Fannie Mae & Freddie Mac - the big bailout?

[Lyrical]

Originally Posted by Eomer

Thanks Soriak and Rinthea, I can't say I understand much more of what's going on, but hey.

I guess what I'm getting at is this: it seems to me that the housing bubble popping in the US wasn't a cause of all this. It was simply a trigger. The actual cause is this convoluted mess in the derivatives market. I'll take Rinthea's word that not all derivatives are a problem, maybe not even most. But judging from Buffet's words and those of others, some derivatives are definitely a problem. Yet Soriak is claiming there's little that can be done to regulate these.

So let's say this bail out package works swimmingly, the markets correct themselves, the US government manages to over the next decade come close to breaking even on the purchase of all this toxic shit. Then what? We just wait for the next bubble or trigger to form to cause all this shit to come crashing down again?

Surely something has to be done other than just fixing the current symptoms, which is all I see this bailout package doing.

I am not sure it will take ten years to buy out the issue, the amount being thrown around is $3K a person in the US. That is still lower than the S&L crisis.

Anyway, it looks like we'll still have moral hazard issues (created by our foray into socialism) baked into the system. Until we fix the basic issue of taking away the risk from the bankers, it seems like we are destined to have the S&L crisis over and over again. I imagine we'll see a form of this problem at least two other times in our lifetimes, until the government realizes that it shouldn't be intervening and taking away risk.

[Gurgeh]

Originally Posted by Eomer

Surely something has to be done other than just fixing the current symptoms, which is all I see this bailout package doing.

Could be the end of the line for ARM to buy houses. Everyone expect much stricter regulation in a way or another to avoid this kind of mess again.

[Kugbok_Fennin]

I see a few issues with this bailout. First off, you have the problem of dollar devaluation. $700 billion added to our debt in one swoop is surely going to have a major effect on the value of the dollars in circulation. Now couple that with the fact they have already said $700b is just the start and they really don't know how much they will need. Now what will happen is the Central banks will pull money out of thin air and loan it to the treasury at interest. So how the fuck do you pay that back?

It is a never ending cycle of fail.

[Eomer]

Originally Posted by Gurgeh

Could be the end of the line for ARM to buy houses. Everyone expect much stricter regulation in a way or another to avoid this kind of mess again.

Again, from my understanding the mortgage problems are not fundamentally to blame for this. They were the first domino to get knocked over, but from what I can tell it could just as well have been any other domino. This shit was just waiting to happen.

[Araxen]

Bin Laden is getting his way and the repubs helped him indirectly by creating a massive amount of debt.

CNN.com - Bin Laden: Goal is to bankrupt U.S. - Nov 1, 2004

[Kugbok_Fennin]

This is from Ben Stein

The crisis occurred (to greatly oversimplify) because the financial system allowed entities to place bets on whether or not those mortgages would ever be paid. You didn't have to own a mortgage to make the bets. These bets, called Credit Default Swaps, are complex. But in a nutshell, they allow someone to profit immensely - staggeringly - if large numbers of subprime mortgages are not paid off and go into default.

The profit can be wildly out of proportion to the real amount of defaults, because speculators can push down the price of instruments tied to the subprime mortgages far beyond what the real rates of loss have been. As I said, the profits here can be beyond imagining. (In fact, they can be so large that one might well wonder if the whole subprime fiasco was not set up just to allow speculators to profit wildly on its collapse...)

These Credit Default Swaps have been written (as insurance is written) as private contracts. There is nil government regulation of them. Who writes these policies? Banks. Investment banks. Insurance companies. They now owe the buyers of these Credit Default Swaps on junk mortgage debt trillions of dollars. It is this liability that is the bottomless pit of liability for the financial institutions of America.

[Gurgeh]

Originally Posted by Eomer

Again, from my understanding the mortgage problems are not fundamentally to blame for this.

Yes they are, I would say it's quite the opposite mortgage is the fundamental problem : loaning money to people that can't pay back. After this bank tried to hide those "toxic wastes" into derivatives financial products, turned them into titles and various stuff, at some point people didn't even know what they were buying or selling and who the houses actually belong to, but mortgages are the root of all evil in this case.

[Eomer]

I don't have the expertise to prove you wrong, maybe someone else does. But again, from what I've read, mortgages were merely a trigger that kicked off a domino effect that had nothing to do with mortgages other than the initial momentum.

[prescient63]

Originally Posted by Lyrical

So throughout all the chaos of the market, Buffett just bought a company last week, and is now buying $5B in shares of Goldman Sachs. Supposedly, he'll be getting preferred shares, but with warrants in them that would allow him to profit about $1B over the next five years. He made a comment that he expects that the bailout will fix the problem, and he said he wouldn't have spent $5B if he didn't think he the legislation wouldn't pass.

Actually Buffet gets his warrants in the money so he profits a few hundred million day 1.

[Felith1]

Can anyone link the bail-out bill? I'd like to read it myself.

[Chaotic]

Anyone have a better link then what I come up with in a google search for the home price index(? I think that's what i called)


IE: median home price graphs in a given zip code over time?

[prescient63]

Originally Posted by Chaotic

Anyone have a better link then what I come up with in a google search for the home price index(? I think that's what i called)


IE: median home price graphs in a given zip code over time?

Bureau of Labor and Statistics should have that information. BLS.gov I think

[MrSpitz]

Originally Posted by Kugbok_Fennin

This is from Ben Stein

Dude that quote is great.

Who was the major buyer of these CDS? Is there any information out on that?

Or how much Lehman let's say owed on these ?

[Eduardo]

The decider will speak:
George Bush to sell bailout to sceptical Americans with TV address - Times Online

President Bush is tonight due to deliver a rare prime-time televised address to convince Americans - and a hostile Congress - of the urgent need to pass his administration's $700 billion rescue plan for the country's stricken financial sector.

[Snugglebear]

Here's something I read a while ago about a few hedge fund managers who bet against the housing bubble and got rich. A billion dollar bonus!

http://www.nytimes.com/2008/01/05/bu...l?ref=business

The way it was explained to me with these debt swaps is that traditional stocks are like buying a NBA basketball team. Debt swaps are like betting on whether the team will win a game or not. So you can bet against the team winning, and a bank or other financial institution might take the other end of the bet (or vice-versa) and that's how it works.

The alarming part is that all this 'betting' has been an unregulated shadow market since 2001, when Phil Gramm proposed a deregulation bill and got it passed.