US government takes over mortgage giants

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US government takes over mortgage giants

Unread post by razbojnik » September 7th, 2008, 9:11 pm

Is this a sign of Facism to come in the US???

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US Government seizes control of mortgage giants Fannie Mae and Freddie Mac

Huge potential liabilities facing each mortgage company, as a result of soaring defaults, could cost taxpayers tens of billions of dollars.

By MARTIN CRUTSINGER and ALAN ZIBEL , Associated Press

Last update: September 7, 2008 - 9:40 PM
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Congragulations, you are now a citizen of the biggest debtor nation in the history of the world.

WASHINGTON - The Bush administration's seizure of troubled mortgage giants Fannie Mae and Freddie Mac is potentially a $200 billion bet that it will help reverse a prolonged housing and credit crisis.

The historic move announced Sunday won support from both presidential campaigns, but private analysts worried that it may not be enough to stabilize the slumping housing market given the glut of vacant homes for sale, rising foreclosures, rising unemployment and weak consumer confidence.

Officials announced that both giant institutions were being placed in a government conservatorship, a move that could end up costing taxpayers billions of dollars. Treasury Secretary Henry Paulson said allowing the companies to fail would have extracted a far higher price on consumers by driving up the cost of home loans and all other types of borrowing because the failures would "create great turmoil in our financial markets here at home and around the globe."

Mark Zandi, chief economist at Moody's Economy.com predicted that 30-year mortgage rates, currently averaging 6.35 percent nationwide, could dip to close to 5.5 percent. That's because investors will be more willing to buy the debt issued by Fannie and Freddie — and at lower rates — since the federal government is now explicitly standing behind that debt.

"Effectively, the federal government has now become the nation's mortgage lender," he said. "This takes a major financial threat off the table."

Futures on all major stock indexes rose about 2 percent in electronic trading Sunday night, another sign of investor relief about the takeover plan

The companies, which together own or guarantee about $5 trillion in home loans, about half the nation's total, have lost $14 billion in the last year and are likely to pile up billions more in losses until the housing market begins to recover.

The Treasury Department said it was prepared to put up as much as $100 billion over time in each of the companies if needed to keep them from going broke, in exchange for senior preferred stock. Treasury will immediately be issued $1 billion of such stock from each company, which will pay 10 percent interest. Further purchases of preferred stock will be triggered if quarterly audits find that the companies' capital cushion is below prudent standards.

The government, which will receive warrants representing ownership stakes of 79.9 percent in each company, is hoping that its moves will reassure nervous investors that they can continue to buy the debt of the two companies.

In a statement, President Bush said, "Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth."

Democratic presidential nominee Barack Obama issued a statement agreeing that some form of intervention was necessary, and promised, "I will be reviewing the details of the Treasury plan and monitoring its impact to determine whether it achieves the key benchmarks I believe are necessary to address this crisis."

Republican presidential nominee John McCain also voiced support while his running mate, Alaska Gov. Sarah Palin, said that Fannie and Freddie "have gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help."

The conservatorship will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie, a move taken at the same time that Congress greatly expanded the power of the Treasury Department to make loans to the two companies and purchase their stock.

The executives and board of directors of both institutions are being replaced. Herb Allison, the former head of the TIAA-CREF retirement investment fund, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.

Paulson was careful not to blame Daniel Mudd, the outgoing CEO of Fannie Mae, or Freddie Mac's departing CEO Richard Syron for the companies' current problems. While both men are being removed as the top executives, they have been asked to remain for an unspecified period to help with the transition.

Fannie and Freddie both purchase home loans from banks and then repackage those loans as mortgage-backed securities which they either hold on their own books or sell to investors around the globe. This process provides banks with more money to make more home loans, greatly expanding home ownership.

The impact of the government takeover on existing common and preferred shares, which have slumped in value in the last year, will depend on how investors react to Paulson's assertion that they must absorb the cost of further losses first. Under the plan, dividends on both common and preferred stock would be eliminated, saving about $2 billion a year.

After the Treasury Department's announcement, credit rating agency Standard & Poor's downgraded Fannie and Freddie's preferred stock to junk-bond status, but reaffirmed the U.S. government's triple-A rating.

The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans."

The Fed released a letter from Fed Chairman Ben Bernanke to James Lockhart, the director of the Federal Housing Finance Agency, in which the Fed chief said he concurred in Lockhart's decision to take control of Fannie and Freddie saying the action "will help ensure the safe and sound operation of the enterprises."

Analysts were split on how much the takeover could eventually cost taxpayers although they all agreed the up-front costs will be substantial, possibly hitting $100 billion as the Treasury is called upon to bolster the capital cushions at both institutions.

However, if the plan does the trick of stabilizing the housing market and home prices stop falling and rebound, then the assets of both Fannie and Freddie should rise in value and the government should be able to sell off the companies and recoup its investments.

But it could take a long time to work through that process given all the headwinds facing housing at the moment from the plunge in home prices to soaring defaults on mortgages which are dumping more homes on an already glutted market. The weak economy has pushed unemployment to a five-year high of 6.1 percent, further reducing demand for homes.

"I think the government will end up having to put in far more money then they are planning right now (given all the problems facing housing) but the important thing is the agencies have been taken over by the government," said Sung Won Sohn, an economics professor at California State University Channel Islands. "That means there will be less panic in financial markets."

Under government control, the companies will be allowed to expand their support for the mortgage market over the next year by boosting their holdings of mortgage securities they hold on their books from a combined $1.5 trillion to $1.7 trillion. Starting in 2010, though, they are required to drop their holdings by 10 percent annually until they reach a combined $500 billion.

In addition, officials said the Treasury Department plans to purchase $5 billion in mortgage-backed securities issued by the two companies later this month, the first of a series of purchases planned by the government in an effort to bolster for these securities, which was badly shaken a year ago when the credit crisis first erupted with soaring defaults on subprime mortgages.

Paulson said that it would be up to Congress and the next president to figure out the two companies' ultimate structure and the conflicting goals they operated under — maximizing returns for shareholders while also being required to facilitate home buying for low- and moderate-income Americans.

"There is a consensus today ... that they cannot continue in their current form," he said.

Members of Congress will be watching in the coming months to see how the takeover works, but more housing legislation appears unlikely until next year given the few weeks remaining both Congress quits to hit the campaign trail.

Sen. Charles Schumer, D-N.Y. said the intervention was sparked by worries within the Bush administration that foreign governments would stop holding Fannie and Freddie's debt. "This was the prudent course to take," he said.

Senate Banking Committee Chairman Chris Dodd, D-Conn., announced his committee would hold hearings on the takeover to address a number of unanswered questions so that the American people will know "if this unprecedented proposal will help keep mortgages affordable, stabilize the markets and protect taxpayer interests."

Lockhart said that all lobbying activities of both companies would stop immediately. Both companies over the years made extensive efforts to lobby members of Congress in an effort to keep the benefits they enjoyed as government-sponsored enterprises.

Sunday's actions followed a series of meetings Paulson had with Bush and other top administration economic officials with Bush relying heavily on the judgment of Paulson, who was the head of investment giant Goldman Sachs before he joined the Cabinet in 2006.

"It is really an assent to Hank's direction, guidance and judgment," said a senior administration official, who spoke on condition of anonymity to discuss behind-the-scenes deliberations.

http://www.startribune.com/business/27969704.html

Dun dun dun...

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Re: US government takes over mortgage giants

Unread post by Azure9920 » September 8th, 2008, 2:23 pm

Not everything that possibly resembles fascism actually IS fascism.

The US housing market is going down the tubes, intervention was necessary.

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Re: US government takes over mortgage giants

Unread post by razbojnik » September 8th, 2008, 10:56 pm

Azure9920 wrote:Not everything that possibly resembles fascism actually IS fascism.

The US housing market is going down the tubes, intervention was necessary.
From my ideological Titoism perspective, I would be shitting my pants right now...

Unfortunetly I need the housing market to be on the up and up...

One solution --- stop building houses out of twigs and cardboard. Really. Start building them out of cinderblocks, concrete and metal and you'll see the housing market thrive, especially in America...

Think of it as.. Well.. Take a look at us. A house that would cost 1 million dollars in America would cost 100,000 dollars here, the reason why 90 percent of the population live in houses... I know they can't afford this and houses are through inheritance but still...

Intervention? So you are saying if the government controlled all markets, not just the housing one, it would be better off for everyone??? Thanks.

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Re: US government takes over mortgage giants

Unread post by MMRbkaRudog » September 9th, 2008, 11:20 am

razbojnik wrote:
Azure9920 wrote:Not everything that possibly resembles fascism actually IS fascism.

The US housing market is going down the tubes, intervention was necessary.
From my ideological Titoism perspective, I would be shitting my pants right now...

Unfortunetly I need the housing market to be on the up and up...

One solution --- stop building houses out of twigs and cardboard. Really. Start building them out of cinderblocks, concrete and metal and you'll see the housing market thrive, especially in America...

Think of it as.. Well.. Take a look at us. A house that would cost 1 million dollars in America would cost 100,000 dollars here, the reason why 90 percent of the population live in houses... I know they can't afford this and houses are through inheritance but still...

Intervention? So you are saying if the government controlled all markets, not just the housing one, it would be better off for everyone??? Thanks.
I don't think he was trying to say all that. Just telling you that we need our housing market to go better right now.

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Re: US government takes over mortgage giants

Unread post by Azure9920 » September 9th, 2008, 5:31 pm

razbojnik wrote:
Azure9920 wrote:Not everything that possibly resembles fascism actually IS fascism.

The US housing market is going down the tubes, intervention was necessary.
From my ideological Titoism perspective, I would be shitting my pants right now...

Unfortunetly I need the housing market to be on the up and up...

One solution --- stop building houses out of twigs and cardboard. Really. Start building them out of cinderblocks, concrete and metal and you'll see the housing market thrive, especially in America...

Think of it as.. Well.. Take a look at us. A house that would cost 1 million dollars in America would cost 100,000 dollars here, the reason why 90 percent of the population live in houses... I know they can't afford this and houses are through inheritance but still...

Intervention? So you are saying if the government controlled all markets, not just the housing one, it would be better off for everyone??? Thanks.
Huh? Are you aware of what Titoism entails? I think you need to go back to the drawing board on that one lol..

The housing market crash as seen here also has nothing to do with how houses are constructed; it relates to a series of investments by the two credit groups that didn't turn out quite well lol...

You oppose Government intervention in economic affairs? For considering yourself someone who draws off Communist principles, that's strange.

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Re: US government takes over mortgage giants

Unread post by razbojnik » September 12th, 2008, 7:50 am

Azure9920 wrote:Huh? Are you aware of what Titoism entails? I think you need to go back to the drawing board on that one lol..

The housing market crash as seen here also has nothing to do with how houses are constructed; it relates to a series of investments by the two credit groups that didn't turn out quite well lol...

You oppose Government intervention in economic affairs? For considering yourself someone who draws off Communist principles, that's strange.
What did Titoism entail? The government was happy and the people were happy. How was it bad???

The housing market crash is a result of collapsing under your own weight. Which means just like China had economic crashes because of having it's economy grow too much too fast and just like my bones will break and I'll fall unto the floor like blubber if I go past 200 kilos, same goes with the housing market.

I do not oppose Government intervention in economic affairs as long as the decisions mean I turn out 10 times richer. Comprende? :P Fuck idologies. Good enough? Let's make our own ideology... You and me... That gives both economic freedom and makes everyone happy... Let's go. This be our own little project. Why not??

Nigga you need to come online more...

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Re: US government takes over mortgage giants

Unread post by razbojnik » September 12th, 2008, 7:59 am

MMRbkaRudog wrote:I don't think he was trying to say all that. Just telling you that we need our housing market to go better right now.
LOL I know..

I just wanna ask though, why make houses out of wood and drywall and put them at a price tag 5-10x than what they sell here??? Here they make them out of cinder blocks, concrete and metal and they are friggin huge and go for a price tag 5-10x less a house of that size normally would...

One of the major reasons the housing market in the US is going down the toilet is cause of foreclosures which means people don't have enough money to pay for the house...

You can very simply fix that problem...

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Re: US government takes over mortgage giants

Unread post by Azure9920 » September 12th, 2008, 1:12 pm

razbojnik wrote:
Azure9920 wrote:Huh? Are you aware of what Titoism entails? I think you need to go back to the drawing board on that one lol..

The housing market crash as seen here also has nothing to do with how houses are constructed; it relates to a series of investments by the two credit groups that didn't turn out quite well lol...

You oppose Government intervention in economic affairs? For considering yourself someone who draws off Communist principles, that's strange.
What did Titoism entail? The government was happy and the people were happy. How was it bad???

The housing market crash is a result of collapsing under your own weight. Which means just like China had economic crashes because of having it's economy grow too much too fast and just like my bones will break and I'll fall unto the floor like blubber if I go past 200 kilos, same goes with the housing market.

I do not oppose Government intervention in economic affairs as long as the decisions mean I turn out 10 times richer. Comprende? :P fu-- idologies. Good enough? Let's make our own ideology... You and me... That gives both economic freedom and makes everyone happy... Let's go. This be our own little project. Why not??

Nigga you need to come online more...
I never said Titoism was bad, I don't really know that much about it. I do however, know it's an alteration of Marxism, which does advocate HEAVY Government intervention in economic affairs, as well as social issues. Though, I don't know where Tito drew the line on social matters.

Like I said, this "crash" doesn't have anything to do with how houses are made, foreclosures or any of that. It has to do with gigantic corporations making investment decisions that proved to be....not so good.

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Re: US government takes over mortgage giants

Unread post by razbojnik » September 14th, 2008, 2:26 am

Azure9920 wrote:I never said Titoism was bad, I don't really know that much about it. I do however, know it's an alteration of Marxism, which does advocate HEAVY Government intervention in economic affairs, as well as social issues. Though, I don't know where Tito drew the line on social matters.

Like I said, this "crash" doesn't have anything to do with how houses are made, foreclosures or any of that. It has to do with gigantic corporations making investment decisions that proved to be....not so good.
Nationalism is a no no. I can't call myself a Macedonian, I have to call myself a Yugoslavian. Nationalism is what tore apart Yugoslavia and Tito knew that.

As for gigantic corperations making bad investment decisions.......

Russia... LOL...

They are better off exploiting India which they don't do as much as China...

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Re: US government takes over mortgage giants

Unread post by MMRbkaRudog » September 14th, 2008, 11:08 am

razbojnik wrote:
MMRbkaRudog wrote:I don't think he was trying to say all that. Just telling you that we need our housing market to go better right now.
LOL I know..

I just wanna ask though, why make houses out of wood and drywall and put them at a price tag 5-10x than what they sell here??? Here they make them out of cinder blocks, concrete and metal and they are friggin huge and go for a price tag 5-10x less a house of that size normally would...

One of the major reasons the housing market in the US is going down the toilet is cause of foreclosures which means people don't have enough money to pay for the house...

You can very simply fix that problem...
I believe concrete is cheaper there & come on bro, this is America. Just think about why it would be more.

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Re: US government takes over mortgage giants

Unread post by razbojnik » October 3rd, 2008, 10:27 am

MMRbkaRudog wrote:
razbojnik wrote:
MMRbkaRudog wrote:I don't think he was trying to say all that. Just telling you that we need our housing market to go better right now.
LOL I know..

I just wanna ask though, why make houses out of wood and drywall and put them at a price tag 5-10x than what they sell here??? Here they make them out of cinder blocks, concrete and metal and they are friggin huge and go for a price tag 5-10x less a house of that size normally would...

One of the major reasons the housing market in the US is going down the toilet is cause of foreclosures which means people don't have enough money to pay for the house...

You can very simply fix that problem...
I believe concrete is cheaper there & come on bro, this is America. Just think about why it would be more.
Why? Cause America is such a wonderful country? No the standard of living is higher...

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Re: US government takes over mortgage giants

Unread post by MMRbkaRudog » October 6th, 2008, 3:01 pm

[/quote]

Why? Cause America is such a wonderful country? No the standard of living is higher...[/quote] To some it is such a wonderful country, but you are right about the standard of living being higher.

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Re: US government takes over mortgage giants

Unread post by Azure9920 » October 6th, 2008, 4:09 pm

Canada>USA

And most of Europe

:)

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Re: US government takes over mortgage giants

Unread post by razbojnik » October 6th, 2008, 5:53 pm

I was being sarcastic and I have my reasons for thinking my third world home land is better than the richest countries in the world. It's not pride, alot of people are flocking to developed countries because of the 'low standard of living', and this is where the sarcasm comes in. The people are nicer. :D

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Re: US government takes over mortgage giants

Unread post by MMRbkaRudog » October 8th, 2008, 10:47 am

As far as I know America is the greatest country, but every1 has their own opinion. Some things in other countries can be better. I thank people from Canada & Australia for showing is the way on how to pay off our mortgages faster. Banks almost control our country & it's sad.

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