Fannie Mae & Freddie Mac - the big bailout?

[Desx]

If the government will not let these companies fail.. wouldn't it be smart to buy them at a very cheap price? because it's almost guaranteed they will go up?

[Kiroy]

Originally Posted by Desx

If the government will not let these companies fail.. wouldn't it be smart to buy them at a very cheap price? because it's almost guaranteed they will go up?

Until the government changes it's mind and decides it might as well let these companies fail.

[chu]

Originally Posted by Desx

If the government will not let these companies fail.. wouldn't it be smart to buy them at a very cheap price? because it's almost guaranteed they will go up?

It's akin to paying 100$ for something that is only maybe worth 40$. Sure, it will likely go up but who knows how long it will take before it breaks even all the while you are paying interest on the 100$ you are borrowing for this 'investment'.

Add a dozen zeroes to that 100$ bill and you get the idea of what kind of an issue this is. If the US FED had no debt and was running at a surplus for a while now, this wouldn't be such a difficult decision.

edit: Another way to put this, and phrasing it this way should be infuriating most of the taxpayers is that, you're all giving 700$+ billion to these companies with no downsides, money they will turn around and loan to you at an interest.

[Soriak]

Originally Posted by Desx

If the government will not let these companies fail.. wouldn't it be smart to buy them at a very cheap price? because it's almost guaranteed they will go up?

Because even if a bank is rescued, you as the shareholder are probably going to get screwed anyway.

[Itzena]

Next:
FT.com / Home UK / UK - Wachovia approaches potential buyers

And over here, another building-society-turned-bank implodes:
BBC NEWS | Business | Treasury to nationalise B&B bank

[Desx]

Still doesn't really answer the question.. I mean the stock is very low.. and even a gain to $10 would be huge.

[Arbitrary]

Lame execution but I like what she has to say on the bailout -

[Soriak]

Originally Posted by Desx

Still doesn't really answer the question.. I mean the stock is very low.. and even a gain to $10 would be huge.

It's more likely you'll be stuck with something close to $0... but if you want to take the risk, you can buy them

The European division of Lehman Brothers was bought for $2, for example. No, not two billion or even two million, but two bucks.

[Lefazz]

Question for you economics savvy types:

We have home owners defaulting on their mortgages and losing their homes. All around my area there are empty houses priced way more than what they are worth or what people can afford (ex. we have a subdivision with homes starting at 350K and the majority of the people in this area probably earn somewhere between 20K-40K a year -- totally out of their reach).

Banks own these houses now...so why don't they sell them for whatever they can get? If you have a retail store with inventory and the inventory isn't moving, you slash prices...even take loses to get it out of the door to at least have some cash flow. Why isn't the same being done with these homes? Prices are coming down a TAD but not enough for people to afford.

Probably an ignorant question, I suppose, but I don't get why empty houses are just sitting there rotting.

[Kiroy]

I'm not one of the savvy ones, but I'm sure they're trying to sell all the one's that have been foreclosed, but since the housing market cooled down - it just adds to the problem. To many houses not enough buyers.

[Lefazz]

Originally Posted by Kiroy

I'm not one of the savvy ones, but I'm sure they're trying to sell all the one's that have been foreclosed, but since the housing market cooled down - it just adds to the problem. To many houses not enough buyers.

There WOULD be buyers if sold cheap enough. Sell a 300K house for 150K or whatever the market can bear. Sure it's a loss, but it's better than "0" which is what they are getting by sitting on it.

[Arbitrary]

Banks aren't always pragmatic. If after the foreclosure a particular property is a 400k loss than it doesn't matter that the property isn't worth that much, they still want their money.

There is also the possibility that those loans were all bundled together as a AAA rated securities and sold as shares of an investment. In that case there is no way to even renegotiate the terms of the loan because not only are you part of a larger package but a larger package that was then subdivided and sold. You have no one to barter with.

Now, that second example is leading to some crazy shit happening. There have been a number of cases throughout the country of judges siding against lenders because they routinely fail to be able to legally establish ownership of the loans due to how many times those loans have changed hands. Example -

New York - Fighting Foreclosure: Subprime Borrowers Battle (and Beat) Lenders in Court - Runnin' Scared - Village Voice

[chu]

Originally Posted by Lefazz

There WOULD be buyers if sold cheap enough. Sell a 300K house for 150K or whatever the market can bear. Sure it's a loss, but it's better than "0" which is what they are getting by sitting on it.

It just isn't so simple. You have to realize that much of these banks are leveraged and have themselves borrowed money to give out these mortgages.

Another way to put it...lets say you took out a 500k mortgage on a house and now the value of the house was slashed to 250k. You could sell the house and recoup 250k but you still owe 500k to the bank.

[Gurgeh]

Originally Posted by Lefazz

There WOULD be buyers if sold cheap enough. Sell a 300K house for 150K or whatever the market can bear. Sure it's a loss, but it's better than "0" which is what they are getting by sitting on it.

Everyone is afraid that the real estate price drop 50-75% so, banks, real estate agency and everyone else list the houses at 2007 price. You can bet that you can seriously negociate the price down.

Though, even as 50% of their 2007 value, people might not find a loan to buy them, so the market is really limited, if you have to drop to 25% of the 2007 value to sell it might be better to hold onto them, hoping the credit shortage get sorted and that you can sell them 50-60% of their peak price in 2 years or so.

[Arbitrary]

Holding isn't a great option either as houses tend to die when the don't have people living in them. They need protecting and doing so is a large resource commitment.