Fanni & Freddie

[ray23]

Why is Paulson involved in this?

Although he may not be a teenager, blank check to trillions, I don't think so. These kind of things establish policies, it may not be Paulson using that check next time.

Banks are failing in the US OK that's happened before, what does that really mean unless you have more the a 100K in an account your safe. When they fail the Feds take them over they don't stop existing.

Yes Freddie and Fannie are important but they are also businesses, when I had business that failed I took the loss, not my next door nieghbor through his taxes.

Give them access to better borrowing OK, blank check for a bail out no way.

There are things that these businesses can do to reduce thier loses, if they are really in that bad of shape. They ceated it they should fix it.

Values of housing down nothing new about that, they were over valued in the first place. Really a normal correction in the market.

What can they do, reduce the interest amount and recover as much as they can. Who hasn't had a buiness and nogoiated on a bill in troubled times.

If you owe more on the house then it's worth you ride it out till the market comes back, it will. What's messing that up variable rate loans, instead of seeing a break in bad times the interest rates are increased leaving people without enough to make the house payment. Can someone explain to me why when loan rates on the commercial levels are down why are individual rates being raised. Personally I think we are trying to get money to investors. Well the last I Time I looked the Stock Market doesn't go up all the time it has down turns. You want to play you might pay, you might make a bunch of money.

I have never been in the market simply because I don't understand it. So that means I have never made a dime from that. So why should I be paying for thier screw ups. Were they going to give me part of thier profits I doubt that.

In any business I have been in if thing went bad you get innovative and work through it, for those good times again. Thats just business. If profits were guaranteed every time why would anyone have a job and listen to a grouchy boss.

I'm sorry these busnesses need to get innovative and work thier way through this. Uncle has enough problems of his own deal with. Don't increase the rates and if you have to go interest free for awhile till this works it's way through, well that is just life Will the investors take a hit Yep. But they choose to play the game and knew going in they could suffer a loss.

Banks really don't want the properties they lose big time on that, the values go down and the properties are subject to damage, that need to be repaired not a good deal. Investors still don't get money. This mentality gets you the same thing we have seen in Thailand for years, Bank takes the property back carries it and try to sale it at the loan value which was inflated in the first place. Result builder gets his money out of the loan. The property is over priced for the market, doesnt move. Carried as a NPL forever here. Just doesn't work

Lawmakers Balk at Paulson's Fannie, Freddie Plan (Update1)

By Dawn Kopecki and Craig Torres

July 15 (Bloomberg) -- Lawmakers balked at giving Treasury Secretary Henry Paulson unprecedented power to use government funds to rescue Fannie Mae and Freddie Mac, the U.S. mortgage- finance companies grappling with a collapse of confidence.

``I'm uneasy about giving this blanket authority without having any kind of checks,'' Senate Banking Committee Chairman Christopher Dodd said in a Bloomberg Television interview after a hearing his panel held today. Senator Richard Shelby, the committee's top Republican, told reporters ``I've never known Congress'' to give ``an open-ended blank check for somebody to fill in.''

The skepticism forced Paulson to stress he would protect taxpayer funds and assert his authority over Fannie and Freddie, the biggest sources of U.S. home financing, in case of a government intervention. Federal Reserve Chairman Ben S. Bernanke said Paulson would have the right to overhaul the companies' management under the Bush administration's proposals.

Today's hearing indicates Congress may not approve a plan to provide a backstop for the companies this week, as Paulson had counted on when he announced his rescue package July 13. Shares of the companies dropped and bondholders demanded higher premiums on their debt.

Drop in Stocks

Fannie Mae slid 27 percent, its biggest drop since at least 1980, to $7.07 in New York Stock Exchange composite trading, bringing its slump in the past week to 60 percent. Freddie Mac fell 26 percent to $5.26, and is down 61 percent from a week ago.

Paulson repeatedly said he had no intention of using the authority to buy unlimited equity in Fannie Mae and Freddie Mac, and the proposal was aimed instead at bolstering confidence in the firms so such emergency action wouldn't be needed.

``When you're dealing with the taxpayer's money I don't think ambiguity has a place,'' Shelby, of Alabama, told reporters after the hearing, which featured Paulson, Bernanke and Securities and Exchange Commission Chairman Christopher Cox. ``We are potentially layering taxpayer resources on top of massive systemic risk,'' Shelby said at the hearing.

Dodd's reaction was a sharp contrast with that of his counterpart in the House, who yesterday said he was comfortable with giving Paulson power to use unlimited funds.

Not a `Teenager'

``I trust him,'' Democratic Representative Barney Frank of Massachusetts, the chairman of the House Financial Services Committee, said in an interview with Bloomberg Television yesterday. ``This is not some irresponsible teenager.''

Republicans in the House today said they want to postpone consideration of the proposals because they haven't had enough time to vet them.

House Minority Leader John Boehner, along with No. 2 Republican Roy Blunt, said in a joint statement today that Democrats ought to hold hearings on the plan so lawmakers can get a better understanding of how it would work and how much it would cost.

``There is little question that action is necessary, but there are also important questions that must be answered,'' they said. ``It would be irresponsible for Congress to provide the proposed new authority without due diligence on the mechanics of the Treasury proposal and its potential implications for taxpayers.''

Bipartisan Reaction

In the Senate today, Paulson found skepticism on both sides of the aisle.

Democratic Senator Jon Tester of Montana demanded that Paulson detail in writing the consequences for the economy if Congress doesn't act to help Fannie Mae and Freddie Mac.

``It could be a trillion bucks'' that Paulson could appropriate under his proposed authority, Tester said.

Paulson, appointed by Republican President George W. Bush, received the most hostile reception from other Republicans.

``The taxpayers have reacted and the market has reacted to your plan by driving down Fannie Mae shares 26 percent today, right now,'' said Senator Jim Bunning, a Kentucky Republican. ``Freddie Mac's are down 29 percent at this moment, just in case you are interested in how the markets are reacting to your wonderful plan.''

Bunning pledged to oppose the measure, indicating the Senate may need 60 votes to enact it, rather than a simple majority. A single senator can block legislation unless 60 other members vote to stop his so-called filibuster.

`Essential' Role

Bernanke told lawmakers it's ``important'' for Fannie Mae and Freddie Mac bonds and stocks to rise so they can keep raising capital and aid the mortgage market. Paulson said the two companies are ``essential'' because they represent the only ``functioning'' part of the home loan market. The firms own or guarantee about half of the $12 trillion in U.S. mortgages.

The extra yield investors demand to buy Fannie Mae's five- year debt over U.S. Treasuries with a similar maturity rose 5.2 basis points to 85.2 basis points today, compared with 64 basis points two months ago, according to Bloomberg data. Spreads on five-year Freddie Mac notes widened to 85.3 basis points, from 66 basis points in mid-May.

The Treasury chief's proposals also included unlimited lines of credit for the companies and bringing the Fed into a ``consultative'' role over the firms' capital.

Dodd, a Connecticut Democrat, said he was ``uneasy about what we're trying to achieve here'' by bringing the Fed into some supervisory role.

Dodd said he planned to work with other lawmakers on the committee in coming days on some sort of measure, because ``inaction is not an option.'' He said some plan would probably be attached to an existing bill that's aimed at stemming foreclosures and setting up a stronger regulator for Fannie Mae and Freddie Mac.

To contact the reporter on this story: Dawn Kopecki in Washington at [email protected]; Craig Torres in Washington at [email protected]

Last Updated: July 15, 2008 16:54 EDT

[Gary A]

It's not a simple thing. The cause of the major problem is/was the housing bubble. It was simply too easy to make money. Buy a house one year and sell for a nice profit the next year. Now the banks see the potential to make a lot of easy money too. It's not cheap to get a mortgage. There are all sorts of fees involved. They extended loans to people who could not possibly pay back the loans. It was no problem. When the special terms expired and much larger payments came due, the owner defaulted, the house was sold for the normal profit. Everyone was happy and the cycle continued. Then the bubble broke. Homes became difficult to sell and when/if they were sold, they sold at a loss. Now the greedy crooked banks are holding property that was vastly overpriced to start with. No one is now going to pay the inflated price. Speculators and bankers are in a tough spot and look to the US government to bail them out and make up their losses. I say swim or sink. They should have seen this coming and realized that the bubble would break sooner or later. They say the banks were at fault. It's not the bank's fault. It's the crooked people who put the bank in that position and those crooked people should pay. Those crooks are allowed to keep their profits and we, the public suffer.

[cloudhopper]

Why is Paulson involved in this?

...maybe because he's part of the plan to fix it.

Wonder whose face will be on the new billion dollar note?

[ray23]

Well one thing for sure it won't be mine. Isn't Paulson in charge of the treasury? What does that have to do with home mortgages.

Based on how he has done on the dollar maybe we should just take him out and shoot him and save all the problems he is about to create.

Gary I understood all of that and I agree sink or swim. My attitude won't change on this one, when they made money everything was just peachy. But they weren't linning up to pay my rent. So why should I be paying thiers now

[cloudhopper]

Well one thing for sure it won't be mine. Isn't Paulson in charge of the treasury?

Yes. Aren't they the ones who print all that fiat money they will be using to bail everyone out?

[nonthaburial]

I dont wish to knock our american friends, but I must admit, the names of these two institutions put a wry smile on my face

[ray23]

Hey I started this mess and I'm American, I'd chuckle to if it were not such a pain in the wallet

[lannarebirth]

Why is Paulson involved in this?

...maybe because he's part of the plan to fix it.

Wonder whose face will be on the new billion dollar note?

If you hadn't noticed Goldman Sachs always has a representative present to make sure they get their cut.

[BEENTHEREDONETHAT]

Don't know much about the stock market, but it seems like a good time to buy freddie and Fannie as the US Govt. is preventing them from collapsing. It would seem like a bit of a lottery ticket but could win big when it recovers. Considering the price of the stock today compared with a month ago. I would take a shot at it but it is a new learning experience for me and I shy away from them anymore. Basicly to lazy.

[Pakboong]

Why is Paulson involved in this?

...maybe because he's part of the plan to fix it.

Wonder whose face will be on the new billion dollar note?

If you hadn't noticed Goldman Sachs always has a representative present to make sure they get their cut.

Paulson is a former CEO of Goldman Sachs.

[Pakboong]

It's not a simple thing. The cause of the major problem is/was the housing bubble. It was simply too easy to make money. Buy a house one year and sell for a nice profit the next year. Now the banks see the potential to make a lot of easy money too. It's not cheap to get a mortgage. There are all sorts of fees involved. They extended loans to people who could not possibly pay back the loans. It was no problem. When the special terms expired and much larger payments came due, the owner defaulted, the house was sold for the normal profit. Everyone was happy and the cycle continued. Then the bubble broke. Homes became difficult to sell and when/if they were sold, they sold at a loss. Now the greedy crooked banks are holding property that was vastly overpriced to start with. No one is now going to pay the inflated price. Speculators and bankers are in a tough spot and look to the US government to bail them out and make up their losses. I say swim or sink. They should have seen this coming and realized that the bubble would break sooner or later. They say the banks were at fault. It's not the bank's fault. It's the crooked people who put the bank in that position and those crooked people should pay. Those crooks are allowed to keep their profits and we, the public suffer.

I am no expert on these matters but I am becoming more and more of the opinion that the Sub-Prime mess is a cover-up to get public sentiment moving in the direction of the poor home owner and away from the banks. To appeal to the masses to bail out the banks who created this mess with Ponzi scheme borrowing and lending practices. The near $600 trillion in leveraged debt was not mortages. Mortgages make up a large part but not even a quarter of the total. Their final throw was to use the only people left to continue the scheme. They had exhausted the prime borrowers and had no where else to go. The scheme is up when there is nobody left to tap for funds. We have reached the end of it all.

[PeaceBlondie]

Well one thing for sure it won't be mine. Isn't Paulson in charge of the treasury?

Yes. Aren't they the ones who print all that fiat money they will be using to bail everyone out?

NO! The treasury, my former employer, has not printed money for decades. It is the Federal Reserve - kind of a private chain of banks - that prints green money. Fredie Mac and Fannie Mae are private corporations, and probably the largest mortgage holders in North America. I get confused about how these mortgage instruments are related to big banks, because I doubt the banks held first mortgages. They held other fancy debt instruments that have another tricky name. Sort of like derivatives, I think, but different, and maybe leveraged like betting on all the long shots at all the casinos, multiplied by 7899.

Homeowners walk away from foreclosed homes, and in a housing recession, the empty houses sit for years and then sell at a distressed price, well below the amount of the old mortgage.

[BEENTHEREDONETHAT]

Heard on the news a day or 2 ago that the CEO of Fredie Mac was making $12,000,000 a year and the CEO of Fannie Mae was making $10,500,000 per year. It takes a lot of talent to lose that much money and they should obviously be rewarded for it. The CEO's and Board of Directors should be sued for everything they have.

[tomyamg00ng]

For any of you guys who have money in dollars, get it out as soon as possible. The FED are going down the inflation route. Your USD will be worth next to zero by the time they have finished. I have read most of Bernankes papers. The man is crazy. He has spent his whole intellectual career learning about how to prevent deflation...by using inflationary practises...ie, printing money The consequences of what he has planned are to be honest frightening...I ll leave you with one quote from that a paper and a link to that paper that Bernanke wrote in 2002.

The FED have been the cause of these asset bubbles. The price of commodities are going through the roof...too much money chasing too few items.

Beranke said...

As I have mentioned, some observers have concluded that when the central bank's policy rate falls to zero--its practical minimum--monetary policy loses its ability to further stimulate aggregate demand and the economy. At a broad conceptual level, and in my view in practice as well, this conclusion is clearly mistaken. Indeed, under a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero.

The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Bernanke Paper from 2002

[cclub75]

For any of you guys who have money in dollars, get it out as soon as possible. The FED are going down the inflation route. Your USD will be worth next to zero by the time they have finished. I have read most of Bernankes papers. The man is crazy. He has spent his whole intellectual career learning about how to prevent deflation...by using inflationary practises...ie, printing money.

Insane I don't know, but desesperate surely.

There is one fundamental flaw in his theory, his passion for "printing presses".

The USD itself.

Bernanke is a mind who worked within its own bubble with the assumption that the USD will always be the currency of the world.

We can't blame him : he's american. He was raised with the belief of the mighty USD.

Therefore he takes it for granted.

This is the fundamental flaw.

Unfortunatly, he's wrong. Because of the budget deficit, because of the credit binge... USA need foreign money. And for that matter, it will be more and more difficult to fool foreigners with a falling dollar...

[Gumballl]

Some may argue that this thread has nothing to do with Thailand. And on the surface, I would agree. But because this really is an international concern, there's more to it than merely having the US gov't decide whether to bail out US financial institutions; the US credit worthiness is on the line.

Here's a link to a recent report from the NY Times concerning Fannie Mae & Freddie Mac. Enjoy!

Edited July 21, 2008 by Gumballl

[lannarebirth]

Which global currency is not also fiat?

[cloudhopper]

Which global currency is not also fiat?

Maybe none but it would seem to me that those government's central bank's with higher real interest rates value their currency more than those with lower real rates.

[lannarebirth]

Which global currency is not also fiat?

Maybe none but it would seem to me that those government's central bank's with higher real interest rates value their currency more than those with lower real rates.

If you buy the argument that fiat money has no value; getting a higher return in fiat money on your fiat money probably shouldn't bring much comfort.

Lot's of good reasons not to like the $USD, but just that it's fiat alone is pretty weak argument if championing another currency.

There's a widely held view that the CH franc is backed in some percentage by gold. As far as I know the Swiss government sold all it's gold reserves in 2005.

[Naam]

as long as money buys any product the adjective "fiat" is not really justified. goldbugs of course love the expression but are not able to buy groceries with gold coins or bars without changing their gold first into "fiat money"

[Naam]

There's a widely held view that the CH franc is backed in some percentage by gold. As far as I know the Swiss government sold all it's gold reserves in 2005.

only by people who don't know what "backed by gold" means. the misconception is based on the fact that Switzerland (like a number of other countries) holds gold as part of the reserves.

[cloudhopper]

I am not a party to that argument. All I am saying is that some currencies, fiat or otherwise, appear to have more value than others. And I guess this is reflected in purchasing power and exchange rates.

[Naam]

Because of the budget deficit, because of the credit binge... USA need foreign money. And for that matter, it will be more and more difficult to fool foreigners with a falling dollar...

some foreigners might not be fooled but some foreign countries with emphasis and a high dependancy on exports to the U.S. have no other choice than to finance a good part of the U.S. deficit.

as flaming is forbidden by forum rules i refrain to comment on "USD will be worth next to zero" by tomyamg00ng

[Naam]

I am not a party to that argument. All I am saying is that some currencies, fiat or otherwise, appear to have more value than others. And I guess this is reflected in purchasing power and exchange rates.

that is definitely not the case C-Hopper. proof for my claim is the purchase power of a €UR in Europe compared to what a USD buys in the U.S. of A.

[lannarebirth]

There's a widely held view that the CH franc is backed in some percentage by gold. As far as I know the Swiss government sold all it's gold reserves in 2005.

only by people who don't know what "backed by gold" means. the misconception is based on the fact that Switzerland (like a number of other countries) holds gold as part of the reserves.

Most countries (first world) hold substantial gold reserves. I only meant that the Swiss have been selling it as its value increased and became too great a portion of their reserves. I was incorrect in saying they sold all, but they have been selling steadily as have most other soverign holders and the IMF.

[tomyamg00ng]

Because of the budget deficit, because of the credit binge... USA need foreign money. And for that matter, it will be more and more difficult to fool foreigners with a falling dollar...

some foreigners might not be fooled but some foreign countries with emphasis and a high dependancy on exports to the U.S. have no other choice than to finance a good part of the U.S. deficit.

as flaming is forbidden by forum rules i refrain to comment on "USD will be worth next to zero" by tomyamg00ng

Thats ok Its almost there now anyway. The black line I marked on the chart is when the FED was created in 1913...Most people don't realise how near the USD is to a cliff. It is no coincidence that since the FED cut interest rates in half,from 5% in August 2007 to 2% in March 2008 that oil has doubled in price. The "King Dollar" is undergoing serious debasement.

All these bailouts is causing rampant inflation. The FED will monetize the debt, which will cause the USD to collapse...We are at stage 2/3 of this inflation...

The ASean countries and China do have a choice. They have already dropped the peg and the RMB will increase 5 fold against the USD. Domestic demand is growing all the time in China. Once the YUan begins to appreciate the per capita income will increase and domestic demand will increase also, meaning a increasing demand for commodities, like oil...

[cloudhopper]

Well you could be right 00 but I seem to have heard this many times over the last 30 years.

I'm also not sure things will go as you say in China, but I have been interested in diversifying partly into CNY for some time. Anyone know how?

[Naam]

Thats ok Its almost there now anyway. The black line I marked on the chart is when the FED was created in 1913...

what about presenting a graph "purchase power of British Pound or German Mark" dating back till 1913 and comparing it with USD?

may i remind you that at the height of german inflation in the '20s ONE US-Dollar fetched 4.2 Billion (as per U.S. mathematics 4.2 TRILLION) Marks? what happened to Mark (presently backbone of the €UR) and British Pound after WWII?

[Naam]

Well you could be right 00 but I seem to have heard this many times over the last 30 years.

I'm also not sure things will go as you say in China, but I have been interested in diversifying partly into CNY for some time. Anyone know how?

if there was an easy way i'd hold CNY since three years. unfortunately besides NDFs (Non Deliverable Forwards) it is next to impossible for us common mortals

[PeaceBlondie]

Thats ok Its almost there now anyway. The black line I marked on the chart is when the FED was created in 1913...

what about presenting a graph "purchase power of British Pound or German Mark" dating back till 1913 and comparing it with USD?

may i remind you that at the height of german inflation in the '20s ONE US-Dollar fetched 4.2 Billion (as per U.S. mathematics 4.2 TRILLION) Marks? what happened to Mark (presently backbone of the €UR) and British Pound after WWII?

1913 would be about the time that clever capitalist (not too shabby as an engineer, either) Henry Ford I made the nearly Communistic move of paying his factory workers some astronomical wage like one USD per day or hour, so that factory workers could buy cars, too. Today, labor costs including medical insurance may bankrupt GM and Ford.