5 ms·
Feds to take over Fannie Mae, Freddie Mac
- mick_m 18y agoA wholesale indictment of American capitalism, if I've ever seen one.
- epi0Bauqu 18y agoNot really. Both were chartered by Congress, and at best are considered quasi-private. This position (being quasi-private) may actually be worse than either totally private or totally public, but in any case isn't anything close to unfettered capitalism.
- stcredzero 18y agoYes, but he said "American capitalism" not "unfettered capitalism."
- davidw 18y agoI'm going to put a premature stop to this by beating everyone to the punchline. Libertarians: "It's always, everywhere, every time the government's fault. If the government would just get out of the way, everything would be roses and flowers in Libertopia". Left-wingers: "You're on crack. This whole thing happened because we need more government regulation. If we could just get good regulations and put the people in power over greedy multi-national globalized corporate ... (and so on) ... we would be much better off!". Real-worlders: "Libertopia is about as likely to work as Marxistan, the system we have is pretty good, but will always need some tweaking. There is plenty of scope for debate, on a case by case basis, looking at the actual facts and data for each case. Sometimes we should tack away from regulations, in other cases some government intervention might work to improve markets. In this case, Fannie Mae and Freddy Mac were probably not that good an idea to begin with. Oh, and by the way, these sorts of debates probably don't belong on Hacker News;-)" Oh, and by the way, "wholesale indictment of American capitalism" is just handwaving. "American capitalism" is an awfully broad range of things, from Joe's Corner Sandwich Shop to Goldman Sachs to, well, Y Combinator.
- stcredzero 18y agoCool. We should just post references to this comment in lieu of the "debates."
- ivankirigin 18y agoPigeonholing commenters is kind of patronizing, isn't it? Those general arguments, in the right context and with the right facts, can all be reasonably made.
- davidw 18y ago"The right context" is over a bottle of good wine, an offer open to anyone who happens by the same corner of the world I happen to be in. I didn't mean to be patronizing; there are smart people I respect that take those views, merely to 'head them off at the pass'.
- ivankirigin 18y agoYou have no idea what you're talking about. Both groups had board appointees from the government. The market basically assumed they were "too big to fail", meaning if trouble happened, the government would take over. When a company isn't run by it's shareholders and beholden to the market, bad things happen. Many of the choices made by both groups wouldn't have made it had there been better oversight. Government involvement was the problem here, not capitalism.
- gills 18y agoNot an indictment of capitalism, but an indictment of the fraud that has been overlooked for too long.
- JeffJenkins 18y agoI've been following this for weeks in The Economist. They recommended that the Fed do this, but I honestly didn't think it would happen. Here are a couple recent articles if ou haven't been following: Recent background article: http://www.economist.com/finance/displaystory.cfm?story_id=11985948 http://www.economist.com/finance/displaystory.cfm?story_id=1... about nationalisation: http://www.economist.com/opinion/displaystory.cfm?story_id=12009702 http://www.economist.com/opinion/displaystory.cfm?story_id=1....
- Alex3917 18y agoThis got deleted when I submitted it, but I think it's a good read anyway: http://www.dailykos.com/story/2008/7/31/64417/6293/543/559842 http://www.dailykos.com/story/2008/7/31/64417/6293/543/55984...
- byrneseyeview 18y agoIn other words, unscrupulous investment bankers might see an opportunity in helping weaker banks launching covered bonds; given their circumstances, these banks will have to provide top notch collateral, ie their best remaining assets, and will probably not get a great price for them (ie the bonds will be both overcollateralised and expensive). Either the offered price is less than what these assets could otherwise be sold for (i.e. the transaction won't happen) or it's more (in which case the price criticism doesn't make sense). Other than that, decent but fear-mongering article. Pretty much any scheme by which you exchange cash for a set of promised future cash payments is bound to be abused at some point. There is very little new here, except that this is another quasi-guaranteed asset.
- ctkrohn 18y agoA bailout has been rumored for quite some time. There have been a couple instances in the past few months where news outlets have reported that a weekend deal is imminent, but nothing ever came. The mortgage basis (i.e. the difference in yield between mortgage-backed bonds guaranteed by Fannie/Freddie and Treasury notes) has compressed quite a bit in recent weeks, indicating a lower expectation of risk because market participants have been expecting a deal. But yesterday when the news hit, mortgages didn't really do much... we sold off a couple ticks and the basis tightened by 2 basis points or so, but that was it. In short, the bond market won't treat this as news until some concrete announcement comes out -- it's already been priced in. It's only the common equity holders who are reacting, since any deal will likely wipe them out.
- ojbyrne 18y agoSince Jim Collins (Built to Last, Good to Great) has come up a few times here, just thought I'd mention that Fannie Mae is one of his "Good to Great" companies.
- steveplace 18y agoFreakonomics author Steve Levitt noted this: http://freakonomics.blogs.nytimes.com/2008/07/28/from-good-to-great-to-below-average/ http://freakonomics.blogs.nytimes.com/2008/07/28/from-good-t...
- esja 18y agoIn Search of Excellence (the classic of this genre) had the same problem. Being profiled in a pop-business book should be considered a huge red flag.
- jlhamilton 18y agoThe Halo Effect, by Phil Rosenzweig, does a good job describing many of the problems with popular business books like Good to Great and In Search of Excellence. It's worth reading. http://www.amazon.com/Halo-Effect-Business-Delusions-Managers/dp/0743291255 http://www.amazon.com/Halo-Effect-Business-Delusions-Manager...
- lallysingh 18y agoI'm suspicious because it sounds like a popular business book.
- gruseom 18y agoHas the leadership of Fannie Mae changed since Collins did his analysis? If it has, then this might not be a counterexample. I don't think he said that companies can't go from good to great to suckage. If the people leading the company are the same, though, then it would seem to contradict his theory, which (as I recall) places the greatest emphasis on that factor.
- patrickg-zill 18y agoI have come to have a term for these announcements of action to take over banks, restructure credit, etc. which always seem to happen on Friday afternoons, timed perfectly to have minimal impact on the news cycle and get the least amount of attention. "FDIC Fridays" or in this case "Fed Fridays"
- notauser 18y agoThey are done on Fridays so that stockholders have time to calm down and get some perspective before trading restarts on a Monday morning.
- mseebach 18y ago> "FDIC Fridays" or in this case "Fed Fridays" http://en.wikipedia.org/wiki/Take_Out_The_Trash_Day http://en.wikipedia.org/wiki/Take_Out_The_Trash_Day
- Protophore 18y agoIt's about time they work out a plan to move forward and add some stability to these two companies and the market. I don't like the idea of having the taxpayers foot the bill for all of this mess, but the alternative is even worse (doing nothing and letting the market continue to its downward trend). I would imagine that in this day and age the majority of people have some, if not all, of their retirement money in the stock market either through 401ks or through private brokerage firms. Either way the the common American gets to pay for this mess - through depressed stock prices or through taxes used to bail out Freddy, Fannie, and others like them. It's got to suck for anyone how owned shares of either of these two firms. Down something like 80% this year. Ouch!
- Xichekolas 18y ago> Down something like 80% this year. Well, now that they have been nationalized, it's more like 100%. From my understanding (as gleaned from the Economist), this will wipe out shareholders, both common and preferred. But either way, I think the Feds are doing a good thing, as these guys were pulling Enron-style shenanigans, (guaranteeing their own mortgages, etc) and dominating the conforming mortgage market due to their access to cheap debt. Let regular banks step in and serve that market, instead of being confined to riskier mortgages that the two giants weren't allowed to buy.
- mtw 18y agocan somebody say why this is necessary? what would happen if the gov. wouldn't have taken over? would the fed. gov bail out general motors, boeing or google if those are in the verge of bankrupting?
- ctkrohn 18y agoActually, the government agreed to guarantee some of Chrysler's debt in 1979, and to buy large quantities of Chrysler vehicles: http://en.wikipedia.org/wiki/Chrysler#Government_loan_guarantees http://en.wikipedia.org/wiki/Chrysler#Government_loan_guaran...
- felipe 18y agoRight! If our economy relies so much on housing to the point that it is a threat to the entire economy, then it shows that we didn't have a solid economy in the first place. We are seriously compromising the well-being of future generations of this country in order to bail-out over-consuming house-owners and fat-cats in Wall Street. Absolutely outrageous.
- wheels 18y agohttp://www.economist.com/opinion/displaystory.cfm?story_id=12009702 http://www.economist.com/opinion/displaystory.cfm?story_id=1... http://www.economist.com/finance/displaystory.cfm?story_id=11985948 http://www.economist.com/finance/displaystory.cfm?story_id=1... An extremely oversimplified answer is that it would hurt confidence in the dollar, which would further damage its status as the foreign federal reserve currency, which would cause further inflation in the US.
- richcollins 18y agoIt seems to me that allowing them to fail would help the dollar by tightening credit.
- wheels 18y agoWhen foreign federal reserves switch their reserve stash from dollars to something else, the dollars are basically "created" on the market as one currency becomes instantly less available and the other instantly more available.
- zandorg 18y agoMaybe they should get married...
- fugue88 18y agoThere goes the neighborhood!
- mleonhard 18y ago> After stock markets closed on Friday, the shares of Fannie and Freddie plummeted. Fannie was trading around $5.50, down from $70 a year ago. Freddie was trading at about $4, down from about $65 a year ago. It looks like a good time to buy Fannie & Freddie stock!