Fannie Mae & Freddie Mac - the big bailout?

[Gurgeh]

Originally Posted by Soriak

Not if there isn't enough liquidity. Say that we could objectively determine their worth to be $8bn, but nobody can/wants to put forward that kind of money. Now the bank doesn't actually need to sell it (they have cash on hand), but they have to give it a value for accounting purposes. It seems they have to give it a value of $0 now.

Consider this happening to hundreds of billions and suddenly institutions don't have the assets to sustain their credit rating. Once that goes down, so does the company. (they'll have to raise a lot of capital due to their lower rating)

Some googling shows that Enron also exploited the mark-to-market accounting practice... maybe it'd have been a good idea to review it back then?

Yeah there's probably a problem, though in my opinion it does not lie in the $0 value but in the vastly overestimated value their assets had, beside what would you suggest to replace this ? I mean when you're trading stuff (including shares) you like to do it at the market value. If you don't value assets at their market value, then, what ? And even if you did put an arbitrary value just to look good on the accounts, wouldn't the market "guess/anticipate" it anyway ?

[Mahes]

Wow,

You think people are attempting to do whatever it takes to not pay taxes now? Wait til the Federal Government has to raise taxes to 40%, not including SS and other parts or State taxes.

The amount of taxes it is going to take to actually pay for all of this is going to be staggering.

I guess now would be a good time to actually consider revamping our tax system since Our debt will climb up to 10 Trillion. "Fare tax Plan"?

[prescient63]

Originally Posted by Soriak

Not if there isn't enough liquidity. Say that we could objectively determine their worth to be $8bn, but nobody can/wants to put forward that kind of money. Now the bank doesn't actually need to sell it (they have cash on hand), but they have to give it a value for accounting purposes. It seems they have to give it a value of $0 now.

Consider this happening to hundreds of billions and suddenly institutions don't have the assets to sustain their credit rating. Once that goes down, so does the company. (they'll have to raise a lot of capital due to their lower rating)

Some googling shows that Enron also exploited the mark-to-market accounting practice... maybe it'd have been a good idea to review it back then?

Enron was marking to market differently though. Enron was marking their profits today to their expected profits tomorrow. For example they buy a barrel of oil today at open at $50 the price of oil falls to $49 close, so technically at the end of they day they should show a 2% loss. What enron would do, and this passed the SEC's scrutiny at the time, was to mark their gains today because they expected oil to be $55 4 months from now. So as far as their books were concerned they made a 10% gain today even though they really lost 2%.

[Hal2005]

63 is correct. However, it should be said the short rules will eventually need to be repealed when equity prices begin to decouple from the underlying asset returns. At the moment it's only a short term fix to prevent foreign runs and a GS headshot.

good article was written today btw.

Capital - WSJ.com

[Snugglebear]

Originally Posted by Mahes

I was wondering some things the other day.

The United States is 8 Trillion Dollars in debt?

How much in debt do we have to go into before the United States does....what?

Would countries tell us to fuck off after a while? What would actually happen if our Debt gets to high? Does the Unites States government fall apart because we are suddenly unable to buy anything?

When you have ICBMs, nobody tells you to fuck off, and you don't go bankrupt.

[Arbitrary]

Right, because everyone wants to buy your ICBMs and they'll pay a good price. They are a rock solid asset.

[rinthea]

Originally Posted by Hal2005

63 is correct. However, it should be said the short rules will eventually need to be repealed when equity prices begin to decouple from the underlying asset returns. At the moment it's only a short term fix to prevent foreign runs and a GS headshot.

good article was written today btw.

Capital - WSJ.com

er... so your gonna wait until equity prices arent priced on their underlying assets? Lets price them on what we want them to be worth... yeah thats a good idea!

A lemon will only be priced as an orange when people mistakenly think its an orange, when everyone knows its a lemon, you wont sell it as an orange. Thats the problem here. People trying to sell lemons for more than they're worth.

I wonder what phrase is going to be embedded in linguistics in the next 50 years, to take over from 'as safe as houses'. Because that one is going to be the butt of comedians routines for a long, lnog time.

[rinthea]

I just checked out the saying as safe as houses.

'This expression means 'perfectly safe', but some of the variants refer to physical safety, whereas others are used in the context of 'a sure bet'. As safe as houses, first recorded in 1859, has endured in both meanings to the present day. Partridge quotes Hotten's A Slang Dictionary as an explanation of its origin, saying that the meaning may have arisen "when the railway bubbles began to burst and speculation again favoured houses."'

I wonder if the new phrase will be something like 'as safe as airlines', as the modern day railway... that would be cool.

[Zaniel]

Originally Posted by Snugglebear

When you have ICBMs, nobody tells you to fuck off, and you don't go bankrupt.

OK, someone really needs to step up here and see if they can top this.

[Gurgeh]

So the bailout will be open to foreign bank, i.e. american taxpayer will buy back toxic wastes of european and asian banks ! I foresee a lot of hate and anger for some reason.

[Soriak]

Originally Posted by Gurgeh

So the bailout will be open to foreign bank, i.e. american taxpayer will buy back toxic wastes of european and asian banks ! I foresee a lot of hate and anger for some reason.

At first, I was surprised to hear it. Just on Friday, the CEO of UBS was in a political debate show and basically said that their benefit from the bailout is simply that it spurs the market again. Looks like they're getting away much better than they thought.

After giving it some more thought, it makes perfect sense though. How do you decide which company is "American" and which one isn't? To again take UBS as an example, they do their trades through US-based subsidiaries, which pay significant taxes in the US. Denying them access to this new entity would not only be unfair, but also distort the market.


On another note: I wonder if the ban on shorting really would be an effective way to counter dropping stock values. Consider that the Shanghai Exchange lost 2/3rds of its value in short order and shorting stocks is banned there.

China courts foreign-share listings | Re-enter the dragon | The Economist

More importantly, the financial barriers that surround China’s economy, such as its closed capital account, restrictions on currency trading, and prohibition on short-selling, mean that shares in China trade at different prices from those with identical rights listed on other overseas exchanges.

That kind of trading inefficiency looks bad for China and would be an embarrassment for the NYSE, which prides itself on its ability to price shares cleanly.

An embarrassment indeed...

[Gurgeh]

Originally Posted by Soriak

After giving it some more thought, it makes perfect sense though.

Yeah it does make sense. Overall Ben Bernanke has been extremely (surprisingly?) good, and he's probably the man that saved the US economy. We might see the dollar fall quite a lot in the coming months and some inflation in the US, but that's a fairly small price to pay to maintain the economical activity through this turmoil. The debt that the US just contracted will be paid by inflation and nothing else so the taxpayers won't feel it. Seems like China and the ECB bought dollars massively in the last few days to prevent the dollar from crashing too fast but I believe that the dollar will drop quite a bit in the next few months, which isn't great news for the EU I guess.

But still, for the average american voter with no idea of wtf is going on, their reaction to this will be amusing.

[Soriak]

Hmm... what to make of this? The scope of the bailout plan is getting extended: Bloomberg.com: U.S. Treasury Widens Scope of Bad-Debt Plan Beyond Mortgages

The change suggests the inclusion of instruments such as car and student loans, credit-card debt and any other troubled asset.

[Jedah]

Originally Posted by Soriak

At first, I was surprised to hear it. Just on Friday, the CEO of UBS was in a political debate show and basically said that their benefit from the bailout is simply that it spurs the market again. Looks like they're getting away much better than they thought.

After giving it some more thought, it makes perfect sense though. How do you decide which company is "American" and which one isn't? To again take UBS as an example, they do their trades through US-based subsidiaries, which pay significant taxes in the US. Denying them access to this new entity would not only be unfair, but also distort the market.

Not that that isn't a cogent point, but that the CEO of UBS in particular was pushing for it is hilarious; Phil Gramm, one of the principal backers of banking deregulation in 99 got a position in UBS for his efforts (and of course he was an economic adviser to McCain until he put his foot in his mouth).

[MrSpitz]

Originally Posted by Soriak

Hmm... what to make of this? The scope of the bailout plan is getting extended: Bloomberg.com: U.S. Treasury Widens Scope of Bad-Debt Plan Beyond Mortgages

It's fine as long as they have a practical plan so that the small consumers who own those loans do pay them back.

I mean they will buy the troubled mortage based assests and eventually try and sell them off for a loss, but like with AIG the idea is to get some return on this money. I don't see how this is applicable to things like student loans, unless they just buy up all the outstanding student loans and forgive them.

To that I say fuck you, feel great having put so much into mine the last five years.


Edit: Or am I just an idiot and this means that other poor assests held by investment firms will be bought up? The student loan thing really is confusing me as to what they mean; is there a huge market of secondary student debt selling like for mortages? Almost all of mine are through the Federal Government.