Fannie Mae & Freddie Mac - the big bailout?

[Itzena]

An alternate explanation:

[Chaotic]

And what it means


I've been really busy with school and work and i've been trying to catch up with it - but basically at this point all they are talking about is the bailout and what it means.


What caught my attention is this 700B$ thing and it being the biggest government bailout since the great depression - are things really that bad or are the just squawking because it's an election season?

From what I understand, this has hit the financial sector due to default on loans, primarily home loans (foreclosures) and I know variable rate mortages had alot to do with that. I know this has hit really hard here at home, I was just reading figures (I live in NY, long island, one of most expensive real estate markets) Long story short figures for 2006/2007/Current for median home value in nassau / suffolk counties have been apprx (off the top of my head I just read it in the paper) 580,000/474,000 ---- 552,000/438,000 ------ 502,000 / 358,000 which is one HELL of a hit. Thats about a 20% home value decrease over three years - which honestly is EXCELLENT for me, because home prices are starting to become affordable, but I really want to know:


What does this mean for the average person? Is this something I should be worried about? I was about to buy a car, should I not? etc.

[Sunder]

Originally Posted by Chaotic

What does this mean for the average person? Is this something I should be worried about? I was about to buy a car, should I not? etc.

Everyone who lives in this country will end taking responsibility for this one way or another. Either we take it in the form of bailouts or we take it in the form a crippled and barely existing financial credit system. Which cripples businesses' ability to expand and hampers consumer spending. Two of the biggest pillars of the U.S. Economy.

What brought this to a head was when bad mortgages collided with a severe down turn on housing prices. Suddenly all those bad mortgages that the bank thought was such a great deal because they were going to get a house on the cheap, keep the interest payments already made by the defaulting party, AND get to resell the house and probably give the new owners their mortgage just got butt-fucked. Now a house that was worth $200k with a mortgage principle of $180k is worth $150k. And the loan companies panicked.

All those loans were considered assets that banks/mortgage companies used to leverage other financial transactions. Including student loans, savings account interest rates, business loans, and other financial investments. This, in turn, created a huge web of financial dependencies that ended up tracking right back to these bad loans.

The financial markets were so saturated with these types of loans, and they were allowed to fester for so long, that they have infected every single aspect of the American financial industry. This includes credit cards, hedge funds, 401k's, mutual funds, money market accounts, and pretty much any other financial credit practice and investment strategy you can think of.

[Snugglebear]

These guys are scaring me. In front of Congress I believe Paulson said that he didn't intend to have zero oversight. Yet in the short two page description of what he wants, it says he wants $700 billion, and absolutely no oversight from any court or government body. Brass fucking balls.

[GrobbeeTrull2.0]

Hopefully I don't have to pay my college loans. That'd be pretty awesome.

[prescient63]

Could you link that document? That description sounds incorrect after listening to his meeting with congress, but what he says and writes could easily be two different things.

[Cad]

Originally Posted by GrobbeeTrull2.0

Hopefully I don't have to pay my college loans. That'd be pretty awesome.

Student loans can't be forgiven IIRC.. even by bankruptcy. Get a real job and they're a pittance anyway.

[Etoille]

Originally Posted by GrobbeeTrull2.0

Hopefully I don't have to pay my college loans. That'd be pretty awesome.

Yeah good try.

Already researched it.

Answer is no if theyre federal. Private......yeah you can discharge those :P

[Etoille]

In addition to containing a provision that would give paulson unchecked, unmonitored authority to do wtfever up to 700 billion dollars, judges the ability to rewrite mortgages....

Paulson's proposal includes a provision which states that the legislation would be UNREVIEWABLE by the courts. Effectively undoing 100's of years of jurisprudence and marburry v madison.


Just fucking win. The bush administration is so completely fucking evil and retarded i dont know what to say anymore.

[prescient63]

If I were him I'd do the same thing. The last thing I want is people pissed coming after me in court because my longshot plan didn't work out. Otherwise I would probably be content to let the whole thing implode because with a $350 million fortune on the line I have too much to lose. Besides that letting congress decide how to spend the money would be the most retarded thing ever. They are absolutely clueless about anything involving economics.

[GrobbeeTrull2.0]

Originally Posted by Cad

Student loans can't be forgiven IIRC.. even by bankruptcy. Get a real job and they're a pittance anyway.

Define "real job" for me again so I can be sure to avoid "imaginary" or "pseudo-jobs." Thanks in advance.

[Tyen]

You can easily work in a restaurant as a server and be fine. I did it for a few years.

Heres to hoping Sallie Mae goes under and all their records get mysteriously lost.

[Etoille]

Originally Posted by GrobbeeTrull2.0

Define "real job" for me again so I can be sure to avoid "imaginary" or "pseudo-jobs." Thanks in advance.

fake job=my old one.

real job=all other ones.

[Soriak]

We have a weekly show here that goes into finance/economic issues, explains the basics of them and does reports on innovative businesses and managers. This week, they had an interesting part on Credit Default Swaps and possibly fraudulent actions involving them.

The premise of a CDS is fairly simple: it's insurance against someone's debt defaulting. Unlike normal insurance, you can insure things you don't actually have - and you can insure them more than once. The scenario then floated was that large investors could buy CDSes on (for example) Lehmann Brothers, then conspire to drive down the stock price. As the price dropped, it'd become impossibly difficult for the firm to raise additional capital. They go down and the investors earn billions and billions.

I liked the analogy, which makes it very easy to explain: an arsonist insures a house he doesn't own with multiple insurance policies, then burns it down and walks away with the payout.

Of course doing this would be illegal (burning down the house, that is), but it's not something that can be ruled out at this time. While CDSes certainly have their purpose, I wonder if they shouldn't be considered insurance for regulatory purposes. You only get to insure the stuff you actually have and you only get to do so once. Or maybe that's not going to be necessary anymore?

edit: at the very least, there needs to be more transparency on them. They're currently traded over-the-counter, which means as a private deal between two parties that doesn't go through an exchange. (like the NYSE)

[prescient63]

Originally Posted by Soriak

We have a weekly show here that goes into finance/economic issues, explains the basics of them and does reports on innovative businesses and managers. This week, they had an interesting part on Credit Default Swaps and possibly fraudulent actions involving them.

The premise of a CDS is fairly simple: it's insurance against someone's debt defaulting. Unlike normal insurance, you can insure things you don't actually have - and you can insure them more than once. The scenario then floated was that large investors could buy CDSes on (for example) Lehmann Brothers, then conspire to drive down the stock price. As the price dropped, it'd become impossibly difficult for the firm to raise additional capital. They go down and the investors earn billions and billions.

I liked the analogy, which makes it very easy to explain: an arsonist insures a house he doesn't own with multiple insurance policies, then burns it down and walks away with the payout.

Of course doing this would be illegal (burning down the house, that is), but it's not something that can be ruled out at this time. While CDSes certainly have their purpose, I wonder if they shouldn't be considered insurance for regulatory purposes. You only get to insure the stuff you actually have and you only get to do so once. Or maybe that's not going to be necessary anymore?

edit: at the very least, there needs to be more transparency on them. They're currently traded over-the-counter, which means as a private deal between two parties that doesn't go through an exchange. (like the NYSE)

The New York governor wants to make CDSs handled the same way as insurance contracts (regarding oversight), however this is just silly because I'll just trade them in some other market without those regulations (London, Frankfurt, wherever). The Fed was also pushing for a clearing house so that they could give CDSs more transparency and a way to sort out all of the CDSs if a company such as Lehman goes bust (because if they market maker isn't there anymore who is going to settle all the contracts?)