THE Freddie Mac & Fannie Mae Thread (merged)

hope_full · Heavy Crude Joined: May 27, 2008 Posts: 170

"Insuring" mortgages is an inherently flawed plan that was destined to fail. Back in the day, mortgage bankers considered a person's reputation and looked at their past behavior to make a sound and informed judgment about future behavior. If the potential homeowner looked credit-worthy, the banker lent money to him/her.

When the banker ran out of money to lend, he waited until he had more depositors on board before creating new loans.

Now with the secondary mortgage market and insured mortgages, bankers are very, very, very far removed from the old simple system. It's like third-party payee insurance systems (such as Medicare). When the provider and the recipient get so far apart and are insulated by a third-party payee, everything gets skewed and normal checks and balances fail. IMHO.

Imagine the difference between Joe Six-pack reviewing the details of his 12-page hospital bill and Mr. Medicare Bureaucrat reviewing the details of someone else's 12-page hospital bill, which will be paid for with funds from a mega-monster governmental institution. Same for Freddie and Fannie. How on EARTH did this institution end up with $5,000,000,000 of bad paper?? If these folks were managing our nuclear power systems, all six billion inhabitants of earth would be dead and unburied right now.

But I'm just a middle-aged woman who's owned and operated a plethora of small businesses through the years. I'm old-fashioned and think that ledger sheets should balance and that there should be some accountability for business decisions.

HF

Starvid

MrBill · Expert Joined: Sep 15, 2005 Posts: 5157 Location: Eurasia

Hope Full wrote:

wisconsin_cur

threadbear · Expert Joined: Jan 22, 2005 Posts: 7024

DeepOil · Coal Joined: Nov 13, 2007 Posts: 19 Location: NH, USA

zoidberg · Posted: Mon Jul 21, 2008 11:24 pm Post subject: nationalizing freddie and fannie

If the the federal reserve lends these "businesses" money, does that mean the government or the fed owns a good chunk of America's property? Or does it mean nothing but squandered money?
What would the government do with all that property from bankrupt Americans?
{merged with Freddie Mac & Fannie Mae thread-FL}

Carlhole · Expert Joined: Jul 05, 2004 Posts: 2672

Capitalists when the benefits accrue to the individual, Socialists when the losses must be shared.

Does an Amerkan proud.
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MrBill · Expert Joined: Sep 15, 2005 Posts: 5157 Location: Eurasia

Bingo. Banks can only make money by taking interest rate gap risk (borrowing short, lending long); by taking FX risk; or by taking credit risk.

Low, real interest rates discourage saving and encourage immediate consumption. Also, banks cannot earn a profit, so they are forced to increase their leverage and look to make money by trading instead of investing.

Ditto for pension cos., asset managers, mutual funds and insurance cos. They have future liabilities that need to be funded, and in the absense of a high, real interest rates they need to find other 'creative ways' to fund those liabilities.

The low risk, low growth alternative is for everyone to save as they go and pay for their own pensions, etc. Given the consumer's lack of discipline, and the government's willingness to save everyone from their own poor decisions, how likely is that?
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The organized state is a wonderful invention whereby everyone can live at someone else's expense.

cube · Fusion Joined: Mar 12, 2005 Posts: 3251

MrBill · Expert Joined: Sep 15, 2005 Posts: 5157 Location: Eurasia

In other words a return to Merchantile Capitalism. I know many people here want to believe that Peak Oil is going to be THE big social leveler, but I can guarantee it will not be. Its back to the Golden Rule. Only those with money and assets will be able to borrow money to make more money. However, you choose to define money that is? Enjoy your falling living standards. You may one day look back at today's 'social injustice' and WISH you were a wage slave with a guaranteed paycheque every month that actually bought your unpredecented standards of living! HAHA!
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The organized state is a wonderful invention whereby everyone can live at someone else's expense.

Kingcoal

I think that's the least of their worries. Governments don't like owning residential real estate. Drive around the slums of a major city and you'll see boarded up houses. A lot of those houses are owned by the local government and were transfered to them when the owners quit paying property taxes. Like banks, they don't want the property, they want the taxes. Banks don't want your property, they want your monthly payment. Governments and banks aren't good at fixing up homes and selling them for profit. That's what our job is. The love that a homeowner puts into their house is worth a lot. Think about all the time you spend deciding just what would be the best improvements to make and all the time you spend keeping after your house. When a bank or government takes possession of a house, they just lock it up and leave it vacant. They have nothing to replace the tender loving care of the home owner. Pretty soon it's lawn is overgrown and it gets broken into. Soon, it's just a shell of a house, with all it's valuable materials taken by looters. There is another name for it: wealth destruction.

IMO, the federal government created this problem through a process of price inflation and wage depreciation. Now that it's much harder to export inflation, we are left in a conundrum. Either wages have to go up, or the economy grinds to a halt. Bernanke is like a deer in the headlights on this problem.

For some reason, the elite don't want people to be able to get rich through labor. They want a world where the only path to wealth is through investment. The world suffers from to much control. Good ideas can't be realized unless someone patronizes an investor and most importantly, is able to explain it to the investors. It's stifling progress and has for decades. Investors have stacked the deck for too long. They own the world and they don't know what to do with it. There is an old saying that is so true; "you can't schedule invention." Through bubbles and busts, the elite make believe that they can control the spark of creativity. Right now, they've all but snuffed out the flame.
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"That's the problem with mercy, kid... It just ain't professional" - Fast Eddie, The Color of Money

Kingcoal

The way I look at it, you have three sides to any economy. On one pole, you have the bankers, investors and otherwise rich. On another you have the creative people; inventors, entrepreneurs, artists, etc. And finally, you have the great unwashed masses who are largely motivated by human instinct; they are born, reproduce and die.

Any successful economic system needs to nurture the creative pole because that is where human advancement comes from. The problem with our current predicament is that investors have come to believe in the falsehood that invention can be scheduled. There is a belief that inventions and other creative results can be produced on demand simply by blowing bubbles. The investment pole has grown out of proportion, like a cancer. Too much emphasis is put on banks, be they public or private, being able to "solve" our problems. We have created a world that depreciates labor too much. Creative labor, that is. Until we fix that, we aren't going to get out of our rut.
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"That's the problem with mercy, kid... It just ain't professional" - Fast Eddie, The Color of Money

Homesteader

Tyler_JC

KingCoal, I followed you until the last couple sentences.

If wages were to substantially increase in this country, inflation would get out of control.

Giving people more money means they will be able to make higher and higher bids for the same products.

An across the board doubling of wages would surely lead to an across the board doubling of prices.

A wage/price spiral is what lead to the stagflation of the 1970s and early 1980s.

There's no such thing as a free lunch. If you raise the cost of an input, you must raise the cost of the output in some way.

Sure, we could tax investment income at a higher rate but that tends to lead to a decrease in investment, just as a high gasoline tax leads to lower gasoline consumption.

The solution is to increase productivity. Then we can pay people higher wages without leading to inflation.

As for the nationalization of Freddie and Fannie, there is a serious risk that American taxpayers will end up paying tens of billions of dollars to strengthen the balance sheets of those two "private companies". It's a disgrace and Congress should be ashamed.
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