Evergreen Investments unit; Ameriprise Financial Services Inc.'s RiverSource Funds; and the money fund of Northwestern Mutual's Russell Investments.

In cases in which money funds aren't able to fully repay investors, Crane said, "The loss is typically so small that investors should keep the interest income in perspective. You are talking about a loss that is small than the likely interest income they earned."

The Investment Company Institute, an industry organization, issued a statement calling the Reserve case "extremely rare," and said the "fundamental structure of money market funds remains sound."

The ICI said it is "working closely with its members and regulators ... to maintain open communications about market conditions and their impact on funds."

Money funds hold $3.5 trillion in assets for a wide range of individual and institutional investors.
http://www.cnbc.com/id/26757465/for/cnbc/


bigann - 9/17/2008 at 06:23 PM

It was something like this I read when I asked about the value of the dollar per dollar invested dropping. I just got some of the facts mixed up.


Gregallmanfan - 9/17/2008 at 06:39 PM

This is one of those issues that was always a theoretical and rhetorical discussion - and lo and behold, here it is for real.


Bhawk - 9/17/2008 at 06:50 PM

quote:
This is one of those issues that was always a theoretical and rhetorical discussion - and lo and behold, here it is for real.


As theoretical as all those millions of inflated house appraisals...


Gregallmanfan - 9/17/2008 at 07:37 PM

quote:
quote:
This is one of those issues that was always a theoretical and rhetorical discussion - and lo and behold, here it is for real.


As theoretical as all those millions of inflated house appraisals...


Just like the great tulip bulb fiasco...it's only worth what someone will pay.


RBK - 9/17/2008 at 08:04 PM

And now the very scum-bags who messed it up to begin with are in charge of fixing it.

That's why I always shake my head in wonderment when someone suggests nationalized health care is a good idea.


bigann - 9/19/2008 at 11:37 PM

If part of this crisis came about because people defaulted on their home loans and had their homes foreclosed on and the bank now owns the real estate but is out the money for the loan, if they get their money back for the bad loans, do they still own the real estate and if so, and they sell it again, don't they make a large profit off the sale having been paid twice? Can anyone help me figure this out?

[Edited on 9/19/2008 by bigann]


Fujirich - 9/20/2008 at 12:05 AM

I just tried answering that same question Ann, over here - http://www.allmanbrothersband.com/modules.php?op=modload&name=XForum&am p;file=viewthread&tid=80909


bigann - 9/20/2008 at 12:53 AM

(I cut and paste this from the other thread too because I think it might be read by some additional people over here.)

quote:
quote:
If part of this crisis came about because people defaulted on their home loans and had their homes foreclosed on and the bank now owns the real estate but is out the money for the loan, if they get their money back for the bad loans, do they still own the real estate and if so, and they sell it again, don't they make a large profit off the sale having been paid twice?

While Derek's answer made me laugh, there might be a little more to consider.

It's a good observation Ann. The problem is in the simple laws of economics, in this case being: something is only worth what someone else is willing to pay for it.

Most of the hard assets, where people were foreclosed out of homes and banks now hold the properties, are such that the value of these loans exceed what the property is now worth. Had they gone up and been in demand, most of the owners probably would have tried very hard to sell them, make whatever profit, and settle the loan with the bank. But that's obviously not what happened.

Think of the banks being in a position not unlike many car owners who discover 18 months into their loan that they now owe more on the vehicle than it's worth. If lots of the drivers defaulted on those loans, the banks would be stuck with a bunch of cars worth less than they had originally lent. That's a serious problem, but it gets far worse.

The wizards at various financial institutions sold and re-sold these loans, packaging them up as various investment opportunities, all the while pitching to buyers that "it's guaranteed" because Fannie/Freddie/or whomever backed it all up. These instruments leveraged debt and amplified the risk/reward. Big profits being made if everyone was making their commitments to pay the loans and the value of the properties kept going up, but also big risk if either the losses grew big enough to threaten the guarantees and the values of the properties started going down.

So, the simple answer is that even though the banks may hold ownership of the property, they probably can't sell it for enough in today's market to recoup what they loaned out in the first place (something is only worth what someone else is willing to pay for it). And worse, their debt-based investment house of cards comes crashing down, which amplifies the losses.


Thank you for the explaination. If you don't mind, I have another question. With the bailout......who actually ends up with the money and to what degree is there a foreign ownership presence in our economy?


bigann - 9/20/2008 at 02:29 AM

I'm going to ask this in a couple of other threads.....but is what just happened with the bail outs even legal under our constitution since congress is supposed to be the only body that controls spending? Is this half trillion dollar debt legally ours?


bigann - 9/20/2008 at 02:40 AM

Okay, I found this that sort of explains some things. Please feel free to jump in with your thoughts.

http://www.msnbc.msn.com/id/26780312/


bigann - 9/21/2008 at 11:31 PM

I'm going to bump this back up because I figure the wild ride starts again tomorrow and this has been a good place to discuss what's going on.


This thread come from : Hittin' The Web with the Allman Brothers Band
http://www.allmanbrothersband.com/

Url of this website:
http://www.allmanbrothersband.com//modules.php?op=modload&name=XForum&file=viewthread&fid=127&tid=80252