TARP

Bloomberg Businessweek, on "the mother of all bailouts"

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Good/depressing piece on our nationalized mortgage-finance industry. Starts like this:

The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.

Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts.

"It is the mother of all bailouts," said Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry.

And it could get a whole lot worse:

The Congressional Budget Office calculated in August 2009 that the companies would need $389 billion in federal subsidies through 2019, based on assumptions about delinquency rates of loans in their securities pools. The White House's Office of Management and Budget estimated in February that aid could total as little as $160 billion if the economy strengthens.

If housing prices drop further, the companies may need more. Barclays Capital Inc. analysts put the price tag as high as $500 billion in a December report on mortgage-backed securities, assuming home prices decline another 20 percent and default rates triple.

Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, said that a 20 percent loss on the companies' loans and guarantees, along the lines of other large market players such as Countrywide Financial Corp., now owned by Bank of America Corp., could cause even more damage.

"One trillion dollars is a reasonable worst-case scenario for the companies," said Egan, whose firm warned customers away from municipal bond insurers in 2002 and downgraded Enron Corp. a month before its 2001 collapse.

Reason on Fannie and Freddie here.

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  1. When we’ve abolished the state and estbalished Libertopia, who will bail the failures out? Ask Lenin.

    1. Go play with your Real Doll? Edward.

      1. Go suck Ron Paul’s cock, moron.

        1. A Google search of Max gives head in rest rooms gives “About 10,500,000 results”.

          1. I’m sure some of those were for Max Headroom, though.

    2. Why should taxpayers bail anybody out?

  2. Its kinda a good news bad news situation. Each American now is in hock for 56 gaboulin dollars. Thats the bad news.
    But when each of us defaults, its like we got 56 gaboulin dollars worth of stuff for nothin’!!!! Whoopee!!!
    Of course, with our degraded money, 56 gaboulin only buys a 6-pack of Pabst.

    1. Stop making up figures, fresno dan. The number is gajillion. how do you expect people to take you seriously if you’re just making shit up?

  3. The Congressional Budget Office calculated in August 2009 that the companies would need $389 billion in federal subsidies through 2019, based on assumptions about delinquency rates of loans in their securities pools. The White House’s Office of Management and Budget estimated in February that aid could total as little as $160 billion if the economy strengthens.

    Has the White House Office of Management and Budget ever accurately or underestimated the cost of anything?

  4. Funny how that became the best known of all Saddam Hussein’s quotes.

  5. Everything’s comin’ up roses!

  6. When we’ve abolished the state and estbalished Libertopia, who will bail the failures out?

    We will bury you.

  7. Even at the worst case of $1 trillion its still probably a good investment.

    Last time I checked FNM/FRE had $8 trillion in mortgage assets but did so without adequate capital to service its debt.

    This $1T in debtor-in-possession financing (common to all reorgs) would yield $8T in equity returns since the Treasury owns 80% of all the GSE stock currently priced at the nominal Ch.11 insolvency pricing of $1.00.

    (That would be if the stock of both FNM/FRE got back to $5 a few years from now.)

    Plus – current bondholders avoid rapacious haircuts or worse – the Treasury is forced into backing up their decades old implied guarantee.

    Of course, the alternative would be to just let the whole fucking system derail like Cro-Magnon libertarians are wont to do while they diddle themselves and play with their Goldline holdings.

    1. Ah, shrike finally makes a post that isn’t *just* insulting rednecks, and it’s about insulting rednecks and defending bailouts.

      1. I know. He didn’t even mention Bushpig or Rethuglican. It was actually a coherent and interesting post. Maybe he has some new meds.

        1. Maybe he can share some of them with Max.

      2. This isn’t the first time he’s defended the bailouts. He’s at least a consistent crony-capitalist/statist.

    2. If it’s such a super-awesome good investment opportunity, why did all the private investors run away? Seems like someone would be willing to play J.P. Morgan.

      1. Fund — shares owned FNM 3/31/2010

        VANGUARD GROUP, INC. (THE) 45,145,341
        BlackRock Institutional Trust Company, N.A. 15,581,945
        KINETICS ASSET MANAGEMENT INC. 13,024,575
        FIR TREE INC. 10,980,000
        Capital Research Global Investors 10,000,000
        MORGAN STANLEY 6,173,110
        CALPERS (CALIFORNIA-PUBLIC EMPLOYEES RETIREMENT SYSTEM) 4,728,365
        STATE STREET CORPORATION 4,520,505
        LEGAL & GENERAL GROUP PLC 3,276,590
        Susquehanna International Group, LLP 3,109,636

        1. Great, so let’s go ahead and diversify the Treasury holdings right now, selling off some of that 80% to all these willing investors. (Vanguard is obviously index funds holdings.)

          1. I wonder how many of those funds hold FNM & FRE due to their (prior) presence in indexes, especially the S&P 500.

    3. “That would be if the stock of both FNM/FRE got back to $5 a few years from now.”

      yeah, if we just live in a fantasy world, things will be great. What possibly makes you think the stock will ever come back? Right now we have houses that are in some cases 100% over their natural value. We also have a generational bush coming. The boomers are dying off and selling their houses. And the next generation does not have the wealth to buy those houses at current prices. Housing prices will never return to their 2008 levels or even stay at their current levels. And without a rise in housing prices, how will FNM/FRE do anything but hemorrhage money?

    4. Where are you getting “$8 Trillion in assets”?

      1. Out of his ass. They have $869 billion in listed assets, and $884 billion (same page, scroll down) in listed liabilities (which is a joke). If it weren’t for the explicit backing if the government, their stock would be doing far worse than the $.92 it’s going for now.

        1. Based on that we can safely tell shrike to shut the fuck up and stop arguing a hypothetical that isn’t even remotely realistic in terms of the actual data in question.

          Shrike, seriously- $8 TRILLION in assets? Show your work or STFU.

          1. Feb. 27 (Bloomberg) ? “Fannie Mae will seek $15.3 billion in U.S. aid, bringing the total owed under a government lifeline to $76.2 billion, after its 10th consecutive quarterly loss.

            “The company posted a fourth-quarter net loss of $16.3 billion, or $2.87 a share, Washington-based Fannie Mae said in a filing yesterday with the Securities and Exchange Commission.

            “Fannie Mae, which owns or guarantees about 28 percent of the $11.8 trillion U.S. home-loan market, has been hobbled by a three-year housing slump that wiped 28 percent from home values nationwide and led to record foreclosures. The company, which posted $120.5 billion in losses over the previous nine quarters, and rival Freddie Mac were seized by regulators in September 2008.”

            Thats $4 trillion for FNM.

            FRE is about the same size.

          2. “Together, Fannie Mae and Freddie Mac (FRE) hold approximately $5.3 trillion of the $12 trillion total in U.S. residential mortgage debt as of August 4, 2009.[7] Because of this high concentration, many thought a failure at Fannie Mae would wreak havoc in the residential housing market and the economy as a whole because many other large financial institutions held Fannie Mae bonds. Although the government was not obligated to assist Fannie Mae, the potential mayhem caused by Fannie’s demise is what many believe led the to government ensure Fannie Mae’s continued viability. ”

            http://www.bloomberg.com/apps/…..djRIEF33yw

            So its closer to $6 trillion by now – if marked to market it could be higher.

            Still, a buck in Fannie will be worth over $5 later this decade.

            1. Do you know the difference between “assets” and “residential mortgage debt”?

              There is a significant difference. And it is so significant that the government has decided to let taxpayers turn that “debt” in to an “asset” via taxpayer money if the two institutions continue to go down the tubes. And that “asset” will be worth considerably less than $5 trillion if that happens.

              I suggest you examine that question before claiming to show that an “investment” in FNM/FME is somehow going to return $5 for every $1 invested.

    5. Of course, the alternative would be to just let the whole fucking system derail like Cro-Magnon libertarians are wont to do while they diddle themselves and play with their Goldline holdings.

      Now you see, this is why everyone around here things you’re a dumbass.

      1. Grrr, should be “thinks”, not “things”.

    6. This $1T in debtor-in-possession financing (common to all reorgs) would yield $8T in equity returns since the Treasury owns 80% of all the GSE stock currently priced at the nominal Ch.11 insolvency pricing of $1.00.

      See, also, throwing good money after bad.

      So, if putting $1T into FNMA/FRE yields $8T in equity value, why not put in $2T, to create (out of thin air!) $16T in equity value?

      Additional debt creates value only if it finances productive activity. Your assuming that this $1T, which is covering bad loans, will be put to such use. Without a major restructuring, I can’t imagine why it would be.

      1. They don’t need trillions. As the bear in the article says they may need 1/4 of that.

        Why should Treasury ante more than they need? The idea is to bolster capital enough to rescue the equity and keep the bondholders out of court.

        The Fed has already purchased over $1T of MBS – money which will find its way into the Treasury eventually.

        Deflation is still the real risk – we all suffer if home values fall substantially again.

        The markets are buying distressed CRE debt and stock as well as 10yr T-bills at 3% – saying we recover before Obama’s second term.

        I give Geithner the game ball though.

        1. The Fed has already purchased over $1T of MBS – money which will find its way into the Treasury eventually.

          The markets are buying distressed CRE debt and stock as well as 10yr T-bills at 3% – saying we recover before Obama’s second term.

          I give Geithner the game ball though.

          If the private markets are so willing to buy it, why does the Fed own the vast majority?

          Deflation is still the real risk – we all suffer if home values fall substantially again.

          Why? And home values falling substantially would not be “deflation.” Deflation is where prices in general fall, not where one sector has a substantial fall.

        2. If the Fed couldn’t sell off its holdings, then the private investors only hold the money because they’re expecting a bailout. In which case it’s good to be a minority shareholder if the Fed is going to bailout all shareholders, but less good to be the people doing the bailing out.

  8. But remember: “Government subsidizing of home loans … was not a primary cause of the housing bubble.”

    Nope. Not at all.

  9. But remember: “Government subsidizing of home loans … was not a primary cause of the housing bubble.”

    Fannie and Freddie ramping up their “affordable housing” programs after their accounting scandals of 2003/4ish is one of the things that pushed us over the cliff.

  10. Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund.

    Goddamn free market!!! Unbridled capitalism!!!

  11. Furthermore I think Fannie and Freddie must be destroyed.

  12. I’m having trouble remembering exactly why it was necessary for the federal governmnent to be involved in trying to engineer increased home ownership to begin with.

    Or what article of the Constitution empowers it do so.

    1. It *must* be the Commerce Clause.

      For both questions.

    2. They shouldn’t be. But you play the hand you’re dealt.

  13. Where’s Cavanaugh been, lately?

  14. I give Geithner the game ball though.

    Timmay!

  15. If housing prices drop further, the companies may need more

    Which is why we in Congress are doing everything we can to raise housing prices while at the same time ensuring that no American is prevented from his right to own a home. Retards!

    1. That worked really well that last time around, eh Lollipop boy?

  16. NY1 (the local cable news channel) was crowing that the price of Manhattan condos is rising again. I wanted to sock the anchor in the goddamn face.

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