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Fannie and Freddie to be put into conservatorship

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BrianIsSmilingAtYou
Post subject: Fannie and Freddie to be put into conservatorship
Posted: Sat 06 Sep , 2008 1:55 am
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http://www.nytimes.com/2008/09/06/busin ... ie.html?hp

This should be interesting.
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WASHINGTON — Senior officials from the Bush administration and the Federal Reserve on Friday informed top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, that the government was preparing to seize the two companies and place them in a conservatorship, officials and company executives briefed on the discussions said.

The plan, effectively a government bailout, was outlined in separate meetings that the chief executives were summoned to attend on Friday at the office of the companies’ new regulator. The executives were told that, under the plan, they and their boards would be replaced, shareholders would be virtually wiped out, but the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.

It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation’s history.

(See link for full story)
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Cenedril_Gildinaur
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Posted: Sat 06 Sep , 2008 3:07 am
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Let.
Them.
Fail.

The damage from rescuing them will be worse than the damage from not doing so.

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BrianIsSmilingAtYou
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Posted: Sat 06 Sep , 2008 5:11 am
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The main problem with letting them fail is that part of the reason that they were so willing to be free and lax with credit standards is that the government implicitly guaranteed them to begin with.

It would have been better if that were not so, because people would have scrutinized loan packages more carefully in the secondary market otherwise, which would have forced higher standards--but that didn't happen, which is part of the reason this mess exists.

It seems disingenuous to permit the conditions to exist to aid and abet the problem (the existence of the government guarantee) and then to renege on that.

I would agree that it would be better to let them fail if the government guarantee never existed, but it is a contributing factor to the distortion of the credit markets.

I don't think it would be good policy in such a case to do so.

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Jude
Post subject: Re: Fannie and Freddie to be put into conservatorship
Posted: Mon 15 Sep , 2008 10:59 am
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Just heard on the news today that the Lehmann Brothers are going to be forced to file for chapter 11 bankruptcy today. The world's markets are waiting to see what's going to happen - it's going to be quite a volatile trading day! I wonder what the Canadian effects will be.

And apparently this will be the largest bankruptcy in history! I still remember when the Barings Bank was brought down by the actions of one individual. Anyone else remember that?

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Cenedril_Gildinaur
Post subject: Re: Fannie and Freddie to be put into conservatorship
Posted: Mon 15 Sep , 2008 3:24 pm
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There was a time when this was called "nationalization" or "socialism", but those are dirty words so we need new names for it. Now they're called "conservatorship".

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TheEllipticalDisillusion
Post subject: Re: Fannie and Freddie to be put into conservatorship
Posted: Mon 15 Sep , 2008 5:05 pm
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Maybe this is how they plan to implement that conspiracy theory, the one world government. Government backs banks; banks through shoddy practice destroy themselves and risk the economy of the common people, then government steps in and takes over bank, thus becoming the financial institution. Sounds like the beginning of a Dan Brown novel.

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Berhael
Post subject: Re: Fannie and Freddie to be put into conservatorship
Posted: Mon 15 Sep , 2008 9:36 pm
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Sounds like failure of the capitalist system to me, comrades. :whistle:

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Cenedril_Gildinaur
Post subject: Re: Fannie and Freddie to be put into conservatorship
Posted: Mon 15 Sep , 2008 10:03 pm
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It would sound like it if we were dealing with capitalism in the first place, but corporatism / mercantilism (and also monetarism and also keynesianism). Really, it is an explicit failure of mercantilism and capitalism will get the blame ... again.

Every time intervention fails, non-intervention gets the blame. It's my turn to say "I told you so" and instead I get told "It's your fault."

(Well, not mine personally, but my political/economic beliefs)

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It is a myth that coercion is necessary in order to force people to get along together, but it is a persistent myth because it feeds a desire many people have. That desire is to be able to justify hurting people who have done nothing other than offend them in some way.

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Berhael
Post subject: Re: Fannie and Freddie to be put into conservatorship
Posted: Mon 15 Sep , 2008 10:45 pm
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Well, from MY point of view it's clear evidence that lack of intervention is what caused this problem in the first place, and that the idea that the market can auto-regulate is pure fantasy; and now taxpayers have to rescue a private company... but then I'm a socialist, so I would think that, wouldn't I.

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Cenedril_Gildinaur
Post subject: Re: Fannie and Freddie to be put into conservatorship
Posted: Mon 15 Sep , 2008 11:00 pm
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The money creation by the Federal Reserve involving holding interest rates artificially low for a prolonged period of time, combined with some rather intricate lending laws that required a certain minimum percentage of high risk loans, did not happen in the free market.

This is Greenspan's fault.

And the taxpayers shouldn't rescue a private company. That's socialism for the rich.

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It is a myth that coercion is necessary in order to force people to get along together, but it is a persistent myth because it feeds a desire many people have. That desire is to be able to justify hurting people who have done nothing other than offend them in some way.

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Dave_LF
Post subject: Re: Fannie and Freddie to be put into conservatorship
Posted: Wed 17 Sep , 2008 3:54 pm
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TheEllipticalDisillusion wrote:
Maybe this is how they plan to implement that conspiracy theory, the one world government. Government backs banks; banks through shoddy practice destroy themselves and risk the economy of the common people, then government steps in and takes over bank, thus becoming the financial institution. Sounds like the beginning of a Dan Brown novel.
I've been wondering too how many formerly private assets will be in the hands of the federal government before this is all over (add AIG to the list as of last night). A player who takes a lot of bad cards may have a bad hand, or he may be trying to shoot the moon.


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sauronsfinger
Post subject: Re: Fannie and Freddie to be put into conservatorship
Posted: Wed 17 Sep , 2008 5:16 pm
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Just the other day I was watching the great Mel Brooks film BLAZING SADDLES. Richard Pryor wrote the scene where the new sheriff comes into town and the townspeople are shocked to see he is African-American - although they are not that kind in there language. When the sheriff, wonderfully played by Cleavon Little, senses the crowd about to turn on him, he takes his own gun, puts it to his head and threatens to kill himself. The townspeople are being attacked by a gang of wild criminals and they need a sheriff - any sheriff. The townspeople do not know how to react to Little with his own gun to his own head threating to kill himself. Little makes it back to his office in safety.

That pretty much describes this situation . AIG puts the gun of its own bankruptcy to its head and everyone else screams and cries and says we cannot let this happen. In the movie, Cleavon Little got the last laugh. I wonder who is laughing today?

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TheEllipticalDisillusion
Post subject: Re: Fannie and Freddie to be put into conservatorship
Posted: Thu 18 Sep , 2008 5:47 pm
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The big wigs of AIG that's for sure. Not me, unfortunately. Of course, I wonder how long until someone (perhaps of the right wingedness) cries out against the government when it either won't relinquish the control it took of these companies, or that the government is trying to destroy the free market by bailing out these short sighted big wigs.

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