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"My Tax Dollars"
http://www.latimes.com/business/la-...0,3267659.story
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Mortgage giant rescue could cost $25 billion From the Associated Press 7:27 AM PDT, July 22, 2008 WASHINGTON -- A federal rescue of troubled mortgage giants Fannie Mae and Freddie Mac could cost taxpayers as much as $25 billion, Congress' top budget analyst said Tuesday. But Peter R. Orszag, director of the Congressional Budget Office, predicted in a letter to lawmakers that there's a better than 50 percent chance the government will not have to step in to prop up the companies by lending them money or buying stock. Congress is expected to vote this week on a housing measure that would give the Treasury Department authority to throw Fannie and Freddie a temporary lifeline. Treasury Secretary Henry M. Paulson, who has been pressing for the power, says it's intended as a backup plan to help calm investors and stabilize financial markets. Paulson said in a New York speech Tuesday that Congress needs to quickly approve a support package for Fannie Mae and Freddie Mac -- which guarantee or own almost half of the home mortgages in the country -- to make sure they maintain their critically important role in housing finance. He said their continued operations were "central to the speed with which we emerge from this housing correction." Treasury officials confirmed that bank examiners from both the Federal Reserve and the Office of the Comptroller are currently inspecting the books at both Fannie Mae and Freddie Mac. Paulson said in an interview published Tuesday in the New York Times that he believed the results of those examinations would provide an important signal of confidence for the markets. After a period of market turbulence in which fears grew about the fiscal soundness of both institutions, the administration on July 13 unveiled a plan to provide unlimited government loans to the two mortgage giants and also to purchase stock in the two companies if needed. Paulson has stressed that the proposal is a backup effort that would be in effect for 18 months as a way to calm investor fears. Critics have charged that the open-ended offer of support exposes taxpayers to billions of dollars of losses. Paulson said that Fannie and Freddie have issued $5 trillion in debt and mortgage backed securities. Of that amount more than $3 trillion is held by U.S. financial institutions and over $1.5 trillion is held by foreign institutions, making the stabilization of the two companies essential to the global economy. "Because of their size and scope, Fannie and Freddie's stability is critical to financial market stability," Paulson told an audience at the New York Public Library. "Investors in our nation and around the world need to know that we understand how important these institutions are to our capital markets broadly and to the U.S. economy." During a question and answer period, Paulson said that housing was at the "heart of our nation's economy." He added that a key to turning the housing market around was bringing home buyers back into the market, an area where he said Fannie and Freddie needed to play a critical role to provide mortgage financing. The effort to provide support to the two mortgage giants follows the government's involvement in dealing with the near-collapse of Bear Stearns in March when the Federal Reserve provided a $30 billion loan to facilitate the sale of Bear Stearns to JPMorgan. |
you, like many, fail to see the bigger picture. a bailout wouldn't be for the benefit of freddie or fannie, rather, it would be to keep US borrowing costs low.
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| NY TIMES ARTICLE July 21, 2008 Trouble at Fannie Mae and Freddie Mac Stirs Concern Abroad By HEATHER TIMMONS For more than a decade, Fannie Mae and Freddie Mac, the housing giants that make the American mortgage market run, have attracted overseas investors with a simple pitch: the securities they issue are just as good as the United States government�s, and they usually pay better. The marketing plan worked. About one-fifth of securities issued by Fannie, Freddie and a handful of much smaller quasi-governmental agencies, some $1.5 trillion worth, were held by foreign investors at the end of March. One out of 10 American mortgages is, in effect, in the hands of institutions and governments outside the United States. �Now that the two companies are at risk, how their rescue is handled will ultimately test the world�s faith in American markets. It could also influence the level of interest rates and weigh on the strength of the dollar for years to come, analysts say. No less than the international perception of the credit quality of the U.S. government is at stake,� said Richard Hofmann, an analyst with CreditSights, an independent research house with offices in London and New York. Also at stake is Americans� future ability to gain access to credit. If foreign companies and governments abandon United States investments, home, auto and credit card loans will be much more difficult to come by. That helps explain why Treasury Secretary Henry M. Paulson Jr. is pressing American lawmakers for the authority to inject unspecified billions in cash into either company or both. The �blank check� nature of his request has raised concerns on Capitol Hill, but Mr. Paulson is betting that Congress is even more fearful of the consequences of doing nothing to rescue Fannie and Freddie. On Sunday, in an appearance on the television program �Face the Nation,� Mr. Paulson said he was �very optimistic that we�re going to get what we need from Congress.� �Congress understands how important these institutions are,� Mr. Paulson said. Asian institutions and investors hold some $800 billion in securities issued by Fannie and Freddie, the bulk of that in China and Japan. China held $376 billion and Japan $228 billion as of June 2007, the most recent country-specific Treasury figures. In Europe, roughly $39 billion in Fannie and Freddie debt is held in Luxembourg and $33 billion more in Belgium, countries that are home to large investment management firms. Investors in Britain hold $28 billion, and Russian buyers hold $75 billion. Sovereign wealth funds in the Middle East are also believed to be big investors in Fannie and Freddie debt. The trillions in securities issued by Fannie and Freddie and backed by American mortgages were never explicitly guaranteed by the United States government, but foreign and domestic investors alike have always believed, because of the companies� integral role in the housing market and their marketing pitch, that the guarantee would be backed up if it were tested. As the United States government�s debt, and the corresponding amount of Treasury securities, shrank in the late 1990s, foreign investors with currency reserves needed a safe alternative to park their cash. Fannie and Freddie stepped up their overseas marketing efforts and, with the help of Wall Street banks, sold billions of dollars in securities overseas. Asian banks and insurers bought Fannie�s and Freddie�s paper because it gave a little more yield than a straight Treasury note � �the same risk at a better price,� said Deborah Schuler, an analyst with Moody�s Investors Service in Singapore. Investment managers at Asian banks and central governments are �very comfortable with the idea of implied government support� because it is so prevalent in Asia, Ms. Schuler said. Still, this week�s Congressional debate on the issue �is going to worry people,� Ms. Schuler said, though she, like most analysts, is confident that Washington will deliver, just as it has in past financial crises like the savings and loan industry bailout of the late 1980s and early 1990s. Because America�s relations with a host of countries are intricately tied to Fannie and Freddie, the only realistic option open to lawmakers may be to hand the Treasury Department that blank check, analysts say. The two housing agencies have always been fierce competitors, and they made no exception in their expansion into international markets. Top executives wooed governments, banks and insurance companies in Asia and Europe, and lent executives to help foreign governments, including Russia and Hong Kong, set up their own American-style mortgage markets. Both companies often compared their product to United States Treasuries when they talked to international investors, and adjusted the way that bonds matured and were priced so they looked and acted more like Treasury bonds. In an interview with a London financial trade paper in 1999, Jerome T. Lienhard, Freddie Mac�s senior vice president of investment funding, said, �Investors that make the transition from U.S. Treasuries to our securities will be pleased with the performance.� Freddie Mac�s program is �designed to mirror that already used by the United States government,� he said. The Treasury will not comment on Fannie and Freddie�s international marketing pitches, but in the past it has tried to rein in the two institutions. In March 2000, Gary Gensler, then Treasury under secretary, proposed more oversight of Fannie and Freddie, testifying to Congress that the two agencies �receive no funds from the federal government, and the government does not guarantee their securities.� The companies �have been promoting their debt securities as an alternative market benchmark� to Treasuries, he noted, particularly as the amount of Treasuries issued by the government shrank with the deficit. Mr. Gensler�s comments roiled mortgage markets, sending prices down sharply on traded Fannie- and Freddie-backed securities and on both companies� stock. Ultimately, the controls he proposed were softened. The bulk of investments related to Fannie and Freddie are in the form of mortgage-backed securities, often called agency securities or agency paper. This agency paper is considered of much higher quality than securities backed by subprime loans because Fannie and Freddie generally lend to borrowers with good credit histories and require higher down payments. Prices on senior Fannie and Freddie securities, the highest quality, have not changed significantly since the end of last year, even as the two companies� stock prices have plummeted, Moody�s noted. As of June 30, 2008, prices on a typical Fannie or Freddie security maturing in 10 years were off only about 2 percent from December 2007. Questions about Fannie and Freddie have prompted individual institutions and governments in Asia and Europe to specify their exposure in recent days, but so far international concern has been limited. Ingo Buse, a spokesman for Zurich Financial Services, Switzerland�s largest insurer, said it held $8.3 billion in mortgage securities backed by Freddie Mac or Fannie Mae, and felt �comfortable with our position and asset allocation.� Swiss Reinsurance, Switzerland�s largest reinsurer, said on Wednesday that it held $9.6 billion of corporate debt from Freddie Mac and Fannie Mae and $12 billion in mortgage securities backed by the two companies. Swiss Re�s holding of Freddie Mac and Fannie Mae shares is minimal, it said. Hannover Re, Germany�s second-largest reinsurer after Munich Re, said it held 125 million euros, or $199 million, in securities issued by Freddie Mac and Fannie Mae. �We are not worried about the exposure,� said Stefan Schulz, a spokesman for the company, �because we expect the U.S. government to step in if there is any problem.� |
Ron Paul is turning over in his campaign's grave.
Where are they going to get $25 billion? Where are they getting $1 trillion for going to war? The government is out of control.
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| Originally posted by Krypton Where are they going to get $25 billion? Where are they getting $1 trillion for going to war? The government is out of control. |
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| Originally posted by jerZ07002 25 billion is just a quantification of a potential liability; it is not a set amount that the government would need to pay. The bailout would only occur if Freddie or Fannie couldn't pay the outstanding bonds held by foreign investors. the government is primarily interested in keeping foreign investors happy because those investors are the source of capital inflow into the US (ie., the purchasers of US treasuries). |
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| Originally posted by jerZ07002 you, like many, fail to see the bigger picture. a bailout wouldn't be for the benefit of freddie or fannie, rather, it would be to keep US borrowing costs low. http://www.nytimes.com/2008/07/21/business/21bank.html If US treasuries fail to be considered free of market risk, we are in trouble. If the world losses faith in US credit, say hello to 20% mortgages, 30% car loans, etc.... Fortunately, I think the world probably considers the US "too big to fail" and that situation is unlikely to unfold. |
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| Originally posted by Clovis Oh I see it just fine, and it's pretty clear that there are few other choices left to avoid a financial catastrophe in this area. I'm just pointing this out for all those folks who scream murder at the thought of .002% of their tax dollars going to fund some social program or prison sentence as we have seen on this forum before. Oddly no one seems to be complaining at the government bailing out corporations that gave away shit loans to people who couldn't pay them... |
Fannie and Freddie. Privatized profits, socialized losses. It just don't get any more wronger than that folks. We need major reform, not a bailout. Let alone a bailout that allows unelected officials to spend potentially unlimited amounts of taxpayer money to shore up private institutions with a now explicit government guarantee. Fortunately Paulson & Co probably won't stick around more than one term. They've done enough harm to an already damaged system.
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| Originally posted by jerZ07002 funny thing is that fannie and freddie didn't give out shit loans to unqualified people. i'm not for bailouts, but if it subverts a greater evil i support the cause. |
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| Originally posted by Krypton Question still stands. Who is going to pay for all these "potential" bailouts + war? The government doesn't make enough in taxes. |
Don't forget the FDIC bailout of Indymac customers is costing another $8 billion.
Also, this Fannie bailout could end up costing well over $100 billion. Congress is basically authorizing the fed to guarantee all of their debts ($5 trillion+) and to buy unlimited amounts of stock to prevent failure. Our potential liability on taxpayers reaches into the trillions.
http://www.bloomberg.com/apps/news?...CO4A&refer=home
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| Originally posted by Shakka They didn't originate the loans, but they put their stamp of approval on them so they are complicit. They made their investors tons of money in the process and now those very investors are getting bailed out as the tide goes out and those who have been skinny dipping are exposed (to borrow a Buffet quote). Personally, I'd rather have short-term acute pain to cleanse the system of its evils as opposed to fighting this cycle tooth and nail to avoid the natural progression of things. Things may suck for a little while, but the world isn't going to end. Edit: I don't think we're subverting greater evil, unless that greater evil is the rest of the world going apeshit and attacking the U.S. because we sold them shit securitizations and equities. On the contrary, I think the greater evil is propping up bad assets in the name of short-term comfort at the likely cost of more long-term pain. It is exacerbated by this being an election year. |
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| Originally posted by Shakka The answer, unfortunately, is my daughter, and probably her kids. Hopefully I can leave her a decent inheritance to make up for this generation's fuckups. |
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| Originally posted by occrider Do a search for the word "children" that was said by myself in the past year or two and you can easily find numerous instances of schadenfruede where I exalted at predicting that that republicans (who predominately tend to have kids) are going to fuck themselves over with their reckless policies and that I could care less because I wouldn't have kids. I no longer feel that way because not only is it generally a hurtful mentality that is detrimental to everyone, but it's something genuinely sad that could have been avoided so easily. Anyway, some of you probably know that I used to work at Freddie Mac. I completely agree with shaka that the company should have been taken over by the fed as opposed to bailed out. Even though credit risk was the cause of the whole financial affair, my experience as an operational risk manager was so much of a joke that I knew that they treated the entire field of risk management as a joke which is why i left several months ago. Hmmm i guess my instincts are somewhat ok. |
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