Fannie and Freddie - Two of a Kind
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    Fannie and Freddie - Two of a Kind

    Scramble Led to Rescue Plan on Mortgages - NYTimes.com
    ]

    Scramble Led to Rescue Plan on Mortgages
    Brendan Smialowski for The New York Times
    Ben S. Bernanke, the Federal Reserve chairman, on Monday during the Fed's board meeting.

    By STEPHEN LABATON
    Published: July 15, 2008
    WASHINGTON — The Bush administration hastily arranged the dramatic Sunday evening rescue of Fannie Mae and Freddie Mac after Wall Street executives and foreign central bankers told Washington that any further erosion of confidence could have a cascading effect around the world, officials said on Monday.
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    Treasury Secretary Henry M. Paulson Jr. and other top officials were warned, after Fannie and Freddie lost nearly half their stock market value on Friday morning, that any more turmoil threatened to reduce the value of trillions of dollars of the companies’ debt and other obligations, which are held by thousands of domestic and foreign banks, pension funds, mutual funds and other investors, government officials said.
    The warnings of a potential systemic failure led to the resulting rescue package, and one of the most striking — though unspoken — regulatory shifts in modern times. For decades, Treasury secretaries and Federal Reserve chairmen have insisted that the government did not stand behind the debt of Fannie and Freddie. But the safety net Mr. Paulson announced on Sunday sends the opposite message: that the government is determined not to let either one fail.
    For the second time in four months, the housing crisis prompted the government to scramble over a weekend to rescue a major financial institution. While the danger of a systemic failure arising from Fannie and Freddie’s market problems was not as immediate as in March when Bear Stearns stumbled, the stakes were exponentially bigger.
    Fannie and Freddie have combined debts of $1.5 trillion. They own or guarantee $5 trillion in mortgages. They have contracts with other institutions worth $2 trillion more to hedge the risks behind those mortgages.
    The rescue package was cobbled together on Saturday and Sunday during a series of telephone calls and meetings involving senior officials at the Treasury and the Federal Reserve.

    Go to link for more.


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    Re: Fannie and Freddie - Two of a Kind

    I'm glad the government is saving them but I get a kick out of how fast capitalist worshiping republicans turn socialist when some of their big corporate pals get in trouble. There will likely be more companies the fed will have to bail out.



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    Re: Fannie and Freddie - Two of a Kind

    Quote Originally Posted by CYKOFAN View Post
    I'm glad the government is saving them but I get a kick out of how fast capitalist worshiping republicans turn socialist when some of their big corporate pals get in trouble. There will likely be more companies the fed will have to bail out.
    I am not a republican, but I am a huge free-markets believer, and this bailout will only serve to protect all from the pain that they deserve. Free-markets don't need government bail-outs, they need pain to be the regulator. Most folks insist the goverment interevention as they refuse to tolerate the pain that they deserve.


    As far as depth goes though, the combination of White, Woodbury, Olaseni, Basabe, and Uthoff is much better than Niang, Ejim, Edozie, Gibson. Not because of the top 2, but because of the next 2 or 3. -DeanVogs

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    Re: Fannie and Freddie - Two of a Kind

    That's fine, just tell that to the free market heroes that hate welfare for food, housing and job training for the poor but turn socialist on a dime when it's their wealthy buddies that get the big slices of pork. I also believe in a free market system but with good regulatory laws that are actually enforced so we don't end up in messes like we now have.



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    Re: Fannie and Freddie - Two of a Kind

    I figured this would get political, better switch forums Either way this is caused by lots of stupid decisions by these companies in the previous 5 years.


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    Re: Fannie and Freddie - Two of a Kind

    Why are we bailing these companies out? It is not like someone else cannot buy these loans. Yeah some of the investors will lose out, but that is why investing is never a sure thing. Any investor that was putting $$ into mortgages in the last 5 years should not be surprised when their investments go down.


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    Re: Fannie and Freddie - Two of a Kind

    Quote Originally Posted by CYKOFAN View Post
    That's fine, just tell that to the free market heroes that hate welfare for food, housing and job training for the poor but turn socialist on a dime when it's their wealthy buddies that get the big slices of pork. I also believe in a free market system but with good regulatory laws that are actually enforced so we don't end up in messes like we now have.
    I don't want the government doing much of the list above-I am a Friedman disiple. I realize my world won't ever come to fruition but it sure would solve a lot of things.


    As far as depth goes though, the combination of White, Woodbury, Olaseni, Basabe, and Uthoff is much better than Niang, Ejim, Edozie, Gibson. Not because of the top 2, but because of the next 2 or 3. -DeanVogs

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    Re: Fannie and Freddie - Two of a Kind

    jmb- I agree with you to a point, but a purely free market system without fair regulatory laws tends to lead to a two class system with a small super-wealthy class and masses of poor (it happened to America at the turn of the last century). Those that have a lot of money have a lot of power (or the money to influence those in power). It's just human nature that greed often trumps fairness, and sooner or later you get those at the top making over 400 times what those at the bottom make (sound familiar?). I know that's the free market but do you really think it's fair for the ceo and top execs to make 400 times what the lower workers make when they are the ones that actually build the product or run the day to day operations of the company?



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    Re: Fannie and Freddie - Two of a Kind

    Quote Originally Posted by CYKOFAN View Post
    I'm glad the government is saving them but I get a kick out of how fast capitalist worshiping republicans turn socialist when some of their big corporate pals get in trouble. There will likely be more companies the fed will have to bail out.
    If you take a look at who is running those two companies you will see a bunch of Clinton people on the list - they are not republicans.

    I always love it when someone talks out of their rectum about things they know nothing about.



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    Re: Fannie and Freddie - Two of a Kind

    There are more than those two companies that have been bailed out (and probably more to come), and there are plenty of rich republicans that stand to lose big money if fanny and freddy go under. Now who's bailing them out? Like I said, republicans like Bush and Bernanke quickly turn socialist when their wall street friends' money is at stake (I'll avoid returning the rectum comment).



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    Re: Fannie and Freddie - Two of a Kind

    Quote Originally Posted by CYKOFAN View Post
    There are more than those two companies that have been bailed out (and probably more to come), and there are plenty of rich republicans that stand to lose big money if fanny and freddy go under. Now who's bailing them out? Like I said, republicans like Bush and Bernanke quickly turn socialist when their wall street friends' money is at stake (I'll avoid returning the rectum comment).
    Everyone stands to lose if they go under. These two "companies" have their debt backed by the implied faith and credit of the federal government - so their debt is purchased with the same level of guarantee as federal debt.

    If the federal government were to allow these companies to go under and not honor their debt, then the cost of the resulting economic chaos would dwarf the cost of "bailing out" these companies.



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    Re: Fannie and Freddie - Two of a Kind

    Quote Originally Posted by TykeClone View Post
    Everyone stands to lose if they go under. These two "companies" have their debt backed by the implied faith and credit of the federal government - so their debt is purchased with the same level of guarantee as federal debt.

    If the federal government were to allow these companies to go under and not honor their debt, then the cost of the resulting economic chaos would dwarf the cost of "bailing out" these companies.
    That's basically the same argument made to sustain social programs - if we let the poor fall through the cracks the cost of their care will be more down the road as their problems get worse and the cost will still be born by the taxpayer.

    I said this when the Bear Stern's bailout came along and I'll say it again: when you start bailing out companies you start a slippery slope, there'll be more to come...at the expense of the taxpayer.



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    Re: Fannie and Freddie - Two of a Kind

    Tykeclone-Agree that nearly everybody loses if these companies go under. My point was that preventing them from going under required government action and government backing, which some call that dirty word "socialism" when the dems do it. Actually the FDIC and other insurance could be considered a form of socialism.



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    Re: Fannie and Freddie - Two of a Kind

    Quote Originally Posted by CYKOFAN View Post
    Tykeclone-Agree that nearly everybody loses if these companies go under. My point was that preventing them from going under required government action and government backing, which some call that dirty word "socialism" when the dems do it. Actually the FDIC and other insurance could be considered a form of socialism.
    The FDIC is funded by the banks that it insures just like any other form of insurance is funded by those who purchase it. The "F" part in it allows the federal government to examine and regulate the banks that use it.

    And not "nearly everybody" will lose. Everybody will lose should these two companies fail. Because of the implied federal backing of their debt, it is considered nearly on par with normal federal debt. Repudiating this debt will increase the cost of debt for the federal government more than "bailing out" these companies would cost.

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    Re: Fannie and Freddie - Two of a Kind

    TykeClone- The short sellers were making a lot of money as fanny and freddy went down, so they lost when the feds came in and propped them up. My point about the FDIC and insurance is that it is based on the principle of a group of people pooling their money so that those that are unfortunate will avoid big losses when they have an accident or are unfortunate in some other way. In a socialist country people pool their money so that even those that are unfortunate can still have health care, college education, or other services. To me there's at least some similarity there and based on the same general principle. That doesn't mean I'm a socialist. I think our country runs best when we balance the best that capitalism and socialsm have to offer.



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