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Caligirl43
Posts:133
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| 09/05/2008 7:42 PM |
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The federal government has prepared a plan to take control of troubled mortgage giants Fannie Mae and Freddie Mac, several newspapers reported Friday night.
Would anyone care to explain to me in simple terms how this might affect everything real estate related? I know it has to be a big deal - I just need someone to explain it to me. |
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showboat
Posts:67
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| 09/05/2008 8:39 PM |
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Not sure if anyone knows for sure yet since the details of the takeover are not known, but I've heard in general that it could prolong the housing slump a longer period of time by not allowing the "natural market forces" to work itself out...
This is the part that really burns me up!:
"A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office." (From here: http://biz.yahoo.com/ap/080905/mortgage_giants_crisis.html) |
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NCgirl
Posts:206
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| 09/05/2008 9:00 PM |
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| I think we all knew this was coming |
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CJ
Posts:52
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| 09/05/2008 9:18 PM |
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Looks like Bill Miller will be out of a job next week...
Prediction: Bill Miller’s Frannie, Freddie payoff
Fannie Mae (FNM) and Freddie Mac (FRE) rallied for the third straight day Wednesday, clawing back a bit from their recent free fall. Merrill Lynch became the latest firm to say talk of a government takeover of the mortgage lenders is premature, with analyst Kenneth Bruce writing Wednesday that any action by Treasury may first involve buying the companies’ debt, rather than making an equity investment that would wipe out shareholders. By doing so, Treasury Secretary Henry Paulson would seek to ease the strain on the housing market caused by rising mortgage rates, while leaving the companies’ shareholder-owned structure intact for the purpose of raising private capital down the road.
Holman Jenkins makes a similar point in The Wall Street Journal and then goes Bruce one better, saying that once the bailout hysteria has passed Legg Mason fund manager Bill Miller will prove to have been “prescient when he doubled down on Freddie’s shares.” Freddie’s 80% rise, to about $4, off Friday’s low certainly helps in that regard, though it may yet be a while before the shares return to the levels where Miller was buying, which reach well into the $20s and above. But then, Miller’s continued buying of Freddie shares suggests that he’s determined to see his against-the-grain bets prove out, no matter how long it takes.
Bill Miller bets on Freddie Mac
Bill Miller is wagering Freddie Mac (FRE) will muddle through the mortgage crisis. Miller’s Legg Mason Capital Management this summer boosted its stake in the struggling McLean, Va., mortgage company, according to a regulatory filing Monday. As of July 31, Legg Mason owned 80 million shares of Freddie, representing a 12% stake - making it Freddie’s biggest shareholder. That’s up from a 50 million-share stake as of March 31 and 15 million shares at the end of last year, according to Lionshares.com. Legg Mason reported the big increase in a month in which Freddie shares fell to a 17-year low on worries the company will need government help to handle huge mortgage-related losses - a bailout that could, some investors fear, wipe out common shareholders.
The Freddie buying spree comes as investors flee Legg Mason funds following a couple of years of poor performance. Miller’s Value Trust has lost a third of its value over the past year, Fortune’s Eugenia Levenson recently noted, weighed down by bad bets on Citi (C), Aetna (AET) and UnitedHealth (UNH) and hit by $2.4 billion in investor withdrawals. But the setbacks haven’t cowed Miller. “While I am quite aware of our mistakes, both of commission and omission, when I ask what is obvious NOW, there is little consensus,” he wrote in last month’s letter to shareholders. “If there is something obvious to do that will earn excess returns, then we certainly want to do it.” |
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artist
Posts:81
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| 09/05/2008 10:08 PM |
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| And this is a big surprise? Pretty soon the government will own GM, Ford, Crrysler and Freddy and Fanny and I assume a few airlines that they will mismanage with your hard earned tax dollars. The USA is becoming the old Russia. |
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Brian
Posts:2210
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| 09/05/2008 10:13 PM |
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Posted By artist on 09/05/2008 10:08 PM
And this is a big surprise? Pretty soon the government will own GM, Ford, Crrysler and Freddy and Fanny and I assume a few airlines that they will mismanage with your hard earned tax dollars. The USA is becoming the old Russia.
All under a Republican Administration. Surely, some crap was inherited from the Clinton Administration, but the Republicans had 8 years to prepare. |
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showboat
Posts:67
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| 09/05/2008 10:20 PM |
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| Let's not forget that we have had a democratic congress for a while now Brian. They didn't do anything either. |
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ilivehere
Posts:128
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| 09/05/2008 10:43 PM |
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they are all idiots, we need a boston tea party!
i could walk into any fortune 50 company and get 2 better qualified people to run this country than the 4 idiots we have running now. i'm not about party's, i'm about what is right a what is wrong. These four are wrong and until people really get fed up it is going to be new dog, same fleas....
I wish we would get rid of all the democrats/republicans/independents/and any other hanger-ons, and just vote on the candidate's business plan. These four don't have one except spewing the same rhetoric you here every four years.
sorry, just venting, going to grab cocktail now.... |
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UnsureBuyer
Posts:211
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| 09/05/2008 10:50 PM |
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| bupkis time... |
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showboat
Posts:67
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| 09/05/2008 10:52 PM |
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Ok,,, all that being said can anyone answer the good original question that Caligirl43 had?
"Would anyone care to explain to me in simple terms how this might affect everything real estate related? I know it has to be a big deal - I just need someone to explain it to me."
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Brian
Posts:2210
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| 09/05/2008 10:57 PM |
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This song has been played before.
Look at Japan of the 1990s after their real estate bubble popped. We are doing the exact same things we warned Japan against -- nationalizing banks, allowing banks and brokerages direct access to the central bank and treasury, relaxing accounting rules, etc.. to keep zombie financial institutions from collapsing.
Real estate prices in Japan are still lower now than at their peak in 1989.
Sure, America has immigration and population growth. But we'd better start following the lead of Canada and welcome rich and educated immigrants. That's because the tired, poor, huddled masses yearning to breathe free, the wretched refuse, the homeless, tempest-tossed, will certainly not be able to buy houses for at least a decade or two.
Meantime, the boomers are starting retiring and dying-off en-masse. Who will buy their over-priced houses?
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Brian
Posts:2210
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| 09/05/2008 11:50 PM |
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Charles Calomiris, a professor of economics at Columbia Business School, said delaying a rescue would only increase the risks and costs.
“The last thing you want to do is give a distressed borrower more time, because when people are in distress they tend to take a lot of risks,” he said. “You don’t want zombie institutions floating around with time on their hands.”
nytimes.com Rescue See at Hand For 2 Mortage Giants |
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tpc
Posts:498
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| 09/06/2008 9:22 AM |
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| What happens now that f&f will be taken over by the gov't. Nothing. Way,way too important to have any adverse effects. Nothing good is going to happen in this economy until housing prices stabilize. Paulson, bernanke and all of wall street knows this. They are trying every trick in the book to stop the housing slide. If they don't stop it soon, nothing but bad things are going to happen here and abroad because the whole financial system is already in deep trouble. This is going to be good for church attendance because there are lots and lots of people praying for a miracle. |
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showboat
Posts:67
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| 09/06/2008 10:38 AM |
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| Do you think this measure is going to help stop the slide in home prices tpc and/or Brian? Are any of their tricks in their books helping or going to help stabilize this mess anytime soon or only make things worse? |
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PolarBearKing
Posts:161
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| 09/06/2008 10:46 AM |
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Posted By showboat on 09/05/2008 10:20 PM
Let's not forget that we have had a democratic congress for a while now Brian. They didn't do anything either.
Actually, it was the Republican majority in Congress that did nothing (the market was going crazy and profitable) and the Democratic led Congrss that has come up with these crazy bail out schemes.
Back on topic ~ I think this will (eventually) make getting loans easier, which may help slow down the slide. However this is a Gov't program and will take a while to put in place which will all but stop the process of financing home loans over the next couple of years. In the long run it will prevent the great depression of the 21st century. |
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Brian
Posts:2210
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| 09/06/2008 12:44 PM |
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Yes, this bailout will stop the Great Depression of the 21st century.
However, the housing market will not get better for a long time because.
1) Homeownership is at 69%, the higher in history. How the gov't encourage it anymore with with more easy money.
2) More easy money is out of the question because that would mean even more foreclosures in the future.
3) We need to get back to lending money to buyers who will pay it back. That means de-leveraging and returning to full documentation and substantial downpayments.
4) But we don't want to de-leverage all at once. We'll do it over a decade.
5) Let's say a family is $50,000 debt to the mob. They cannot pay everything at once. So their only option is to default (Uncle Vito pays a visit) or pay the debt back slowly by not borrowing more and cutting back spending (=stagnation or even dropping of living standards)
6) The bailout of Fannie and Freddy is bailing out foreign central banks (the mob), not Joe and Jane homeowners. America cannot default on the agency debt because that would mean the end of globalization, then end of the current international monetary system, and a quick unraveling of American power.
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Brian
Posts:2210
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| 09/06/2008 1:01 PM |
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Posted By tpc on 09/06/2008 9:22 AM
What happens now that f&f will be taken over by the gov't. Nothing. Way,way too important to have any adverse effects. Nothing good is going to happen in this economy until housing prices stabilize.
This might seem contradictory to some, but I agree with tpc. Buyers will always be able to get loans with 20% down.
But who has 20%? Americans are so addicted to credit that they forgot to save. Therefore housing demand (which requires the ability to pay) will be constrained for a long time.
That's excellent for those buyers who have down-payments, stable documented jobs, and good credit. As always, the wise, patient ones will be rewarded.
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tpc
Posts:498
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| 09/06/2008 2:03 PM |
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[quote]The bailout of Fannie and Freddy is bailing out foreign central banks (the mob[/quote]
The foreign investors are also victims of wall streets excesses. But the sad fact is-almost every single bank in the country that makes mortgages has f&f stock. I don't know if that is a requirement of doing business with f&f, but for some reason they are among the biggest holders of f&f stock. |
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artist
Posts:81
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| 09/07/2008 8:48 AM |
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| Yes another total government failure has taken over Fanny and Freddy this weekend. I liked the Boston Tea Party idea. |
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tpc
Posts:498
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| 09/07/2008 10:30 AM |
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| Artist-Fannie and freddie is not a govt failure. Both companies are publically traded. |
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