Asked And Answered (0.00 / 0)

Can we all stop lying to ourselves on this one? Please? Pretty please?

No. Of course not.

This national self-delusion is a major obstacle to having an honest ideological debate in this country.

And that's precisely the reason why.

If Sarah Palin were in Afghanistan, or even, probably, most parts of Iraq, rather than being hailed as a conservative leader, she'd likely be stoned to death.  Our ideological debates are delusional all the way down to their very core.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

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by: Paul Rosenberg @ Sat Sep 06, 2008 at 07:01:05 AM CDT

Well we agree on that (0.00 / 0)

OTOH, we still have our differences of opinion about the police response in St. Paul. Heavy-handed? Yes. It was meant to be but not to specifically to quell peaceful dissent. The mayor (a true blue Democrat, not a Blue Dog) was just trying to keep his job. The Mayor and Police Chief in Seattle both lost theirs.

If Sarah Palin were in Afghanistan, or even, probably, most parts of Iraq, rather than being hailed as a conservative leader, she'd likely be stoned to death.  Our ideological debates are delusional all the way down to their very core.

Or strapping on a suicide vest and preparing for jihad against the infidels.

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by: LWM @ Sat Sep 06, 2008 at 11:13:43 AM CDT

[ Parent ]

No, if Sarah Palin we're in Afghanistan or Iraq (0.00 / 0)

she'd be holding a handful of rocks, wearing a fake beard, and waiting for the priest to say that no one is allowed to throw a stone until he blows his whistle, even -- and I want to make this perfectly clear -- even if they say, "Jehovah!"

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by: Pesto @ Sun Sep 07, 2008 at 14:57:22 PM CDT

[ Parent ]

the right (0.00 / 0)

privatize the profits for their supporting good ole boy network and socialize the losses on to the rest of us, and then run against big govt and socialism.
i contend that anything that is needed in our society should be socialized, like (police, firefighters) if socialism is good for the wealthy elites its good enough for those that actually need it.
the dumb as dirt cons that are a success in our society couldn't get arrested if it wasn't for their inclusion in the white good ole boy network at the expense of people with legitimate talent that can only get arrested in our bigoted society.
most at the top of our power ladder are there not because of what they accomplished but the class they were born into, that is not what a democracy should be about, of course in our case we are a democracy in name only aren't we.
   

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by: pc @ Sat Sep 06, 2008 at 07:24:58 AM CDT

I know next to nothing about economics (0.00 / 0)

but I think the conservatorship is a temporary take-over of company that the govt has decided is too important to fail until the company gets back on the path to solvency (and then presumably back to profit-making). Whereas "nationalizing" would be a permanent move.

I hope someone that actually knows about these things can explain it in plain English. They don't teach you these things in public school. For example, does anyone know what would happen were Freddie and Fannie allowed to fail? More specifically, would people (like me) with mortgages backed by one of them be in trouble?  

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by: bluesteel @ Sat Sep 06, 2008 at 07:35:38 AM CDT

Chaos, less mortgages available, less standardization (4.00 / 3)

My opinion:

One thing that would happen would be chaos.

But, even more important- if they actually did fail, the housing market might drive us into a deep, deep recession.  The NYTimes article said that they have their hands in something like 70 percent of mortgages in the Country.  If they leave, the mortgage market, even for vanilla prime loans, would severely contract.  You can get so many mortgage offers in the US because companies know that there is a market for them to re-sell them.  Once Fannie and Freddie are gone, and that dries up, banks and lenders would severely cut back on the number of (prime, not just subprime) loans they make.  It would be a total disaster, interest rates on prime loans would severely increase, and home prices would probably decrease further.  

Additionally, banks, mutual funds, pension plans from Unions, state treasuries, foreign governments, etc., all invest heavily in mortgage backed securities from Fannie and Freddie.  If they failed, for example, a typical bank would have its capital severely curtailed, and some might then be run upon.

That said, to your last question- I think most people with mortgages backed by Fannie and Freddie would be fine in terms of their specific loans.  However, I think you can pretty much guarantee that their failure would crush the housing market, because it would be, by big orders of magnitude, much harder to get a prime loan to buy a home.

However- I do think that after Freddie and Fannie get through all of this, they will still hold significant value, because after the bubble, there is still a lot of value in Americans buying homes.  I think we need to make sure that taxpayers who are bailing them out get some of the profit back if and when they rebound.

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by: Dan U-A @ Sat Sep 06, 2008 at 08:34:33 AM CDT

[ Parent ]

Excellent run down. (0.00 / 0)

Thanks.

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by: NYBri @ Sat Sep 06, 2008 at 08:55:59 AM CDT

[ Parent ]

What Fannie and Freddie do (4.00 / 1)

They essentially buy mortgages and package them into what are known as "mortgage-backed securities."  These are bonds that pay a higher rate of interest than Treasuries, and in which repayment is "guaranteed" because the mortgage will be paid off.  These bonds were then packaged and sold to mutual funds including both bond funds and mostly stock funds, governments, pension funds etc.  These institutions buy a rolling portfolio of bonds with different maturities.  Some were also packaged into exotic instruments by investment houses that separated interest from principal and the like, mixed mortgages of varying quality etc.  These were then marketed to investors as safe, mortgage-backed securities.  Fannie and Freddie get the money to buy mortgages from previous bond sales, selling stock and issuing notes and bonds. i.e. borrowing. They are leveraged, that is, they have borrowed against their portfolio to generate more capital to loan out.  Right now they do not have enough capital to keep buying mortgages.

This made the mortgage markets much more liquid (freed up money), but it also had two other effects.  First, most mortgage companies make their money on the origination fees, not the mortgage itself.  So they had all sorts of incentives to write as many mortgages as possible and palm them off on Fannie and Freddie, even though they ostensibly had standards, and no incentive to care about whether the mortgages were actually going to be paid off. This led to the abuses of the last 2-3 years. Secondly, when the homeowner gets into trouble, they can't find anyone to do a workout, because the institution sold the mortgage and then it was sliced and diced.

What has happened is that foreigners and others were becoming increasingly unwilling to lend the money necessarily to keep Fannie and Freddie going, freezing the market. So this bailout makes it clear that the Fannie and Freddie bond holders will get their money back (so they will keep lending), but the shareholders (speculators and people inattentive or scared enough to keep holding a volatile security that has lost over 90% of its value) will get back nothing or pennies on the dollar, the prefered shareholders first.  This is what happens in a bankruptcy--the bondholders get their money first, then the unsecured creditors, and the shareholders if there is anything left.  The shares of both will probably go to next to nothing Monday as people who didn't anticipate this scramble to get out.  (It was tipped in an Barrons article last week.)

The new government entity will be able to work with the homeowners to salvage their mortgages.  This is generally good as forclosures are feeding on themselves and destroying some neighborhoods.  It will also free up money for new mortgage loans, which will get the housing market moving again.  But to the extent that Fannie and Freddie were undercapitalized and to the extent mortgages fail, the taxpayers will be the ones paying off the bondholders.

John McCain--He's not who you think he is.

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by: Mimikatz @ Sat Sep 06, 2008 at 11:21:29 AM CDT

[ Parent ]

To answer your specific question (4.00 / 1)

If you have an Fannie or Freddie-held mortgage, you are not affected.  During the  1980's savings and loan crisis many mortgage companies went under and all it meant is that some stronger institution took them over, and you just made your payments to a new entity.  Just wait and you will get a letter telling you what to do.  If you have shares in a mutual fund with Fannie and Freddie issued bonds, they will get their money back eventually.

John McCain--He's not who you think he is.

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by: Mimikatz @ Sat Sep 06, 2008 at 11:25:05 AM CDT

[ Parent ]

Foreign investors forcing the US to face reality (4.00 / 2)

Fannie Mae and Freddie Mac had to be nationalized to maintain the confidence of our foreign investors in places like China.  The US cannot survive without borrowing, and we are in real danger of being written off as a bad credit risk.

In case it isn't obvious, the rest of the world is fast losing confidence in the US' ability to manage its affairs.

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by: Taylor @ Sat Sep 06, 2008 at 07:53:31 AM CDT

already gov't owned? (0.00 / 0)

No one has ever accused me of being an expert on this kind of thing, but I was under the general impression that Fannie Mae and Freddie Mac were already pseudo-government corporations, perhaps a bit more privatized than the Post Office.  I'm way out of my league here, but this move might just be a slight increase in the degree of government control, rather than outright nationalization.

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by: Shai Sachs @ Sat Sep 06, 2008 at 08:30:02 AM CDT

sort of (4.00 / 1)

There was always an implicit promise to back them, and they are in many ways, quasi governmental, but they are still private corporations, and much more removed than a government agency such as the post office.  They have shareholders, a board of directors, etc.  

This might be incorrect, but I think it would be more akin to what big corporations used to be waaaaay back (like British Empire times), where they were authorized by the government, got special treatment,etc.

The problem is that they also do have most normal characteristics of 21st century companies- like CEOs taking shocking bonuses, irrational actions, etc.  

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by: Dan U-A @ Sat Sep 06, 2008 at 08:39:48 AM CDT

[ Parent ]

...and again. (0.00 / 0)

n/t

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by: NYBri @ Sat Sep 06, 2008 at 08:56:25 AM CDT

[ Parent ]

Quasi is right (0.00 / 0)

That is Latin for "sort of."  

Ginnie Mae (Government National Mortgage Association) is federal, and GNMA funds are the only mortgage-backed funds worth investing in.  They are safe.  Fannie Mae and Freddie Mac were privatized (they sold stock to generate cash for loans) but there was an understanding the gov't wouldn't let them fail.  Because of this implicit promise, they were able to borrow money at cheaper rates than a bank, which Republicans always said gave them an advantage over purely private companies.  This was true, but it also generated enormous amounts of money for the mortgage market, keeping rates lower than they would otherwise have been and broadening home ownership.  The problem is that Fannie and Freddie both borrowed too much--way beyond the actual value of the mortgages.  In other words, like every other part of the financial industry, they were over-leveraged, and that is now being unwound at great cost to some people and the taxpayers.  In this case the losers are the shareholders and the taxpayers if the ship isn't righted.  

John McCain--He's not who you think he is.

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by: Mimikatz @ Sat Sep 06, 2008 at 11:31:40 AM CDT

[ Parent ]

thanks! (0.00 / 0)

Thanks both to you and Dan.  That all makes a lot more sense now.

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by: Shai Sachs @ Sat Sep 06, 2008 at 14:20:44 PM CDT

[ Parent ]

Lie. Get away with it. Lie. Get away with it. (4.00 / 2)

That pattern just builds on itself, until the whole contraption sinks of its own weight.

If I were part of the Atwater - Safire - Wolfowitz - Delay - ROVE - Schmidt machine I would keep telling bigger and bigger lies until my lungs filled with sea water. I would want, I would have to, and history would tell me to keep it up.

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by: shagbark @ Sat Sep 06, 2008 at 08:36:18 AM CDT

I do know something (4.00 / 4)

about economics.  This is in effect the nationalization of the two largest sources of mortgage capital.  It is happening because of a credit crunch that is growing by the minute.

I don't think people outside of the financial markets really understand how bad the unemployment number was yesterday.  The UK economy is tanking faster than we are, and there is real evidence of a slowdown in both Europe and China. Concerns about a worldwide economic slowdown are why the dollar has exploded in the last 6 weeks (up 10% against the Euro, 15% against the Pound) and why commodities like oil have declined so fast.  

While the mortgage crisis is not the sole reason for the slowdown, ending it may be absolutely critical to stopping a serious global recession.  In fact, the Fannie and Freddie bailouts are probably not enough: what needs to happen is for the Federal Government to step in and create the equivalent of the Resolution Trust Corporation that was  created to help unwind Savings and Loan crisis in the 1980's.

Of course, all of this requires government intervention, and it is amusing the see the financial markets scream for it.

But financial markets have always understood something that has escaped the right: Capitalism is a government run program.  

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by: fladem @ Sat Sep 06, 2008 at 08:37:08 AM CDT

Capitalism is a government run program. (0.00 / 0)

Perfect.

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by: NYBri @ Sat Sep 06, 2008 at 08:56:55 AM CDT

[ Parent ]

overnight our national debt exploded (4.00 / 2)

from $9 billion to $15 billion. There is going to be chaos in the markets when this passes.

We'd see political chaos too if the American public realized how the criminal mismanagement is going to destroy our credit and savings because of long term inflation and no confidence in US debt.

Oh wait look over there .. it's Sarah Palin's pregnant daughter ..  

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by: T Maysle @ Sat Sep 06, 2008 at 10:15:22 AM CDT

[ Parent ]

trillion (0.00 / 0)

That should be trillion not billion

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by: T Maysle @ Sat Sep 06, 2008 at 10:54:56 AM CDT

[ Parent ]

Really? (0.00 / 0)

But financial markets have always understood something that has escaped the right: Capitalism is a government run program.

George Will is a leftist?

A properly functioning free market system does not spring spontaneously from society's soil as crabgrass springs from suburban lawns. Rather, it is a complex creation of laws and mores... Capitalism is a government program.
George Will, This Week with Sam Donaldson, Jan. 13, 2002

The truth is that for all their bluster and ideological correctness, there isn't more than a handful of this glibertarians or "faux conservatives" who actually have read and understood, John Locke, Adam Smith, Hayek...

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by: LWM @ Sat Sep 06, 2008 at 11:21:32 AM CDT

[ Parent ]

Nationalization (0.00 / 0)

Now that the precedent has been set, we can move on to the sector of the economy which most desperately needs to be brought under public control, namely the oil/coal/energy industry which has used its multi billion dollar profits to finance global warming denial, stifle renewable energy development and commit all manner of environmental atrocities.

The benefits of these investments have accrued to their shareholders; the cost may very well be an uninhabitable planet in a couple of generations.

It really is a choice between socialism and barbarism, as R. Luxemburg predicted.

We didn't get the socialism, so we're getting the other thing.

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by: John Halle @ Sat Sep 06, 2008 at 08:45:32 AM CDT

let's socialize the health care industry (4.00 / 1)

we already got barbarism in health care because insurance costs exploded out of range of the low and middle income families. Single payer works better in all the nations that have it, we just need to wise up and beat back the immoral lobbyists who stand in the way.

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by: T Maysle @ Sat Sep 06, 2008 at 10:04:31 AM CDT

[ Parent ]

Obviously! (0.00 / 0)

n/t.

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by: John Halle @ Sat Sep 06, 2008 at 10:32:27 AM CDT

[ Parent ]

preferred shares, would be protected by the government (4.00 / 2)

fuckers. the preferred shares should be wiped out too. this bullshit of protecting people at the top is nonsense. your snip is too small in detail to know the real financial implications of this deal on tax payers. but the govt should be wiping out all shares and getting a whole new set of preferred shares with guaranteed rates of return. as well as control of the board of directors (that they fired the ceos is a good first step). and the common stock should be trading at a future value of 0 - or about $2.

you can't talk about the pros and cons of nationalization of underwriting 80% of all US mortgages, unless you know what the real financial terms are of the deal are and what kind of liabilities tax payers face under nationalization. that you want to say 'nationalization is good' is just as empty as saying 'nationalization is bad'. especially if you don't understand the underlying economics.

Michael Bloomberg, prince of corporate welfare

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by: Will @ Sat Sep 06, 2008 at 08:46:16 AM CDT

A recommendation, fwiw (0.00 / 0)

Calculated Risk is a pretty reliable source and will be following the ins-and-outs of this as it unfolds.  

Given the absolute mess the housing bubble has made of our economy, and our apparent inability to learn from previous crises (like the S&L disaster of the '70s), I'd almost prefer that Fannie and Freddie be nationalized.  And, since the next bubble is likely to occur in energy, maybe we could get ahead of the game and nationalize alternative energy as well.  Neither is likely to happen.  There is simply too much money to be made in these games; particularly, when the downside risks can be shifted onto the public.  Economics would like to argue that there ought to be some balance between risk and reward.  It's a nice theory.

As for "big government," people invariably favor it, but really can't own up to it.  I'm not sure how successful I'd be at listing all of the American Myths which would topple if we faced the preference squarely and honestly. Too much cognitive dissonance - heads would explode - brain matter scattered everywhere.  We've so many people doing so well financially by maintaining these myths (made possible by a stated aversion to big government), it would probably come to armed conflict were we to confront them.

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by: bystander @ Sat Sep 06, 2008 at 08:52:01 AM CDT

With all the talk this week about election "game changers"... (0.00 / 0)

...ultimately, this one has the potential of being the biggest...especially when what this means sinks in. There is a possibility that it will get everyone's attention very soon...like Monday when the opening bell rings.

It will be a changer if the dems can link the failure here to the "open market can fix anything" part of the Rep. brand.

Also, there is a very strong case to be made (rightly or not) that this is the result of the Bush/McCain economy.

In short, the focus of the election will be back on the economy big time, and the impact of a lip-sticked pit bull will be mitigated.

Of course, the Reps will blame this on Clinton and the disaster of the 1990's...and they'll do it with a straight face.

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by: NYBri @ Sat Sep 06, 2008 at 09:07:19 AM CDT

Chris, the reason (0.00 / 0)

The lie lives so easily is because we do not have a progressive story.  No narrative for the public to fit the facts into.

The news will carry this story like a hurricaine; out of nowhere, bankruptcy.

In fact, Wall Street and mortgage brokers conspired to earn huge up front fees.

They did imprudent things; systematically.

No government rule told them not to -- even though the scam was obvious.

This simple story will never get to the public.

I recommend that you look at diaries of Numerian at the Agonist going back a year.  Probably 6 or 8 of them.  Excellent writer; rare background.

Meanwhile, anyone have any thoughts on how best to frame a story the public can follow?

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by: watchman @ Sat Sep 06, 2008 at 10:28:30 AM CDT

The GOP is an organized crime family (0.00 / 0)

They moved in, took over and busted the joint out.

In the next scene, a scared Sonny - with a bandage on his forehead from the injury, complains to Paulie about how Tommy's behavior (he's compared to "an arch criminal") is dangerous, disruptive and volatile to the self-regulating criminal world, but Paulie responds helplessly (foreshadowing an execution scene later in the film):

   "You think you're the only one? I talk to them a million times. They don't listen...What could I do? If there was something I could do, don't you think I would do it?...Tommy's a bad kid. He's a bad seed. What am I supposed to do, shoot him?"

Although unaware of how to run a restaurant, Paulie promises to offer protection by becoming a partner. Sonny is now committed and beholden to Paulie:

   ["Playboy," performed by the Marvelettes.] Now the guy's got Paulie as a partner. Any problems, he goes to Paulie. Trouble with a bill, he can go to Paulie. Trouble with the cops, deliveries, Tommy, he can call Paulie. But now the guy's got to come up with Paulie's money every week. No matter what. Business bad? F--k you, pay me. Oh, you had a fire? F--k you, pay me. The place got hit by lightning, huh? F--k you, pay me. Also, Paulie could do anything. Especially run up bills on the joint's credit. And why not? Nobody's gonna pay for it anyway. And as soon as the deliveries are made in the front door, you move the stuff out the back and sell it at a discount. You take a two hundred dollar case of booze and you sell it for a hundred. It doesn't matter. It's all profit. And then finally, when there's nothing left, when you can't borrow another buck from the bank or buy another case of booze, you bust the joint out. You light a match.

Henry and Tommy make incendiary preparations to burn down the restaurant by stuffing flammable wads of paper into ceiling fixtures - a Bamboo Lounge matchbook flares into flames and is used to light the rest of the interior of the restaurant.

Time for the RICO Statutes.

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by: LWM @ Sat Sep 06, 2008 at 11:34:31 AM CDT

[ Parent ]

Simple (0.00 / 0)

Markets can't solve everything.  Deregulation has made some sectors (like financial services) much worse.  We have to rein in the predators in our economy for the good of everyone else and redirect our energies from enabling the rich to make more money to solving things like the housing, healthcare, energy, and climate crises, which markets inherently CAN'T solve.

We need three things that are taboo in current economic discourse:

Planning, standards (regulation) and revitalizing the economy by building infrastructure, alternative energy and mechanisms for conservation through government incentives and investments, paid for by ending the war and taxing the rich.  Read "The Predator State:  How Conservatives Abandioned the Free Market and Why Liberals Should Too" by James K. Galbraith.  I hope to get a book review finished this weekend.

John McCain--He's not who you think he is.

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by: Mimikatz @ Sat Sep 06, 2008 at 11:45:27 AM CDT

[ Parent ]

Politics and "big gummit" (0.00 / 0)

The problem I have is with the incredible cognitive dissonance surrounding "big government" in our national political discourse.

It should be obvious that what is said on the campaign trail and in the media has absolutely no connection with what actually goes on inside the power structure -- it's the difference between the guy playing the piano in the parlor of the brothel and what goes on in the rooms upstairs.

Lemon Socialism (privatize the profits, socialize the losses) has been a feature of American capitalism since the New Deal, and that's not going to change any time soon.

It is interesting, though, how easily the corporate media slides over the realities of the situation: I've yet to see any mention of the fact that by taking Fannie and Freddie's obligations on to the Treasury's balance sheet, the Cheney Administration just more than doubled the size of the national debt -- even more of which is now in the hands of the People's Republic of China.

You'd think that would be worth at least a casual mention.

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by: Peter Principle @ Sat Sep 06, 2008 at 11:57:37 AM CDT