August 26, 2008

Fannie & Freddie have failed (once the accountants and US Treasury finally get around to admitting it). So, serious question, what should be done?

If F&F had only bought loans with 20% or more down and verified funds (not borrowed piggyback funds), they wouldn't have failed.

But that's not what happened, since their executives were motivated to enrich themselves, their lobbyists had Congress in their pocket, and their auditor was criminally negligent.

So now, we have by far the biggest financial failure in the history of the world on our hands. The taxpayer's hands, who backed up these pigs with an 'implied' guarantee that is now a real guarantee.

So what should be done now?

If the US doesn't make good on their bonds, economies around the world will collapse, including the US who'll never be able to borrow another dollar from China and friends again. So take that off the list - the US taxpayer will make good on their bonds, and hundreds and hundreds of billions if not trillions will be lost.

If F&F are allowed to continue, even after wiping out the common and preferred shares, there's nothing from stopping this mess from happening again in the future - privatize the gains while making the losses public.

So what's my solution?

Liquidate Fannie and Freddie - now. As fast as possible, as it'll only get worse. Wipe out the shareholders. And let the free market buy up any mortgage they want - WITH NO F*CKING GOVERNMENT GUARANTEE OR INVOLVEMENT.

I'm sure real companies with real desires to stay in business won't be buying Option-ARM, Negative-Am, Liar's Loan garbage in the future. And if they do, and they fail, Congress needs to pass a law that no bank or investment house in the future can legally be bailed out by the US taxpayer (got that Bernanke? got that Paulson?). Nobody is too big to fail. Once the market knows that, and it's codified into law, it's a new day.

Government is the problem, and has no business being in business. Fannie and Freddie proved it.


Anonymous said...

You are dreaming if you think F&F will be liquidated.


Do you think nations that own millions of shares of perferred stock are going to stand pat while the US says ooops?

Anonymous said...

Ok, McCain definately trumps this issue. Obama already hinting full bailout. McCain already hinting he'll make them 'be no more'.

Anonymous said...

You don't get it yet do you?

The US is bankrupt... literally!

Say buh-bah to your empire...

Michael said...

I think they should make not paying back your mortgage illegal and throw people in jail. Problem solved over night, people would start to "find" the money.

jesus was a carpenter... said...

Paulson and Bernanke and Greenspan:

You are rapidly (Greenspan already there)sliding down to your Boss' Georges' level of hatred by the American People.

Resign Now.

Do you want your name and legacy tied to loser Bushco-Cheneyburton failed and allegedly completely at every level corrupt regime?

You can make tons more money cheating the government out of contractor money than you can ever legit earn in public service.

Pick up a hammer. Look what it did for the 2nd worse president ever Jimmy peanuts Carter...

You Too can be a Nobel candidate.

Do It Now.

Anonymous said...

Nice picture of bullet-head Paulson. Looks like he either ate something in China and needs to go potty or he just sold his own Mother down the river for cash.

Bye bye, Mom.

(Nice interview with Meet the Press from the Olympics where Paulson basically said in other words that as soon as Bushco departs, Paulson will run, not walk away from the steaming pile of shit also known as the US economy - oh well, so much for patriotism and loyalty - just like Wall street).

Kevin said...

I like the idea of letting the mess which is Fannie/Freddie go down in flames, but I don't think it will work.

F&F back something like 75% of all the mortgages in this country. Let's assume that 20% of those are toxic. If so, that represents 15% of all mortgages in the country.

What happens if you liquidate F&F and no one is willing to pick up millions of toxic waste mortgages? Does that mean F&F are gone, but the US government has to administer that mess? If so, they'd need to set up an organization to do so -- which just creates a NEW F&F with nothing but toxic debt. I think we'd end up back where we started, but with a "new and improved" F&F -- yikes!

dale earnhardt said...

Fire up the printing press once again.Our economy is a total sham.

Once again your taxes will go up as these baffoons in govt and the corporate world laugh all the way to the bank.

Anonymous said...

I think they should make not paying back your mortgage illegal and throw people in jail. Problem solved over night, people would start to "find" the money.

Sure... why don't we start up the union workhouses, the poor law and the debtor's prison.

England was just such a swell place when those were in effect.

If the people commited fraud - then yes - ARREST EVERYBODY who was involved in that fraud - including the banksters, (make-you)broke'rs and realtwhores.

Otherwise shut the FU! Being poor is not a crime you boot licking elitist misdirected wad! So stop protecting those who are really responsible for this royal cock up.

Anonymous said...

Taxes can't be raised enough to cover these bailouts -- we would have riots and rebellion. No, we will pay through a tax called inflation and a clever, charismatic politician will spin it as "we're all in this together" - LOL.

Anonymous said...




Lee said...

The common stock going to zero is not as big an issue as the GSE bonds going to zero. The common will be wiped out to save the bonds held by SWF and China, etc.

If this happens, my faith in this country will be shattered. Really. This will reward the profligate, and punish the thrifty.

too corrupt to fail said...

F&F is a powder keg of political corruption.

A massive bailout is a politically expedient method of cover-up.

Henry Paulson said...

I'm looking for a few good printing press operators.

Anonymous said...

Uncle Fester, is that you?

Anonymous said...

Uh-oh, which one cost more, the Iraq war or Fannie & Fredie Mac? Do you really know how much F&F are in the hole? How many trillions lost plus all the socialist subsidizing to help others to buy a home because they are entitled to according to Democrats?

You do realize that Fannie & Freddie are Democratic party creations, right?

So which one cost more to American taxpayers? Careful, don't have an aneurysm while you think hard on the answer, Hussein cultist geniuses.

Anonymous said...

If it was up to the genius Jimmy Carter, he would send a bunch or war ships to bring the entire Cuba to reside in all those empty homes, for free, plus food stamps for life. All paid by the honest taxpayer. Sad to see all the ignorant sheeple rallying behind one of the worst POTUS in history.

Joe said...

Most people are not even aware of a bail out or only mildly aware.

Even fewer think how it will negatively impact them.

Of those that are concern, most won't do anything.

And of the very few that will do
something, there is nothing they
can do anyways.

So F&F will be bailed out.

Anonymous said...

As expected, the crooks on Wall Street are on the pump & dump action today, trying to bring the retards into the market so they can be fleeced a few days later.

Everything is rosy already. Buy buy buy.


Anonymous said...

I'm buying gold. The markets are going to rally into this Obamamania/money-printing party as private debts are converted to public debts, and then the public debts are inflated away. It's happened many times before, most recently in Brazil, Russia, and Argentina, so all you pukes who claim "this time is different" are pissing into the wind.

You will have a bank account fully of shiny, new, Ameros, Newbucks, or whatever the hell they're going to call the new script, and I will have my gold and junk silver. I wonder which one will buy more cups of coffee down the road?

Anonymous said...

"Liquidate Fannie and Freddie - now. As fast as possible, as it'll only get worse. Wipe out the shareholders. And let the free market buy up any mortgage they want - WITH NO F*CKING GOVERNMENT GUARANTEE OR INVOLVEMENT."

Sounds good to me. But I think the elite Libertarian Over Class that runs the government might object. Their motto is "Socialism for the Rich. Capitalism for the poor".

Anonymous said...

Absent in this whole tirade is the reality that the whole system was a pre-meditated criminal enterprise designed to vacuum immense quantities of capital OUT of the US and into private, offshore repositories.

This was going on for a long time, so don't be dissuaded by any petty partisan horseshit.

All that is left is the debt now.

The Big Picture

fast actin tinactin said...

That Paulson look would make a kick-ass Halloween mask.

BTW, is he the one who went to Prinston, or is he the other one? I always get those two confused.

Anonymous said...

Anon...That Punt comment was perfect.

Mr. Flibble said...

Anything too big to fail needs to be made smaller and expendable.

Anonymous said...

Bye Bye Fannie and Freddy---- And The Shareholders Are Muertos en el Agua

Anonymous said...

Helicopter Ben and Perplexed Paulson says watch out it's just beginning to unravel.

gw said...

When Buffet spoke about WMDs he had just taken over a swiss institution where he found some odd deals. It cost him money to unwind the deals but he immediatly got started...

The sooner this chapter is closed the better. There is no need for a goverment gurantee to securitize morgages - other collateral is securitized too. You only need to run a prudent business and have adequate capital for the size of the deals and the volatility of the assets. If a gurantee is needed then it may be for the value of the currency the security is written.

Anonymous said...

Lets have a clam bake!

chicago style pan pizza said...

Republicans = mass failure.

Refuse to buy overpriced said...

"I think they should make not paying back your mortgage illegal and throw people in jail. Problem solved over night, people would start to "find" the money.

August 26, 2008 1:33 PM"

Sorry Michael, ex post facto laws are unconstitutional in the USA.

Bond investors around the world should have known better. Non-recourse loans were no secret. If China and the SWFs were dumb enough to buy 5%, 3%, 0% down payment non-recourse mortgages during the bubble, they deserve the losses they will suffer if bond-holders are wiped out.

If, for the future, we outlaw non-recourse mortgages, low/no downpayment mortgages, Alt-A, sub-prime etc., the world will buy our mortgages again, Fannie Mae default or no Fannie Mae default. US mortgages will be good investments if good underwriting standards are the law of the land, and they would be fools not to invest.

Defaults will not result in "WORLD WAR THREE ON STERIODS". Our military is much more advanced than China's, their plan is to gradually build up an industrial base to support a truly first rate military in the future. The last thing they want is war right now.

Anonymous said...

at what point do these people start jumping out of windows.

Bondo said...

From Mortgage Servicing News: Privatize the profits and let the taxpayers hold the empty bag!

Citi: Nationalization of GSEs 'Unlikely'
August 25, 2008

Citigroup, in a new report, says it is unlikely that the federal government will nationalize Fannie Mae and Freddie Mac, while admitting that in time some type of federal action may be necessary. The report says the government-sponsored enterprises are not entirely without options, adding that their new regulator, the Federal Housing Finance Agency, could ease "the arbitrary capital surplus requirement further." It adds, "given our analysis, which shows that both [Fannie Mae and Freddie Mac] should have sufficient capital through (at least) year-end 2008 under a variety of negative credit scenarios, all parties could wait-it-out until market conditions improve." In Monday's trading, Freddie's share price was up 15% at one point to $3.26, while Fannie's was up 5% to $5.24.

Peter T said...

> If the US doesn't make good on their bonds, economies around the world will collapse, including the US who'll never be able to borrow another dollar from China and friends again.

The bonds mention explicitely that they are not backed by the US government. They always traded some base points above treasuries, the true government bonds. They should not be made whole by the government now, but paid out of what is left in the mortgages, even if that means 20% loss or more for bondholders (they are not worthless by far, even now). Put Fannie and Freddie into receivership now.

Keith, don't you know that we have already enough debt to reckon with?

vanilla ice said...

No one here is choosing option three: just let the whole thing implode. Has anyone considered the benefits of a good olde fashioned financial meltdown and general social breakdown? It would make life interesting for at least a few years. It would also teach all the Wall Street people, bankers, and genius home owners a lesson in manual labor and humility.

Reality said...

"Anything too big to fail needs to be made smaller and expendable."

Couldn't have said better myself!

The US government should default too. Then nobody will dare to lend to the US government officials again and expect to rob our children/grand-children to get the money back. That will be a good thing.

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