[sceptic]

no one promises that exactly as far as I am aware, but I also do not think that anyone promises, that if large institutions have financial problems, the government should bail them out, I always thought a freemarket was what we lived in, all I can see is a subsidised market place, subsidised by us all

Why not let Fannie and Freddie do what everyone else has to do when they get in financial difficulties, sell off their assets for what they can get for them, though, I do not think they have much to sell off, in comparitive terms, after all they are a middle man, and we all know, cut out the middle man and things become cheaper

and as for the guarentees they provided to the people they sold the loans off to in the first place, well if they can't pay or back them up, the investors lose out, which to my way of thinking is tough luck, you took your chance and it did not pay off, that is what it is all about "risk"

Risk is
• noun 1 a situation involving exposure to danger. 2 the possibility that something unpleasant will happen.

why did these people not insure against (or did they not need to because they know the governemt would bail them out)

Why did some one allow them to have so much exposure that if they failed, (through no fault of thier own if you want to look at it like that), they would drag the economy down with it (or at least be another factor in worsening the situation.

All the investors that brought the bundled mortgage packages, have a protection that if the mortgagee defaults for what ever reason, F&F guarentee to pay the investors thier percentage, taking out a fee for doing so......... Where was the regulation that covered how much equity they would need to have in place to weather out a recession or major slump in the economy

[mike777]

kenberg, on Jul 15 2008, 12:47 PM, said:

In the last few years rescue efforts have been made with various large financial  entities on the grounds that their failure would be a calamity. Fannie and Freddie are the latest in a long line going back, at least, to the S&Ls.

It is sometimes argued that "letting the market work" is better than "government regulation". Perhaps true, as long as the market is allowed to work. However, if an entity is seen as being "too large to fail" then we are announcing that the market will not be allowed to work.

Questions:

Is it not logical that any entity that is too large to fail must then be properly regulated so that it does not fail and also does not need to be bailed out?

Stepping away from specific instances such as FNMA and looking at the general question, have McCain and Obama made it clear where they stand on this? So far I mostly have heard a lot of talk about shutting barn doors after the horses, the cows, and everything else is long gone.

Of course some may oppose any intervention and suggest just letting the chips fall as they may. Perhaps so, but it's a little scary and the gov folks do not seem to be up for this. I'm not sure that I am either.


I'm trying to work this out in my head and I am not sure where I come down. Generally I prefer a light touch with regulation but I am getting a little annoyed at the continuing mantra that we have to give my tax dollars to a bunch of fools who have screwed up just so they don't bring the whole structure down with them when they fall.

Granted call me fussy with words and what they mean.

But your post is full of them.

Words have meaning...call me fussy but ok.....



What the heck are you talking about?



1) fail
2) steeping away
3) calmitity
4) failure
5) let the market work
6) regulation,which ones?
7) bailed out...what the heck does that mean?
8) market not allowed to work....?
9 let the chips fall where they may?"
1o) inteverntion?
11) light tough vs what? hard touch...medium touch.....gentle touch?


ok ok I could add alot more ...trust me I could add a lot more

My point is.......almost all of your words can be debated for what they mean....

[hrothgar]

WBUR's "On Point" devoted an hour to this Monday morning

Well worth listening to

http://www.onpointradio.org/shows/2008/07/...0714_a_main.asp

[kenberg]

mike777, on Jul 16 2008, 03:13 AM, said:

kenberg, on Jul 15 2008, 12:47 PM, said:

In the last few years rescue efforts have been made with various large financial  entities on the grounds that their failure would be a calamity. Fannie and Freddie are the latest in a long line going back, at least, to the S&Ls.

It is sometimes argued that "letting the market work" is better than "government regulation". Perhaps true, as long as the market is allowed to work. However, if an entity is seen as being "too large to fail" then we are announcing that the market will not be allowed to work.

Questions:

Is it not logical that any entity that is too large to fail must then be properly regulated so that it does not fail and also does not need to be bailed out?

Stepping away from specific instances such as FNMA and looking at the general question, have McCain and Obama made it clear where they stand on this? So far I mostly have heard a lot of talk about shutting barn doors after the horses, the cows, and everything else is long gone.

Of course some may oppose any intervention and suggest just letting the chips fall as they may. Perhaps so, but it's a little scary and the gov folks do not seem to be up for this. I'm not sure that I am either.


I'm trying to work this out in my head and I am not sure where I come down. Generally I prefer a light touch with regulation but I am getting a little annoyed at the continuing mantra that we have to give my tax dollars to a bunch of fools who have screwed up just so they don't bring the whole structure down with them when they fall.

Granted call me fussy with words and what they mean.

But your post is full of them.

Words have meaning...call me fussy but ok.....



What the heck are you talking about?



1) fail
2) steeping away
3) calmitity
4) failure
5) let the market work
6) regulation,which ones?
7) bailed out...what the heck does that mean?
8) market not allowed to work....?
9 let the chips fall where they may?"
1o) inteverntion?
11) light tough vs what? hard touch...medium touch.....gentle touch?


ok ok I could add alot more ...trust me I could add a lot more

My point is.......almost all of your words can be debated for what they mean....

Firstly, I do my best with words, as do we all. But I will try here.


1) fail 3) calamity 4) failure
We read in the news that the government must act because, for example, BS is to big to fail. I generally understand what they mean and I imagine that you do also. The argument is that unlike my hypothetical toothpaste company, if Bear-Sterns were to go belly-up (you need that one explained?) the consequences to the US and maybe the world economy would be extremely severe, so severe in fact that government feels they must act ("government acting" is not quite an oxymoron) to avoid this calamity (meaning very seriously bad result).


2) steeping away
This probably should refer to tea, but by "stepping away from specific instances " I meant that I wanted to ask opinions, and maybe to look at McCain/Obama opinions (if any) on what should be the correct general approach for handling this matter in the future. We seem to be scrambling with no clear philosophy.


5) let the market work 9) let the chips fall where they may 8) market not allowed to work....?


Also common expressions. I intend this to refer to one possible approach. If Bear-Stearns gets in trouble through bad decisions, we will stand back and watch them go bankrupt. If financial experts warn of serious international repercussions, we will say that that would be too bad but we will not do anything.


7) bailed out...what the heck does that mean? 1o) intervention?


More common terms. I mean here an approach where the government puts up substantial amounts of cash, possibly returnable possibly not, to keep a company from going bankrupt.


11) light tough vs what? hard touch...medium touch.....gentle touch?


OK. Perhaps vague. But I was expressing my personal preference that less regulation is often better than more regulatin. Often, but not always.


6) regulation,which ones?

Which ones exactly! That is the question.

I find it a little tough to believe that "intervention" or "calamity" are mysterious words to you. Perhaps my general intent is unclear but reading it over I don't see why. But I will try to be clear:


For as long as I can remember (and Alzheimer's hasn't set in yet) there have been free market enthusiasts speaking of the excellent discipline of the free market. The general idea (as I am sure everyone knows) is that if we just let folks invest time, effort and money as they choose, the good approaches will bubble to the top and the bad ways will fall by the wayside. This thought is appealing to me. Very appealing, actually. . But with some large industries it appears that they are so much a part of our structure that even if they are run horribly they will not be allowed to fall by the wayside. The consequences of their failure would be so huge that we, through government, must act.

Obviously (to me anyway) this is heavily at odds with free market theory. The clash reminds me of a scene from Harvey: Lady to Jimmy Stewart: "You must struggle with reality". Jimmy Stewart: "For thirty years I have been struggling with reality and I am happy to say that I have won". I am asking: What are we to make of this clash between theory and reality? What do the candidates make of this?

[kenberg]

mike777, on Jul 15 2008, 11:02 PM, said:

onoway, on Jul 15 2008, 10:47 PM, said:

"Let me try and use a bridge analogy."
Who answers when you holler for  "DIRECTOR!!" ? 

Easy...you Answer!

But if you are afraid of Life and need the government or need a Daddy you will always whine and be disappointed when they fail to protect you.

Pam can of course speak up for herself here but I see no whining or fear of Life (or of life). You can insult people, piss them off, shut them up (well maybe not this last one) but it hardly changes any minds. What is your intent here?

[jtfanclub]

sceptic, on Jul 16 2008, 01:48 AM, said:

Why not let Fannie and Freddie do what everyone else has to do when they get in financial difficulties, sell off their assets for what they can get for them, though, I do not think they have much to sell off, in comparitive terms, after all they are a middle man, and we all know, cut out the middle man and things become cheaper

They aren't just a middle man.

Normally, they buy mortgages, repackage them, and eventually sell them. They just keep the market smooth. But right now, nobody else is buying mortgages. As a result, they own or guarantee HALF the mortgages out there, at least in terms of dollars. Six TRILLION dollars worth of mortgages. It's literally comparable to the size of the national debt. It's way beyond staggering. I'm curious as to which is larger...the assets of Fannie and Freddie, or the actual (not paper) assets of all the corporations in the country combined.

Why can't they just have Fannie sell off?

So, let's say that you went to the bank for a mortgage. Bank says no problem, at 20%. You point out the prime is nice and low, why so high for the mortgages? And the bank says...Fannie's having a fire sale on mortgages. Why should they go through the bother of making a new mortgage when they can just buy a used one cheap? It's not like they can resell the mortgage, not when the market is flooded by Fannie.

If the mortgage market failed, well, banks could always issue and keep mortgages and not try to resell them. But Fannie and Freddie selling off would kill the mortgage industry. Nobody would be able to get a mortgage. It's entirely possible that nobody would be able to get a loan, period. Banks would just use all of their money to buy these cheap mortgages and sit back and rake in income. And if nobody can get a loan, well, capitalism is based on loans and capital formation. Think Great Depression. Probably worse, actually. Imagine the dollar becoming next to worthless, going to back to a barter system, and all of our business being owned by foreign corporations.

Yeah, it's that bad.

We have all sorts of regulations keeping banks from just buying an infinite number of properties by going infinitely in debt. But those rules didn't apply to Fannie and Freddy. So they ended up owning....well, almost everything.

This is going to be very, very tricky.

EDITED TO ADD:

Most of the mortgages that Fannie and Freddie have are good loans. The problem is that the mortgages pay out over 20 or 30 years, and Fannie and Freddie have to pay for these loans that allowed them to buy the mortgages in a matter of weeks and months. If they do have a fire sale, these will be immensely profitable. It's just that they hold so very much that the market can't absorb it right now. The bailout is mainly to allow Fannie and Freddie to sell these slowly so that the market isn't overwhelmed.

[kenberg]

hrothgar, on Jul 16 2008, 07:19 AM, said:

WBUR's "On Point" devoted an hour to this Monday morning

Well worth listening to

http://www.onpointradio.org/shows/2008/07/...0714_a_main.asp

I'm listening right now and yes, it is very interesting.


One of the guests, Robert Samuelson, writes for Post/Newsweek. In a column this morning on globalization he ominously writes:

"Today's global economy baffles experts -- corporate executives, bankers, economists -- as much as it puzzles ordinary people.

On the NPR program Samuelson is saying that an assumption, wrong in retrospect, was that housing prices would keep going up forever. Good God! I moved three years ago, selling an overpriced house and buying an overpriced house. I told the agent who listed my house that I didn't need to get the top dollar, I needed to sell before the prices crashed as I was sure they would. Our house had doubled in price in about three years. Only an idiot would think that to be sustainable. As long as you are buying and selling comparable units in the same market, the price is no big deal, but some sense is needed.

Apparently there wasn't much.


Samuelson, who I think is always worth paying attention to, is now pointing out more of what should be obvious: You cannot get everyone into home ownership unless you make some loans that make little sense. Seems obvious to me. Why this wasn't obvious to the banking community is a question that they should be asked. The answer appears to be that it was obvious but they saw the opportunity to make money from the loans anyway while sticking the rest of us with the consequences. Respect for the banking community is gone, and will not be returning soon.

[onoway]

"Let me try and use a bridge analogy."
Who answers when you holler for "DIRECTOR!!" ? unsure.gif

Easy...you Answer!

But if you are afraid of Life and need the government or need a Daddy you will always whine and be disappointed when they fail to protect you.


Vigilante justice, anyone?

[Al_U_Card]

Defaulting on the Chinese debt might be considered and act of (economic) war...

Either way, once the Chinese middle class reaches 500 million individuals, they won't need the US as a market and they will print their own money and send the People's Army (of) bill collectors to get that debt.

The USofA will have to downsize to the Meltdown of America.

[y66]

Isn't Fannie Mae essentially a federally chartered monopoly intermediary in the residential home mortgage market, i.e., the only game in town?

If they close their doors, how long will it take for other institutions to take up the slack? What effect will this have on the availability of capital in this market in the short term? On the supply and demand for new homes? On employment in the construction sector? On the value of homes and overall consumer demand in the U.S. and other countries? On the value of mortgage backed securities and the capital reserve requirements of highly leveraged and even sensible financial corporations who own these securities? On the general availability of capital in all markets, U.S. and foreign? On overall levels of employment, in the U.S. and elsewhere?

As posted above, nobody really knows what will happen.

Personally, I'm willing to see what happens if Fannie Mae runs out of capital. But if I were in Secretary Paulson's shoes, I don't think I would be serving the public interest by taking such a gamble. This is a time for pragmatism, not ideology.

I am delighted that we have a guy like Paulson at the helm at the moment. I am also delighted that we have a guy like Barney Frank on the Democrats' side of the aisle. These guys, and others like them, are solid citizens and they are doing a heck of a job improvising ways to get through this mess, imo.

re: OP's question: is more regulation needed? Kenneth Griffin has some useful suggestions on this front.

[P_Marlowe]

Hi,

#1 Given that an insolvence of the Fannie and Freddie would most
likely cause a big world wide financial crisis similar to the one
1930, the US goverment had to step in.

#2 Both companies were private, but were seen as public (companies
of the country) and worked that way, hence if one sends them to
insolvence the dept has to be paid by the owner, the goverment (=
tax payer)

#3 As it is, the insolvence of those two companies is heaviliy correlated
with huge depts accumulated by the peoble of the country, you had
a financed with depts, now some how the depts needs to be paid back.

=> What the goverment did was the only thing to do, maybe they should
change the status of those companies to public, which will be done in
next years.

With kind regards
Marlowe

[Al_U_Card]

Are you afraid yet? Well, you should be.

Debt financing. Ring a bell? Living on credit. What does it mean? Creation of money at interest. Indebtedness instead of value for money.

The IMF and the World Bank as well as the G-8 et al are all involved in the biggest banking fraud.....create value and provide money as its medium of exchange and then use that to exchange goods and services...right? WRONG!

Look at your monetary systems and how financial operations work. We are the cows. They collect the milk for a fee, skim off the cream and then charge us to get back the milk as well as adding water to the cream to create new milk..."investment instruments" .

Living debt-free may not be possible but perpetual indebtedness is a form of servitude that only the rich can avoid.....does that surprise you? You need only look at who is without debt to understand who is robbing you blind.

[jtfanclub]

Nice article....

http://www.city-jour.../eon0716ng.html

The scary part is investment banks borrowing directly from the U.S. Treasury. Wonder if they loaned any money to Lehman Brothers? Good luck on getting that back.

I understand why Countrywide was 'too big to fail'. I haven't figured out why Bear Stearns was.

[Al_U_Card]

Hmmmnnn, let's see, Bear Stearns you say? Bailed out buyout so as not to "hurt" the markets? How about this article?

several unexpectedly strong
earnings reports, including from JPMorgan Chase & Co.
Oil prices fell more than $5, dropping below $130 a barrel
for the first time in over a month. The steep decline in oil
reduced concerns about the threat of inflation on an already
fragile U.S. economy.
Shares of JP Morgan <JPM.N> jumped 13.5 percent after the
third-largest U.S. bank's profit fell less than expected on
resilient stock and bond underwriting revenue. Bank of America
Corp <BAC.N> rose nearly 17 percent and Citigroup <C.N> gained
over 9 percent.

Well, I guess it worked....but at what cost.....well their profit did not drop AS MUCH but they still made a bundle. Wonder how much of it was from the Fed's bail-out of their Stearns takeover?

[kenberg]

I generally agree with Y66 that we are fortunate in having some bright and serious guys doing their level best here. As the arguments get complex I can barely if at all keep up. But we have an election coming up and somehow I have to form an opinion. All I can say is that I am working on it.

I have to comment on Al's remark about the difficulty of living debt free. I suppose that most of us, for a while, had to have a mortgage. Beyond that it's simple. I follow in my father's footsteps here. If I don't have the cash (I may use plastic but the cash is on hand) I don't buy it. Note to young people being pushed to buy buy buy. My father's way has served me very well, I recommend it.

[Al_U_Card]

And that is the key to value for money....living "within" your means and not becoming indebted. The house (and for arguments sake car) loan is a "replacement or rental costs so it is legitimate, as you have (usually) as much resale value as you have debt left to pay so you are not "really" in debt.

Getting what you want is a sucker's bet. Concentrate on what you need and make sure that you prepare and acquire BEFORE the outlay so as not to be in a precarious financial position.

Like good physical health, you can only do your best and take care of yourself but in doing so, you make everyone else better off for it.