Posted: Sun Jul 13, 2008 10:36 am Post subject: Re: Fannie, Freddie Losses Make Them `Insolvent,' Ex-Fed Pre
+1 on cube's contributions thus far.
I have a wild-assed theory that I would like to posit for you - the American system of homeownership, going back to the SCOTUS ruling on Euclidean single-use zoning back in 1926, the origination of the FHA in 1935, and the deployment of the Interstate Highway System program in 1956 have all had profound effects on the "free market" for housing. As cube pointed out, prior to the FHA, many mortgages were short-term and high-interest, revealing the inherent risks of individuals assuming large amounts of debt for long periods of time. Those risks have not really changed, but the pricing of that risk has certainly changed, and mostly due to the juggernaut status of the American government in creating and backing the programs I outlined above. The private market, seeing that the market for single-family homes is backed by the government, begins to price risk accordingly, flourishing the market for homeownership ever since. And, of course, the economic superpower status of America in backing these programs has ultimately affected how other economies in other parts of the world price risk as well, eventually culminating in most first-world and developing countries adopting a model of suburbanization, though quite varied in design and deployment, on the outer fringes of cities as varied as Paris and Shanghai. Fundamentally, these developments would not have occurred, or at least at the scale which we have seen, had the American government not shifted the prevailing free-market paradigm to one that promulgates individual homeownership upon the inherent backing of the federal government.
This, of course, will last as long as inputs into the system are historically cheap. Unfortunately, "as long as" seems to have ended back about 5 years ago. _________________ "It's called the American Dream because you'd have to be asleep to believe it."
Posted: Sun Jul 13, 2008 10:43 am Post subject: Re: Fannie, Freddie Losses Make Them `Insolvent,' Ex-Fed Pre
smallpoxgirl wrote:
MonteQuest wrote:
It would go to a 5 year loan with a balloon payment, they said on Squawk Box
The idea being that you would finance your house with serial 5 year loans instead of a 30 year loan?
No, The 5-year loan will have equal payments for 5 years and then a very large, or balloon, payment for the remaining balance. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Joined: Aug 19, 2004 Posts: 1719 Location: Republic of Texas
Posted: Sun Jul 13, 2008 10:43 am Post subject: Re: Fannie, Freddie Losses Make Them `Insolvent,' Ex-Fed Pre
smallpoxgirl wrote:
It would simultaneously make the federal government a lien holder on most of the real estate in the US.
Which the Federal Government then sells to politically connected clearing house entities at pennies on the dollar.
Imagine a new, larger version of the Resolution Trust Corporation. _________________ Conform . Consume . Obey .
Posted: Sun Jul 13, 2008 3:07 pm Post subject: Re: Fannie, Freddie Losses Make Them `Insolvent,' Ex-Fed Pre
emersonbiggins wrote:
I have a wild-assed theory that I would like to posit for you - ....
I'd like to add to this, putting aside economic theory and looking at this from a different angle
the reason why I'm AGAINST gov. "encouraging" home ownership through subsidies is because it leads to a loss of freedom.
Imagine traveling on a road and it diverges in two. What path do you take, one side or the other?
Suppose gov. stepped in and placed a $100 toll road on one side and used the money to offer a $100 tax refund if you take the other side. Which path do you take? Geez that's kind of a rigged question. Imagine as you travel along this road gov. manipulates the price at every junction!
Life is a very long journey with many diverging paths where you get to choose your own special route (ideally speaking) What freedom do we have if the path has already been predetermined for us by government via means of taxes and subsidies? --> none
Yes I know alot of people will say, "Come on cube this doesn't sound so bad. Most people like homeownership so what's the harm?" ahhhh but it's a slippery road. If a person admits to using government as a tool to subsidize their favorite program then they should not get angry if someone else does the same. And it's a guarantee that someone else will be asking government to subsidize something that YOU do NOT like: (use your imagination).
Pray that this person does not have more political power than you because if he does, he'll be receiving $2 for every $1 you ever got back from government.
Thanks to subsidies you may find yourself forced to pay for someone else's pet project that you never wanted.
subsidies = loss of freedom
Posted: Sun Jul 13, 2008 5:16 pm Post subject: Re: Fannie, Freddie Losses Make Them `Insolvent,' Ex-Fed Pre
SmallPox Girl, Warren Buffet, last I heard, invested a lot of money in luxury private jets that transport business class super wealthy back and forth. He has also invested quite a bit in rail. You're wise to short airlines. They are going to be so hammered, regardless of what happens to the oil price. The middle class is no longer going to be able to travel by air. Too expensive.
Joined: Oct 25, 2004 Posts: 1332 Location: Stalag 13
Posted: Sun Jul 13, 2008 6:33 pm Post subject: Federal Reserve announces Fannie and Freddie bail-out
Federal Reserve announces Fannie and Freddie bail-out
Quote:
The Federal Reserve and the Treasury announced steps Sunday to shore up mortgage giants Fannie Mae and Freddie Mac, whose shares have plunged as losses from their mortgage holdings threatened their financial survival.
The steps are also intended to send a signal to nervous investors worldwide that the government is prepared to take all necessary steps to prevent the credit market troubles that started last year with losses from subprime mortgages from engulfing financial markets and further weakening the economy and housing markets.
The Fed said it granted the Federal Reserve Bank of New York authority to lend to the two companies "should such lending prove necessary." They would pay 2.25 percent for any borrowed funds — the same rate given to commercial banks and Big Wall Street firms.
The Fed said this should help the companies' ability to "promote the availability of home mortgage credit during a period of stress in financial markets."
Secretary Henry Paulson said the Treasury is seeking expedited authority from Congress to expand its current line of credit to the two companies should they need to tap it and to make an equity investment in the companies — if needed.
Joined: Sep 29, 2004 Posts: 2330 Location: Pennsylvania, USA
Posted: Sun Jul 13, 2008 6:46 pm Post subject: Re: Fannie, Freddie Losses Make Them `Insolvent,' Ex-Fed Pre
threadbear wrote:
SmallPox Girl, Warren Buffet, last I heard, invested a lot of money in luxury private jets that transport business class super wealthy back and forth. He has also invested quite a bit in rail. You're wise to short airlines. They are going to be so hammered, regardless of what happens to the oil price. The middle class is no longer going to be able to travel by air. Too expensive.
Buffet is very smart. IMO, the airlines are going to drastically cut back on service and raise ticket prices. The airline industry will regress back to what it started out as; something that only rich people can afford. _________________ "That's the problem with mercy, kid... It just ain't professional" - Fast Eddie, The Color of Money
Posted: Sun Jul 13, 2008 7:33 pm Post subject: Re: Fannie, Freddie Losses Make Them `Insolvent,' Ex-Fed Pre
cube wrote:
Yes I know alot of people will say, "Come on cube this doesn't sound so bad. Most people like homeownership so what's the harm?"
I guess to me it seems to be less in the vein of being something that is "liked" and more in the vein of being something that is good for you. Perpetually paying rent every month to someone else is such a dead end financially. It seems to me that buying a house, paying off the mortgage, and not re-mortgaging it is a major step towards financial solvency. As long as you're renting, you're a consumer not an owner. Consumers are utterly dependent on owners for their continued existence. I agree with you about tax breaks for homeowners, because those are, ultimately a tax on renters. Renters are already screwed enough. It's just pretty hard for me to imagine being able to pay for a house in 5 years. Maybe that's just because housing prices have become ridiculously over-inflated. _________________ "So while you sit and whistle Dixie with your money and your power.
I can hear the flowers a-growin in the rubble of the towers.
I hear leaders quit their lying
I hear babies quit their crying.
I hear soldiers quit their dying, one and all." - OCMS
Joined: Dec 07, 2005 Posts: 1859 Location: Australia
Posted: Sun Jul 13, 2008 8:04 pm Post subject: Re: Fannie, Freddie Losses Make Them `Insolvent,' Ex-Fed Pre
Quote:
SmallPox Girl, Warren Buffet, last I heard, invested a lot of money in luxury private jets that transport business class super wealthy back and forth. He has also invested quite a bit in rail. You're wise to short airlines. They are going to be so hammered, regardless of what happens to the oil price. The middle class is no longer going to be able to travel by air. Too expensive.
Agree, airline travel will drop. But still be a bit careful with shorting. Especially if using leverage.
First of all, even bear markets have countertrend rallies.
Secondly, we may see real share prices drop but nominal prices rice courtesy of further fuelled inflaiton.
Thirdly, when shorting, there is no limit to potential loss.
i.e. A long share can only lose 100% of it's value. Prices can however rise more than 100%. _________________ Lets take a ride, and run with the dogs tonight
In suburbia
You cant hide, run with the dogs tonight
In suburbia
- Pet Shop Boys
Joined: Oct 23, 2004 Posts: 5914 Location: New Jersey
Posted: Sun Jul 13, 2008 8:08 pm Post subject: Re: Fannie, Freddie Losses Make Them `Insolvent,' Ex-Fed Pre
Micki wrote:
Quote:
SmallPox Girl, Warren Buffet, last I heard, invested a lot of money in luxury private jets that transport business class super wealthy back and forth. He has also invested quite a bit in rail. You're wise to short airlines. They are going to be so hammered, regardless of what happens to the oil price. The middle class is no longer going to be able to travel by air. Too expensive.
Agree, airline travel will drop. But still be a bit careful with shorting. Especially if using leverage. First of all, even bear markets have countertrend rallies. Secondly, we may see real share prices drop but nominal prices rice courtesy of further fuelled inflaiton.Thirdly, when shorting, there is no limit to potential loss.
i.e. A long share can only lose 100% of it's value. Prices can however rise more than 100%.
Yes, I even mentioned Friday just to take profits on short financial issues. Inflation can be created in the middle of a depression, as we already saw in 1932/1933. _________________ It's already over, now it's just a matter of adjusting.
Posted: Sun Jul 13, 2008 8:23 pm Post subject: Re: Federal Reserve announces Fannie and Freddie bail-out
I guess the folks at wikipedia will have to do a re-write, check out the first paragraph. link
Is this Fannie Mae applying for SSI disability payments? Where do I sign up?
Posted: Sun Jul 13, 2008 8:29 pm Post subject: Re: Fannie, Freddie Losses Make Them `Insolvent,' Ex-Fed Pre
smallpoxgirl wrote:
...Renters are already screwed enough. It's just pretty hard for me to imagine being able to pay for a house in 5 years. Maybe that's just because housing prices have become ridiculously over-inflated.
The rise in home prices have all to do with the "loosening" of the credit supply thanks to government. This has nothing to do with the "free market"....not like we live in one anyways. I agree with you smallpox that in today's world nobody has enough money to put 50% down and pay off a home loan in 5 years, certainly not with today's prices.
BTW you're not in a rush to buy a home are you?
I mean if you wait 2 years from now that's okay with you?
I would hate to buy something and watch it go down in price.
I would rather jump on board late on an uptrend knowing I didn't get the perfect bottom price.
Losing real money is worse than losing a missed opportunity.
Posted: Sun Jul 13, 2008 8:36 pm Post subject: Re: Fannie, Freddie Losses Make Them `Insolvent,' Ex-Fed Pre
cube wrote:
BTW you're not in a rush to buy a home are you?
I mean if you wait 2 years from now that's okay with you?
It's not the "home" that I'm infatuated with. I could live in some dumpy mobile home, or even a travel trailer. I'd love to make a cargo container house if I could slip it past the zoning people. What I want is a piece of land. I suppose, I'm "in a rush" in that I'd really like to have some sort of a sustainable place to live by the time the American economy starts to come unglued. Realistically, I'm not going to be in a position to buy land for at least a year maybe two. If I have to pay it off within 5 years, it's going to take a lot longer than that for me to be able to buy. _________________ "So while you sit and whistle Dixie with your money and your power.
I can hear the flowers a-growin in the rubble of the towers.
I hear leaders quit their lying
I hear babies quit their crying.
I hear soldiers quit their dying, one and all." - OCMS
Posted: Sun Jul 13, 2008 8:47 pm Post subject: Re: Federal Reserve announces Fannie and Freddie bail-out
OK...who's next. Make a line at the window. No pushing please. _________________ "So while you sit and whistle Dixie with your money and your power.
I can hear the flowers a-growin in the rubble of the towers.
I hear leaders quit their lying
I hear babies quit their crying.
I hear soldiers quit their dying, one and all." - OCMS
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