Gumby's Account Talk

[Steadygain]

Steady,

I think all the FED has done is to prolong the pain and suffering while letting the "fat cats" reap the rewards. The only way the government should help out Fannie and Freddie is to dismantle their board of directors prior to injecting any "guarentee" money. It has been over 20 years since the Savings and Loan scandal and the government has not learned from it. The bailout of Fannie and Freddie will just help the rich just keep getting richer, especially foreign investors that have bought the worthless paper from Fannie and Freddie....and there is tons of it.

The FED action has devalued the dollar and increased the price of energy and has caused inflation to soar. Mortgage rates were acutually lower for homeowners before the FED rate cuts. What has the FED done for the average Joe except for making food and energy more expensive? Who is getting the benefit of their actions?

My friend - these are the kind of discussions I thoroughly enjoy. So let me elaborate some views I was hesitant to acknowledge.

1. Most importantly - I believe the FED is most responsible for the Financial/Housing Sector situation and to the largest degree the overwhelming bulk could have been avoided if they had intervened when the action was taking place.

2. I believe all of the actions were mainly to "save face" and avoid a huge embarassment - as THE WORST DEPRESSION in history would have undoubted exposed the parties most at fault.

At this point I'd rather deal with a little more suffering and pain compared to what I believe would have happened otherwise.

3. Fannie and Freddie - will undoubtedly be broken up into smaller pieces "fully under the government's control". You can be certain the ones that have been in control of Fannie/Freddie are the ones most disappointed with their loss of control.

4. JP Morgan Chase (to which I am intimately connected) was essentially forced at gunpoint to buy out Bear Stearns.

So don't get me wrong my friend - my view of the FED and all that has transpired has been widely demonstrated throughout the course of the past year.

All I'm saying at this point is (to my shock) I'm actually glad it turned out the way it did because in my heart of hearts I believe if they had simply let the Financial Sector collapse that things would be a thousand times worse.

Thanks Gumby - this really is a good discussion - and I sincerely appreciate your point of view - let alone L2R who I incredibly admire.

 

[fedgolfer]

...

rate increase in this environment? The fed has and always will prioritize growth in front of inflation fighting.

 

[luv2read]

They are, they're first looking to stabilize the markets by not causing contagion, and financial domino effects. They know inflation will be contained to a certain degree by a world recession and the fact that comodity prices will have to come down (and they are). They're LETTING all the weak hands (in housing and the market), get flushed out for bad loans, or bad investing decisions. Then, they'll come in and throw in a pittance to the individual tax payers for some votes. It ain't perfect, but why would someone who owns a home,stock or pays into retirment accounts not want them to stabilize? I don't think you really see what domino effect would happen if they didn't do these things. I'm a moderate by nature and you know you have something that can work when the libs and conservatives are both unhappy.

How is bailing out BSC, Fannie and Freddie and setting up a "protected" list for the other big financials "letting all the weak hands" get flushed out? Looks to me like they're rescuing their buddies and letting everyone else go down the toilet.

And like Steady says, the FED caused the whole mess to begin with - poor oversight and regulation.

The rescue bill doesn't break up Fannie and Freddy. It gives them a blank check and creates a NEW agency from what is currently a BOARD to provide oversight of Fannie and Freddy...transferring functions and employees from HUD to this NEW agency. I posted a link to the bill elsewhere.

 

[luv2read]

rate increase in this environment? The fed has and always will prioritize growth in front of inflation fighting.

The cuts didn't help, the financials still collapsed. Call it capitulation if you will. And mortgage rates are still high. Congress is having to rescue everything.

 

[fedgolfer]

How is bailing out BSC, Fannie and Freddie and setting up a "protected" list for the other big financials "letting all the weak hands" get flushed out? Looks to me like they're rescuing their buddies and letting everyone else go down the toilet.

And like Steady says, the FED caused the whole mess to begin with - poor oversight and regulation.

it was greenspan's intention to spur growth in housing to get us out of the tech-crash. it was private sector greed that allowed their lending practices to go so out of reach... it was financial sector greed to get 10x leveraged on mortagage bonds. Greenspan laid the path to growth but the private sector got over-leverage on BAD execution... I agree they're both to blame... but blame doesn't get us out of a bear market, action does -- particularily market stabilization.

 

[Steadygain]

The rescue bill doesn't break up Fannie and Freddy. It gives them a blank check and creates a NEW agency from what is currently a BOARD to provide oversight of Fannie and Freddy...transferring functions and employees from HUD to this NEW agency. I posted a link to the bill elsewhere.

Luv2read - It is possible that my source is wrong, or was misinformed - but that is highly unlikely. What has transpired between the FED and Fannie/Freddy is most certainly meant to insure "THIS MISTAKE DOES NOT HAPPEN AGAIN".

The CEO/President of Fannie no more than one week prior had a live interview and fully tried to convince the audience that they have the capital to avoid "being overtaken and broken up into the smaller pieces that ARE MOST CERTAINLY PART OF THE BAIL OUT DEAL".

It is a "Blank Check" with very STONG CONDITIONS and they will be totally transformed and - broken up - with no control.

 

[luv2read]

Steady, see here please. Nothing in the bill about breaking them up.

http://www.tsptalk.com/mb/showpost.php?p=172634&postcount=1

oh here's another excerpt:

SEC. 311. ESTABLISHMENT OF THE FEDERAL HOUSING FINANCE AGENCY.
(a) In General- The Housing and Community Development Act of 1992 (12 U.S.C. 4501 et seq.) is amended by striking sections 1311 and 1312 and inserting the following:
`SEC. 1311. ESTABLISHMENT OF THE FEDERAL HOUSING FINANCE AGENCY.
`(a) Establishment- There is established the Federal Housing Finance Agency, which shall be an independent agency of the Federal Government.
`(b) General Supervisory and Regulatory Authority-
`(1) IN GENERAL- Each regulated entity shall, to the extent provided in this title, be subject to the supervision and regulation of the Agency.
`(2) AUTHORITY OVER FANNIE MAE, FREDDIE MAC, AND FEDERAL HOME LOAN BANKS- The Director of the Federal Housing Finance Agency shall have general supervisory and regulatory authority over each regulated entity and shall exercise such general regulatory and supervisory authority, including such duties and authorities set forth under section 1313 of this Act, to ensure that the purposes of this Act, the authorizing statutes, and any other applicable law are carried out. The Director shall have the same supervisory and regulatory authority over any joint office of the Federal home loan banks, including the Office of Finance of the Federal Home Loan Banks, as the Director has over the individual Federal home loan banks.

 

[Steadygain]

it was greenspan's intention to spur growth in housing to get us out of the tech-crash. it was private sector greed that allowed their lending practices to go so out of reach... it was financial sector greed to get 10x leveraged on mortagage bonds. Greenspan laid the path to growth but the private sector got over-leverage on BAD execution... I agree they're both to blame... but blame doesn't get us out of a bear market, action does -- particularily market stabilization.

You are a gentleman and a scholar - you're right it was most certainly the private sector demanding more and more that pretty much forced the "lending practices" - Financial Sector saw this as the golden egg and Mania set in and once you fly high in a Manic State you don't want it to end.

Your comment about BLAME is by far the best. Many are upset with the present situation but blame and "throwing rocks" does nothing but spread more negative sentiment and leaves us feeling more agony. I think the markets are far more stable than I would have expected them to be - and I really do believe the worst was avoided and for that I am grateful.

 

[Steadygain]

Steady, see here please. Nothing in the bill about breaking them up.

http://www.tsptalk.com/mb/showpost.php?p=172634&postcount=1

oh here's another excerpt:

My darling,
Give it time - and let the future reveal itself. Just remember what I've disclosed.

 

[luv2read]

You are a gentleman and a scholar - you're right it was most certainly the private sector demanding more and more that pretty much forced the "lending practices" - Financial Sector saw this as the golden egg and Mania set in and once you fly high in a Manic State you don't want it to end.

Your comment about BLAME is by far the best. Many are upset with the present situation but blame and "throwing rocks" does nothing but spread more negative sentiment and leaves us feeling more agony. I think the markets are far more stable than I would have expected them to be - and I really do believe the worst was avoided and for that I am grateful.

Fedgolfer and Steady, I agree with both of you on that.

 

[Gumby]

The CEO/President of Fannie no more than one week prior had a live interview and fully tried to convince the audience that they have the capital to avoid "being overtaken and broken up into the smaller pieces that ARE MOST CERTAINLY PART OF THE BAIL OUT DEAL".

It is a "Blank Check" with very STONG CONDITIONS and they will be totally transformed and - broken up - with no control.

We have a great spirited discussion on this topic and there are many points of view. I appreciate all your opinions. I remember the comments about Fannie having enough capital......and I also remember the same lies just before Bear Sterns went under.

Steady, why don't they just "transform" the company upfront and break it apart? I cannot see anything where "strong conditions" are attached. It just looks like a blank check to me at taxpayer's expense.
My friend....I hope you are indeed correct that Fannie/Freddie will be transformed.
However, I predict this will be the largest bailout in history.....:worried:

 

[luv2read]

They can't be broken up because they are government-sponsored investor owned companies, not government agencies.

The mortgage-finance firms, which are government-sponsored but investor-owned, together own or guarantee about half of the nation's outstanding mortgages. Concern about their financial health has destabilized the markets and is driving interest rates for home loans toward their highest level in five years.
The need to calm investors added urgency to legislation that has been wending its way through Congress since April. The measure would grant Paulson immediate but temporary authority to extend an unlimited line of credit to Fannie Mae and Freddie Mac or to buy their stock if their financial condition deteriorates sharply before December 2009.
Democrats abandoned efforts to mandate specific protections for taxpayers, such as a requirement that the companies suspend dividend payments to shareholders as a precondition of receiving federal aid. Instead, the measure instructs Paulson to set the terms of any bailout.
"We said, 'You have to protect the taxpayer, but how you do it is up to you,' " said Frank, a key sponsor of the bill. "Going to the market is a tricky business. And I think tying his hands . . . is a mistake."
The Federal Reserve Board would have "consultative" authority over Fannie Mae and Freddie Mac until the legislation expires in December 2009. The legislation also would create a strong new regulator for the firms, with explicit authority over compensation for their chief executives, who take home millions of dollars a year.

 

[Steadygain]

Steady, why don't they just "transform" the company upfront and break it apart?

Mainly because you're dealing with the largest lender. FANNIE is number one and no one comes close. You're also dealing with an amount that dwarfs everything else combined - and that amount wil not be disclosed.

So when you're dealing with something this big you have to handle it with "kids gloves". The FED stepped in to help and assist and Fannie acknowledged they need the help. From Fannie's perspective it's we'll take your assistance on the condition that you let us settle the score and retain control.

The FED agreed - and it's only right to give them a chance.

When (and if ) Fannie fails - they'll be broken up.

I cannot see anything where "strong conditions" are attached. It just looks like a blank check to me at taxpayer's expense.

You also need to bear in mind that "the interaction" took place over a weekend and was totally hidden from the public. The details of that meeting involved more than you realize. What L2R and the public sees is mainly the fact that "the FED has insured Fannie will not fall and that's the bottom line". What is not being disclosed to the public is what will likely happen to Fannie down the line and how that control will wholly shift from its present state.

Taxpayers pay for everything - we can't really change that; all we can hope for is somewhere down the line people like you, L2R, and the bulk of MB members will eventually have a greater say.
My friend....I hope you are indeed correct that Fannie/Freddie will be transformed.
However, I predict this will be the largest bailout in history.....:worried:

I would say your prediction has come to pass - it "was" the largest bailout in history.

But again - and here I am stressing this for the general public - I would a thousand times rather the situation be remedied the way it was - and here my thinking has changed only because of the Fannie/Freddie situation - than a different sicerio.

Over the past year - when they were doing the 250 Billion, 500 Billion and other bailouts - that I considered fairly substantial I still was fully convinced we would have been better off to "go into a real Bear Market" instead of a correction. They saved the biggest for last and that was smart - very smart.

 

[luv2read]

The amount exceeds the national debt - it's in the neighborhood of $7-$10 trillion. You can google it. If they're willing to put that out there, you can bet it's more...that's a lowball.

 

[Steadygain]

They can't be broken up because they are government-sponsored investor owned companies, not government agencies.

L2R - If I (or anyone) came to you with a debt that was say a trillion times beyond what we could handle...and you gave us a blank check after a "private meeting"...you know we'd have to give you pedicures, back rubs, acoustic soothing songs, fresh squeezed lemonade....and I would probably be oblidged to answer to your every wim - and do it in the best possible manner for the rest of my life.

There are no such things as free hand outs - or blank checks - to an amount on the level we're talking.

 

[luv2read]

L2R - If I (or anyone) came to you with a debt that was say a trillion times beyond what we could handle...and you gave us a blank check after a "private meeting"...you know we'd have to give you pedicures, back rubs, acoustic soothing songs, fresh squeezed lemonade....and I would probably be oblidged to answer to your every wim - and do it in the best possible manner for the rest of my life.

There are no such things as free hand outs - or blank checks - to an amount on the level we're talking.

The only "condition" in the bill is the establishment of the new regulatory agency and that it will have oversight of both companies...and oversight and control of the salaries of Fannie and Freddie executives. I find it strange that salary information was specifically included - it wasn't a condition of the $30B taxpayer bailout of BSC - and the "upfront" bailout of Fan/Fred "to start" is just $25B. I expect more bang for my buck.

I've only read the House version, haven't had time to read the Senate version yet.

 

[Steadygain]

The amount exceeds the national debt - it's in the neighborhood of $7-$10 trillion. You can google it. If they're willing to put that out there, you can bet it's more...that's a lowball.

They deliberately did not want to disclose the amount - thus "the blank check" was set in motion.

Judge - I demand this be stricten from the record.

 

[luv2read]

OMG they're going to raise the debt ceiling $800B as part of the deal - so we know Fannie/Freddy need at least that amount. Fannie/Freddy bad paper is at least $10T, public record. That equals or exceeds the existing national debt.

Neat way to raise the debt ceiling without the annual haggles at the end of the fiscal year and tapping into the trust funds like they do every year until they get the continuing res passed.

Lawmakers rejected Paulson's request to prevent any public aid to the firms from being counted as part of the federal deficit. Instead, the measure would raise the legal debt limit to $10.6 trillion -- an increase of $800 billion -- giving Paulson a large cushion should aid to the firms become necessary. As of yesterday, the national debt stood at $9.5 trillion.

 

[Steadygain]

I've only read the House version, haven't had time to read the Senate version yet.

L2R, You are absolutely amazing!!!

Wow, if only I'd met you years ago...and for that matter there is not a job or circumstance I can think of off the top of my head that I would not double your salary to take advantage of your amazing energy and skills.

Please know your husband is one lucky guy.

 

[Silverbird]

Debt ceiling up again :nuts::worried:! I'm turning into a Blue Dog Democrat! Hellpppp!