Just curious, what would be the result if we didn't bail out Fannie Mae and Freddie Mac?

[LostInAnomie]

What would be the consequences?

[slackmaster]

1. I think this is a wonderful question, and am curious about what people think

Kicking.

[whistle]

2. Failure of 100's of hedge fund speculators for one thing and reworked mortgages which

...homeowners can afford and remain in their homes

[sinkingfeeling]

10. You're wrong. There would be very few mortgages available without the capital to provide them.

The values of all homes across the country would nosedive, wrecking the lives of tens of millions of your fellow citizens. Banks would go under. Investment in this country might come to a halt and your dollar might take on the look of the old Mexican peso (meaning it would have little value).

[elehhhhna]

21. ding ding ding you nailed it

[undergroundpanther]

27. It's all paper

or little ones and zeros on a computer screen

One of the many failures of the"ownership society"

[sinkingfeeling]

33. So you own nothing? Have no retirement plan? No 'net worth'? No credit?

Handle all your affairs in cash?

[undergroundpanther]

39. Yes

I handle my affairs in cash or money orders.
And I don't use credit cards because it amounts to usury the rates they charge.I have a debit card, but use that rarely.No I have no retirement or "net worth". When I die I must face the fact I cannot take ANYTHING with me.

[sinkingfeeling]

40. I'm sorry you have no family to provide for. Many of us have worked hard all our lives

so that we could leave our offspring in a better financial position.

[undergroundpanther]

48. I never wanted offspring

I don't like kids.I never wanted "motherhood" or "fatherhood".Breeding more humans was something I never aspired to even when I was a kid myself. And I never wanted to be like you or desired what you desired...So there is nothing to be"sorry" over.I feel having offspring is a trap.One I never wanted to get myself stuck in.I think many things "normal" people value and work hard for are not for me.
I'm, different than you,that's all.

[kineneb]

43. own very little

No savings, no life insurance, no pensions, no credit, nada. Cash is my friend- no paper/electronic trail. Went through medical Chapter 7 bankruptcy. Living at poverty level and get food stamps. My two luxuries are a cell phone and cable internet.

I have the title to the house, its contents, and the car now. When I die, it all goes to to pay back the State of California for my late husband's (and my) medical care.

[Greyhound]

38. Which is exactly what must happen sooner or later.

All Greenspan did was begin a program of delaying the inevitable so that the ruling class could make a huge profit on it's way out the door.

The fractional reserve central banking system is the very definition of a Ponzi scheme, requiring a constant influx of new currency in order to keep making the payments to those that got in earlier. Collapse is inevitable, the question is when and how to deal with the consequences.

[Dreamer Tatum]

3. Immediate loss of liquidity in the mortgage market

...making the majority of loans impossible due to credit quality, loan size, and property value.
Loan pricing goes through the roof, property values suffer, lenders and servicers start going under.

None of which is good.

I encourage everyone who wants the chips to fall where they may to consider something important: Fannie and Freddie
have made it possible for MILLIONS of people to buy homes. If that liquidity goes away, we pretty much go back to the
world depicted in It's a Wonderful Life.

[Raven]

4. Yes, I think there would not be many mortgages made.

Also, I think these two mortgage giants might find themselves "upsidedown" meaning that they are holding mortgages on property that is not longer worth the mortgage amount. So there would be huge losses for them. I am afraid that this is a house of cards. The government is now going to use our money to shore these guys up and if you looked at these companies as an investment possibility, you'd never take the risk. The government is going to risk your money for you because, otherwise, the consequesces are dire.

Someone who knows more about this mess that I do...correct me if this is wrong thinking.

[undergroundpanther]

5. No bail out?

The Federal Reserve and the Treasury have taken great pains to point out that the government is not obligated to bail out either Fannie or Freddie if they face insolvency.

It's debatable where the legal obligations lie, but as a practical matter, the government can't let these institutions fail because they are being counted up on to help fix the mortgage mess. If Fannie and Freddie were unable to buy and back loans, banks would stop originating them and the pool of homebuyers would shrink, causing home prices to fall even further.
http://money.cnn.com/2008/07/09/news/companies/benner_fanniefreddie.fortune/





The Treasury’s formal recognition of the government’s responsibility for Fannie Mae and Freddie Mac is an important and essential step forward. No other position was possible in current conditions. The market reaction shows that Treasury secretary Henry Paulson’s statement had the desired effect: the market is now convinced that the U.S. government stands behind Fannie and Freddie.

The proposal to purchase an equity position in either Fannie or Freddie, however, would be a mistake unless their existing shareholders are wiped out and the government takes full control of their management. Allowing the continued operation of the companies as private, shareholder-owned institutions, while the taxpayers are ultimately responsible for their losses, recapitulates our experience with the savings and loans less than twenty years ago. In that case, forbearance in closing them down when they were insolvent, or nearly so, allowed them to “gamble for resurrection,” ultimately increasing the losses that the taxpayers were required to shoulder. The same result can be expected if Fannie and Freddie are allowed to operate indefinitely with government capitalization. Regulation alone has never been able to prevent this risk-taking.


http://paul.kedrosky.com/archives/2008/07/14/the_case_for_wi.html

[undergroundpanther]

6. The death of the "free market" bullshit.

When people finally realize the MARKET is not the hero they thought it was.They might realize that the"invisible hand" has been picking citizen pockets.

And people might lose faith in gambling by speculators,,as the damn market can't save freddie & fannie..

But should the GOVERNMENT bail out predatory rich and criminal Ceo's? The government is already in debt up to it's ears with the fucking WARS,and bullshit deals to feed money to Halliburton and other weapons makers.

Maybe people will see that war and the market are RACKETS. So the government has to keep Freddie and fannie live Fannie and Freddie are basically asking our government to use our tax money to do a "communist" bailout for fannie&freddie.

Or asking the government to use our money to maybe turn a favor, crony type of deal at our expense to save a fucking CORPORATION that took idiotic risks and screwed ITSELF over.

Since Freddie and Fanny were incredibly greedy as well as fraudulently stupid in the risk department,and it is too large(monopoly) it cannot get any other company to help it out of the mess..And it can't get outof this jam by screwing over the little people anymore..

It is because the little people,are all tapped out,they have nothing left to give the corporate pigs .The pigs can't wring nothing out of nothing..So they run to Uncle Sam?? I laugh!

Socialism for the rich,Fraudulent free market bullshit for the people? Looks like it to me.Double Standards suck!!

Hopefully,People might finally GET IT that a unregulated free market = rampant fraud.

And if Uncle Sam can't keep the companies that do fraud afloat, say hello to a market Crash.

Do NOT ever let the free market bobble-heads and the pro-corporate right wing/libertarian free market worshiping assholes ,Ever FORGET this !! Forever smear this in their faces the FACT it took The BIGGEST Government welfare check ever written ..To save Fannie and Freddy, to save the"freely criminal greed market's ass from the results of it's own fraudulent deals and from ITSELF!!

[Dreamer Tatum]

7. I'm sorry, but that is nonsense

Fannie and Freddie are GSEs: Government. Sponsored. Entities. They were founded to INSULATE the fortunes of homebuyers from the
difficulties of the "free market." If you wanted to buy a home in rural South Dakota, but there wasn't a bank nearby that would or could write a loan, Fannie or Freddie would provide a lender with a guarantee to purchase the loan.

Throwing out GSEs that provide liquidity is throwing the baby out with the bathwater.

[undergroundpanther]

14. That got changed a while ago

Fannie Mae started life in 1938 as a government agency, the Federal National Mortgage Association, and was privatized in 1968.

Congress created Freddie — the Federal Home Loan Mortgage Corp. — in 1970 to give it some competition.

For years the two companies operated on the fringes of the mortgage market, which was dominated by savings & loan companies. But after the S&L collapse of the 1980s, Fannie and Freddie swept in to take over. The widespread assumption that government would step in if they faltered allowed them to borrow money at only slightly higher rates than the U.S. Treasury, which meant they could outbid all competitors in the secondary mortgage market. Before long 60% of all mortgages made in the U.S. were passing through their hands, and their share would have been even higher if they weren't banned from buying loans above a certain size ($417,000 in 2007) and generally required to stay away from exotic loans and borrowers with poor credit. For a time in the mid-1990s, before the wave of bank megamergers that brought us the likes of Citigroup and J.P. Morgan Chase, Fannie Mae was the biggest financial institution, by assets, in the country.

http://www.time.com/time/business/article/0,8599,1822014,00.html

[Dreamer Tatum]

18. They still serve exactly the same function as always

But nevermind. Let's just let them go away so we can squawk later about how it's COMPLETELY impossible to get a mortgage unless you have perfect credit and a 50% down payment.

[undergroundpanther]

22. Free market and privatizing

is what CREATED this mess ya know.As Soon as the government"butted out" it began to fail..
Fanny and fredie gets privatized soon enough there were frauds and bubbles. Corporations cannot be trusted at all.They must be regulated ,kept on a tight leash and watched by the people like hawks and there must be STIFF NASTY penalties for corporations that do fraud,cook books pollute and skim among other things..

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Here is how our colleagues summarized Paulson’s objection in the article linked to above: “Mr. Paulson does not want to help the shareholders because of the ‘moral hazard’ it would create–desensitizing investors to risk because they believe the government will bail them out. It’s a similar position he took during the government-orchestrated rescue of Bear Stearns by J.P. Morgan Chase & Co.”


So when it comes to Fannie Mae and Freddie Mac, we have to ask: It is appropriate for regulators to question moral hazard, but shouldn’t they also aim those questions of accountability at the consistently bumbling management of the two lenders — which held an implict government guarantee– rather than shareholders?
Moral hazard is a serious problem.

But now the GSE shareholders must be wondering if the U.S. government is identifying the source of that hazard correctly.

http://blogs.wsj.com/deals/2008/07/14/fannie-and-freddie-another-bailout-that-leaves-out-shareholders/?mod=yahoo_hs

[Dreamer Tatum]

23. Breathtaking. nt

[undergroundpanther]

24. This implicit guarantee means that profits are privatized but losses are socialized.?

That is what that function is ya know.
Government welfare for corporations at it's finest.More privatized free market hypocrisy.
It gave us state sanctioned and supported corporate fraud .Over and over.They got the profits WE took the losses.

[Common Sense Party]

53. Let's let 5 TRILLION DOLLARS of the economy go down the

crapper. Why not? That won't hurt the little guy. It will merely punish those evil, rich capitalists and speculators.


:sarcasm:

[Postman]

9. Casino Capitalism

The tax payer is standing next to the investment bankers putting all their money on "red". When the marble lands on "black," the tax payer coughs up the loss. When it lands on "red" the profits are privatized....

If you speak out against this, you're labeled a "socialist"....

[sinkingfeeling]

13. These are GSEs, not investment banks.

[undergroundpanther]

17. FANNIE and FREDDIE MAC are PRIVATE COMPANIES...

IN 1968 they were privastized.




But Ely also thinks that Fannie's and Freddie's charmed existence as private enterprises with tacit government backing can't continue. "What all this bailout talk does is blow away the notion that there's an 'implicit' guarantee. There is a guarantee, or there isn't."

http://www.time.com/time/business/article/0,8599,1822014,00.html

A disgusting case of greed corporation and government using other peoples money to prop up casino capitalism.,

[soothsayer]

31. fannie and frddie have a charter to ensure affordable

low cost housing. so they're not 100 pc for profit, which is why they get certain perks like no local taxes.

[soothsayer]

32. fannie and frddie have a charter to ensure affordable

low cost housing. so they're not 100 pc for profit, which is why they get certain perks like no local taxes.

[oldskool]

49. GSE?

I bet you don't here about Fannie Mae pension funds on the
M$M. They are GSEs and should have same pension plan as
government employees. Could this be the reason for the
bail-out? Or is my tin foil hat on again?

[undergroundpanther]

16. I am a socialist

Go ahead call me one. I'll make it worse Anarcho-socialist.

[kineneb]

44. yo- joining you

as a fellow member of the underclass.

[RC]

28. Aren't the banks and S&L's that did the sub-prime loans guilty of Fraud?

And shouldn't the CEO's and Board of Director's be brought up on charges of defrauding their customers? Being stripped of their wealth should be only the start of their problems.

[Jersey Devil]

47. Fannie & Freddie weren't making sub-primes

They made conventional loans. They may have a small percentage of sub-primes in their portfoliios when they were sold to them by other banks, but they did not make sub-prime loans. Their assets have been affected by the downturn in the housing market by the wild west investment bankers you rightfully complain about, but they weren't involved in it at all.

[sinkingfeeling]

8. Worst case scenarios

http://money.cnn.com/2008/07/09/news/companies/benner_fanniefreddie.fortune/?postversion=2008071022

"If Fannie and Freddie were unable to buy and back loans, banks would stop originating them and the pool of home buyers would shrink, causing home prices to fall even further."

That would make US economic recovery nearly impossible as millions lose their primary investment, their homes. Foreign investors would not be willing to continue to provide capital to us. Therefore, the US dollar would plunge even farther.

It would make the Great Depression look like a recession.

http://www.247wallst.com/2008/07/fannie-mae-fred.html

"But think about the ramifications if one of these or both of these actually failed. If you thought a Bear Stearns meltdown would have caused a panic, "you ain't seen nothing yet" sure comes to mind. It isn't that the lending institutions would be changed for future mortgages. The ramifications for the entire financial system would be at risk. Imagine if all the outstanding debt issuances, mortgage-backed securities, CMO's, and other pieces of paper widened out to massive spreads over treasuries. You would have write-down waves at banks, brokers, insurance companies, credit unions, every pension system, mutual funds, and private money managers. It would effectively destroy more value in just about every portfolio that exists."

[undergroundpanther]

19. Maybe we could live without"the market"

We just believe we need it to live.A market is a recent invention *cough* scam ,people existed on barter systems and gift economies for a long time before "market economies " were invented*cough* schemed up.
http://www.u-exchange.com/barter-system
t-economy.com/

[Dreamer Tatum]

20. If I post some links for YOU to read, would you read them? nt

[undergroundpanther]

26. Sure

I still might not agree with you tho.
I came to my conclusion through thinking things through,
like I am sure you have.
Link away.

[StClone]

11. I asked myself the same

And note much of Fannie and Freddie loans are resold to China, Japan and offshore accounts.

[knitter4democracy]

12. Do they do college loans, too?

I thought I heard that somewhere. What if they stopped doing that? I'm just curious.

[leftyclimber]

15. That's Sallie Mae (SLMA)

And I think there would a nationwide party if that organization became defunct.

[knitter4democracy]

25. Thanks. I have trouble with all the similar names.

Those college loans are awful. SIL needed help last summer when she maxed out on her loans but got into a really good internship. She asked us to cosign, and when we read through the terms, we refused. It was foul--loan-shark style fine print. I wouldn't put my name on anything that awful, so we paid for it ourselves and told her just to babysit when she could to "pay" it off.

[leftyclimber]

29. That's really generous of you.

Student loans are just vile.

[knitter4democracy]

30. Not really. We'd promised to help out should anything happen.

We knew her parents would renege on their promise to pay for college at some point (did it to Hubby and his brother, the two older siblings), so we felt like it was something we should do to help her out.

That loan was disgusting. She would've ended up paying over $15K for a $5K loan. The interest was too high, the terms terrible, and the length too long. It was supposedly all she could get, and we could get better terms for ourselves. It was the right thing to do.

[readmoreoften]

34. I was forced into a Sallie Mae private loan by a university.

As a grad student, NYU denied me a Stafford loan even with earnings of 3K (and no assets) the previous year. They told me I needed to take a private loan with Sallie Mae at an adjustable rate of 5-7% on the spot or I would be forced to drop all my classes the next semester and pay a $2200 "maintaining matriculation fee". They also said that the loan COULDN'T readjust to higher than 7%. The loan is now at 12.5%. When I called the federal government (FAFSA) about it, they said that the university should have not been permitted to deny me a Stafford with such low earnings. Two years later NYU was fingered by the attorney general of NY for colluding with banks in a Citibank student loan scam. (NYU paid no penalty. They just shifted their capital into a fund for "needy students" and then didn't release the cash.)

That one semester loan is now greater than my entire debt for 9 years of college and it can't be consolidated because it's private. In reality, I should have dropped out of school instead of having taken that loan.

[Phoebe Loosinhouse]

35. You and many others were shafted on purpose by student finance departments

in various colleges and universities that were also apparently colluding with banks and lenders of private student loans. I don't know what the benefit was exactly to the school to screw their own students - someone else can probably post what the motive was.

Anyway, it happened on a alarge scale to many people and I don't see why the screwed students would not be able to generate a class action suit. I bet the same banks and lenders were involved with more than one school, since it was their modus operandi.

[readmoreoften]

42. In my experience the private "enterprise" universities are not much different than walmart.

They exist to fleece students, donors, and tax payers. In 2006, undergraduates paid $46,000 a year at NYU for tuition alone. 81% of the courses were taught by teaching assistants and adjunct faculty. Teaching assistants only make a living wage because from 2001-2005 a UAW union forced the university to pay living wages. The university then--with the help of George W. Bush--turned around and used those wages to bust the same union that enforced them. Adjuncts generally make $4000 per course with no or almost no benefits while tenure-track professors earn $71K to teach two to three courses per year. Because they only pay you for the 2 hours a week in class (not grading papers, designing syllabi and course descriptions, photocopying, office hours, advising, etc) they have the nerve to say adjuncts earn $90 an hour. In reality many the adjuncts generally live beyond the poverty line.

I know because while I was a student there (getting robbed) I was also an adjunct professor there (getting robbed)! I was so poor one day I almost cried because my department told me I'd have to pay to photocopy packets for my students because adjuncts were "using the photocopying machines entirely too much." If I had pay to photocopy 15 page packets for 30 students at a copy shop, I wasn't going to be able to eat that day. At one point in the year my 10 year old leather "professional" bookbag tore and I couldn't afford another bag so I had to duct tape my bag together so I could get everything I needed to work. While I was teaching 2 courses per semester and serving as an advisor to senior undergrads (which paid $55 per student) I couldn't afford my own tuition. I still owe the university itself $4000 and they will not release my records until I pay the bill, which interferes with me being able to get a job to pay the bill!

NYU wanted to destroy Edgar Allan Poe's house in Greenwich Village in order to expand the law school. They were taken to court by Woody Allen, E.L. Doctorow and a number of historians to no avail. NYU won the right to destroy Poe's house. As a cherry to the "intellectual types", the university keeps one room inside the law school preserved as an homage to Poe. I think you need a law school ID to get in though. Question: What kind of university destroys historic literary landmarks? Answer: the kind that is only a non-profit in name, the kind that really exists to expand real estate holdings.

They also own the building that now holds the neighborhood's only grocery store. I attended a meeting where senior citizens begged NYU to not tear it down because it was the only source of food beyond restaurants and delis for them in their area. They were so nasty to these people it was unreal. I had tears in my eyes a lot. I got out as soon as I was able.

[knitter4democracy]

37. Holy crap! That's awful!!

Is there a lawsuit going on, because you'd have a good case.

[kentuck]

36. We could improve the situation if...

we privatized the banks that are failing and take over the mortgages and permit the people to pay off the principal on their loans without further interest. This would be a much better solution than bailing out the big banks.

[Trillo]

46. No Interest?

Without interest, how would banker's thrive?

[TexasObserver]

41. massive numbers of defaults, foreclosures, and bankruptcies

would be the likely result

I hate it. I hate these bailouts, because they always help the people at the top a lot more than the people at the bottom. But if there are no bailouts, ordinary citizens lose jobs, lose their income, and it snowballs.

All of this is the result of Bush's favored policies and the green light given him by the current and former Fed chairs. Now we're stuck with this mess, and we have to make the best of it.

[Karenina]

45. Dunno. But I'd like to see it!

:evilgrin:

[Common Sense Party]

54. Why?

[Karenina]

55. The global financial system

has become a giant Ponzi scheme. No amount of tinkering can "fix" it. The attachment to it is based on belief. That can change. The rotting structure has reached a point of entropy. Its collapse will enable a new structure to be built.

[EbenezerMcIntosh]

50. Other companies would take on their receivables and life would go on.

They failed. Let them die.

[RoyGBiv]

51. Uh, no n/t

[Rex]

52. Dunno, it would be 'bad for business' so it won't happen.

Besides, the Feds LOVE bailing out people and companies that fail. Just look at their track record since the 80s.