Bailout or Belly-up?

[JudgeDredd]

"The Bush administration is seeking sweeping powers to solve the credit crisis"

My question is this: What's going on here? Where are all the freaked out people? Am i on an American site? Does unilateral intervention like this make it a taboo subject already?

Ok, listen, it really doesn't make any sense..

"Loans were made far to easily thereby allowing people to buy things out of their price range thereby causing prices to inflate thereby causing banks to loan more and refinance more homes and offer more and bigger home equity loans. And so on and so forth for far too long.."

Paulson therefore claims to be "Protecting the American People by purchasing the illiquid Assets from the Banks."

Now let me get this straight.. Because the banks lent money with great gusto for toxic assets with and caused a credit crash, therefore the Fed is going to fix the problem by borrowing with great gusto to buy the same toxic assets. Essentially doing exactly what the banks did "irresponsibly", and they are gonna do it in a more hurried manner, and on an even bigger scale, using nothing but future worker's taxes.

Anyone see a problem here? o_O

[tony4moroney]

Yeah I'm surprised that there isn't a lot of concern considering this is one of the greatest economic crises since the Great Depression. It is pretty ironic but I think this is the best measure to prevent a complete collapse though the huge debt burden has now been shifted from those corporations into taxpayer's wallets. Yet, many of these executives will still get a payout such as Merrill and Lynch's executive staff which share $200M between them despite running a AAA rated cornerstone company to the ground. I suspect that with so much invested in U.S bonds and securities already China and associates and by associates I mean major buyers of U.S debt will probably rally together to buy a lot of it off. But if they don't than the U.S is in for a big recession and I'd expect the dollar to be raped. The sad thing is, Warren Buffett had warned about this years ago and no one listened. That's free market economics for you; cut regulations because they know best and then when they trip over and fuck themselves in the ass the Govt. bails them out when they fuck up. They can't lose. It's socialism for the rich.

[ThePretenders]

What's the alternative? Letting them collapse would be devastating for the economy because they own half of the mortgage assets in America? They have to inject liquidity into the financial markets to boost confidence in the banking system so they can get back on track.

[JudgeDredd]

At 9/21/08 12:54 PM, tony4moroney wrote: They can't lose. It's socialism for the rich.

..or perhaps The Mother Of All Frauds.

[poxpower]

Yeah but now aren't they going to put new regulations on bank for the future?
It's not like this will change nothing, I imagine.

[VigilanteNighthawk]

At 9/21/08 12:54 PM, tony4moroney wrote: Yeah I'm surprised that there isn't a lot of concern considering this is one of the greatest economic crises since the Great Depression. It is pretty ironic but I think this is the best measure to prevent a complete collapse though the huge debt burden has now been shifted from those corporations into taxpayer's wallets.

Don't worry, there is. You just aren't seeing too overtly on newgrounds. Yahoo's comment section on the story had about 2000 comments expressing outrage at this. People truly are pissed.

Yet, many of these executives will still get a payout such as Merrill and Lynch's executive staff which share $200M between them despite running a AAA rated cornerstone company to the ground. I suspect that with so much invested in U.S bonds and securities already China and associates and by associates I mean major buyers of U.S debt will probably rally together to buy a lot of it off. But if they don't than the U.S is in for a big recession and I'd expect the dollar to be raped.

Well, the world economy is endanger of collapse, so they will probably pitch in at this point. Still, I think this is only delaying the inevitable and making it worse. When this is all over, I think we'll be lucky if a recession is all we suffer.

The sad thing is, Warren Buffett had warned about this years ago and no one listened. That's free market economics for you; cut regulations because they know best and then when they trip over and fuck themselves in the ass the Govt. bails them out when they fuck up. They can't lose. It's socialism for the rich.

It is sad, but Buffet wasn't the only one. A lot of people saw this going down. I didn't see it going down like this, but a few years ago I and others I know were warning people about this, and might I add we were called all manner of slanders for it. There were also articles as early as 2005 on the internet that were warning about this if you could find them at the time.

It is sick that we get to pay for the mistakes of these people. Socialism for the rich is perfect.

At 9/21/08 01:16 PM, ThePretenders wrote: What's the alternative? Letting them collapse would be devastating for the economy because they own half of the mortgage assets in America? They have to inject liquidity into the financial markets to boost confidence in the banking system so they can get back on track.

Honestly, let if fall, because we are only delaying the inevitable and making it far worse. This whole mess started with Greenspan lowering interest rates too much creating too much credit to prevent a recession earlier in the decade. Had we gone through it then, it would have been mild to moderate. It certainly would have been unpleasant, but it would have been mild compared to what we are probably going to witness within the next decade.

In order to get us out of this mess, Congress has increased the debt ceiling twice in the last two weeks by $1.7 trillion. We were facing depression before, but with this increased in debt, its now become that much more likely that the US dollar itself could be in jeopardy. If we are forced to cover this debt with printing, we'll go into hyperinflation. Think Zimbabwe or post WWI Germany. This is the worst case scenario, but it's becoming more likely as each bailout scheme progresses, especially when we consider how much more desperate each move becomes.

[VigilanteNighthawk]

At 9/21/08 02:20 PM, VigilanteNighthawk wrote:

In order to get us out of this mess, Congress has increased the debt ceiling twice in the last two weeks by $1.7 trillion

Just to clarify, they increased the debt ceiling by $1.7 trillion total, not $1.7 trillion each time.

[Prinzy2]

I don't understand how things got this bad in the first place. Everybody takes out a loan and nobody can pay it back, causing all these creditors to bust?

In pure capitalist fashion, let the economy take it's course. Yeah things are going to spiral down, people will be out of work, and there's going to be a lot of repossessing, but in the long run, I think it'll be much better for the country as a whole. Everything is grossly overpriced and people needed to take out loans to buy almost any major purchase like a car or major appliances to furnish a house.

The cost of living has spiraled up for the past couple of decades for no apparent reason. Even in my little city, the average price for a home is $250,000, for a decent car you're paying anywhere from $15K to $25K, and for a new truck it's $60K. That's ridiculous in my opinion. From what I've been told, people were taking out 50 year mortgages and 10 year loans on vehicles. They'd have money left over at the end of the month and take out another $5K loan to buy a boat or something stupid, instead of putting it towards bills or in a savings account.

I don't really hear a whole bunch about the U.S economy unless I watch T.V. But I can see where a couple bad months would screw someones credit over.

Or did I miss the point completely?

[tony4moroney]

At 9/21/08 01:22 PM, JudgeDredd wrote:

At 9/21/08 12:54 PM, tony4moroney wrote: They can't lose. It's socialism for the rich.

..or perhaps The Mother Of All Frauds.

Wow nice break-down.

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

And that is seriously disturbing. I'm actually finding it hard to swallow this bill. It's like a really, really bad dream.

At 9/21/08 02:03 PM, poxpower wrote: Yeah but now aren't they going to put new regulations on bank for the future?
It's not like this will change nothing, I imagine.

True but what annoys me is that these regulations were already in place to begin with. The powers that be decided to remove them which surprise, surprise lead to this mess-up.

[morefngdbs]

All you people who laughed & pointed at the "conspiracy Theories"
All of you who thought your Government was actually in control...well are you laughing now boys?
That a small group of private Bankers had made George DUB YA the President, is about as blatently obvious as it gets now isn't it ?
So to bail out his crooked banker friends he's putting every American Taxpayer on the hook for his cronies.
To the tune of what... I heard 800 BILLION !
Because someone please answer me this...Where does the Government get its Money?

They get it from the Central Bank /Federal Reserve (a Privately owned company)

So old George & his bankers can rest easy, all their greedy moves all their theiving from you people can continue.
Unfortunately they're doing it just about everywhere, but our Governments aren't fucking us up the ass with a barb wire dildo...............YET !

So Idiot Finder.... Go ahead, give me the old "Found One" routine.
But I'll let you in on a secret , my financial advisor at Ramey Investments called me back in June & told me "THings are really not looking good , and a number of longtime financial plan investors have left AIG & your American Value Stock isn't doing well, your not losing but your not gaining either.
So I bailed & invested in Silver Bullion (the metal not the stocks)& Canadian Commodity stocks...& I'm laughing all the way to the Bank !

Ole George Dubya is the one who "found some" 300 million plus of them, isn't that about how many Americans there are !

[poxpower]

At 9/21/08 02:41 PM, Prinzy2 wrote: I don't understand how things got this bad in the first place. Everybody takes out a loan and nobody can pay it back, causing all these creditors to bust?

People are fucking stupid, basically.
I'm sure banks lied a lot too, making promises like "wow look you can own a house and you'll be totally fine in 20 years yaaaaay".

But the truth is really that people are morons. They suck at using credit cards and they suck at loans. They took out more money than they could ever hope to pay back and the banks let them because they're assholes who probably thought their asses was bulletproof.

[Ravariel]

Oh there's plenty of blame to go around. Yes, people got ahead of themselves, and borrowed more than they could afford. But banks also practiced predatory lending, deliberately misleading people into borrowing more than they could afford... or just not checking to see if they could afford the loan. And banks also used these bad loans to guarantee OTHER inter-bank lending... hence the system-wide problems.

When a large amount of the debt that naturally circulates throughout the economy is based on things that aren't solid, then when the foundation crumbles so does the house.

One of the reasons this happened is that government removed a lot of the restrictions, oversight and regulation, which basically allowed these huge companies to do whatever the hell they wanted... and because many of them are so fucking huge, the government can't allow them to go under because it would cause a worldwide depression. Lassiez-Faire Market-ists... eat shit and die... this is what happens when we let the market run things.

Don't get me wrong, though... the market is best at knowing what to sell and to whom, and how much and for what price... but they're not so good at keeping shit on the up-and-up... hence the need for regulations... otherwise, they'll literally do anything to increase their profit margins. This is the same reason the Dot Com bubble and subsequent burst happened (no regulation, no oversight to guarantee that these companies actually had something to sell), the same reason the Savings and Loan shit happened (which most of you are too young to remember)... Hopefully the government will put back in place some good regulation that will keep this from happenening again, and can keep us afloat until we work all this bad debt out of the system.

Whatever happens, it's going to be a rough year.

good home buyer's market, though, if you can get the $$

[TimeLordX]

Yes, greed played a part in this crisis. But a big chunk of the blame rests on the shoulders of the Dems. This mess traces its roots to the Carter administration, which passed a well-intentioned law requiring banks to give out loans to people the banks had deemed "high-risk". This law got some muscle in the 90's courtesy of the Clinton administration. Janet Reno and Jamie Garelik (of the Clinton Justice Dept.) even threatened banks with legal action if they didn't comply. As recently as 2005 there were attempts to reign this law in by putting in new regulatory agencies, but they were all defeated. Senator Chris Dodd and Rep. Barney Frank (who head up finance committees in the Senate and the House. respectively) considered concerns about fannie mae, ect "Scare-mongering". Former New York govenor Elliot Spitz went after some of these guys but was shut down by a prostitution scandal. Getting the goverment involved in this will only make it worse in the long run.

[Elfer]

The situation is sub-optimal, but the alternative is to let them collapse, which would really fuck shit up because there's nobody to take the place of those financial institutions quickly enough to prevent vast economic troubs.

[MortifiedPenguins]

At 9/23/08 07:54 PM, Elfer wrote: The situation is sub-optimal, but the alternative is to let them collapse, which would really fuck shit up because there's nobody to take the place of those financial institutions quickly enough to prevent vast economic troubs.

That would be destructive capitalism at work and hopefully, after the flames of collapse have past a better setup will emerge with minimal government influence in this.

Government intervention helped to make the problem, government intervention is now making the problem even bigger.

The free market dictates that these companies should collapse and that the fallout of this collapse should happen. Only then can the invisible hand work .

[Elfer]

At 9/23/08 09:13 PM, MortifiedPenguins wrote: That would be destructive capitalism at work and hopefully, after the flames of collapse have past a better setup will emerge with minimal government influence in this.

Yes. This has happened before. It was called the Great Depression.

Of course a collapse will make the progression faster, but there's a huge price to pay for it. Most people don't want to waste ten years of their life suffering in the name of economic idealism.

[Memorize]

Bill Clinton and democrats in Congress in the 90's forced banks to give more loans to minorities and the poor. Under the implication that Fannie Mae and Freddie Mac had the government behind them, more and more people ended up taking riskier loans. Eventually, people couldn't keep up with the loans and could not afford them. Leading to our housing crisis.

LA Times

I find it funny how the democrats are now crying for regulation and lashing out at Republicans for their "de-regualtion" philosophy.

And yet...

NY Times (2003)

In 2003 Bush sought restrictions against Freddie Mac and Fannie Mae on their lending practices, yet the Democrats in Congress blocked the President.

Last few paragraphs on page 2...

Fannie Mae, which was previously known as the Federal National Mortgage Association, and Freddie Mac, which was the Federal Home Loan Mortgage Corporation, have been criticized by rivals for exerting too much influence over their regulators.

''The regulator has not only been outmanned, it has been outlobbied,'' said Representative Richard H. Baker, the Louisiana Republican who has proposed legislation similar to the administration proposal and who leads a subcommittee that oversees the companies. ''Being underfunded does not explain how a glowing report of Freddie's operations was released only hours before the managerial upheaval that followed. This is not world-class regulatory work.''

Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.

Also, in 2005-2006, 3 Republicans (one of them being McCain) proposed a reform bill that would've attempted to solve these bank's 'risky' loans. It went to the committee where every Republican voted FOR it and every Democrats voted AGAINST it. The Democrats, in effect, blocked the bill from being sent to the full Senate for a vote, even after Greenspan warned Congress of Freddie Mac and Fannie Mae.

McCain's words on the proposed bill: GovTrack.us

"Mr. President, this week Fannie Mae's regulator reported that the company's quarterly reports of profit growth over the past few years were "illusions deliberately and systematically created" by the company's senior management, which resulted in a $10.6 billion accounting scandal.

The Office of Federal Housing Enterprise Oversight's report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae's former chief executive officer, OFHEO's report shows that over half of Mr. Raines' compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac--known as Government-sponsored entities or GSEs--and the sheer magnitude of these companies and the role they play in the housing market. OFHEO's report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO's report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

I urge my colleagues to support swift action on this GSE reform legislation."

Bill: S.190

Translation: Democrat's fault for housing mess and financial market collapse.

That's what happend.

[MortifiedPenguins]

At 9/23/08 09:42 PM, Elfer wrote:

At 9/23/08 09:13 PM, MortifiedPenguins wrote:

Yes. This has happened before. It was called the Great Depression.

It wouldn't be that bad again. Yes it would be bad of course, but the Great Depression developed through a strange combination of events progressing from WW1 and Germany's reconstruction to postwar politics of Europe and American margin purhasing.

It's going to bad regardless, it's going to be horrific maybe even a systemic shock but it won't reach the levels of the Depression.

Of course a collapse will make the progression faster, but there's a huge price to pay for it. Most people don't want to waste ten years of their life suffering in the name of economic idealism.

And simply changing the paint on the car won't fix the engine. I have supported open market Capitalism for most of my logical life, I would be a hypocrite to go against it now, just because my hand turned up empty.

This is what Capitalism is, a market with different fluctuations, great ones and horrible ones. For the system to work correctly, there has to be the negatives, the crashes and the rises. The market can't just be up and up, there's the downs.

Of course, none of this is going to matter in politics. Since this problem was brough on by the Federal Government and thier interference into the Market, they'll only be to happy to intefere again.

[morefngdbs]

At 9/23/08 10:27 PM, MortifiedPenguins wrote:

At 9/23/08 09:42 PM, Elfer wrote: Yes. This has happened before. It was called the Great Depression.

It wouldn't be that bad again. Yes it would be bad of course, but the Great Depression developed through a strange combination of events progressing from WW1 and Germany's reconstruction to postwar politics of Europe and American margin purhasing.

Of course a collapse will make the progression faster, but there's a huge price to pay for it. Most people don't want to waste ten years of their life suffering in the name of economic idealism.

This is what Capitalism is, a market with different fluctuations, great ones and horrible ones. For the system to work correctly, there has to be the negatives, the crashes and the rises. The market can't just be up and up, there's the downs.

;;;;;;;;;
According to this Great Depression essay by Paul Gusmorino... there are some very big differences.
http://www.gusmorino.com/pag3/greatdepre ssion/
This was the shortest overall discription I could find.
The U.S. is no longer attempting to be the Worlds manufacturing centre, & we're not helping Europe out after a massive war (WW1) like they were just prior to the crash...but I agree its going to hurt the ordinary person...but if allowed to happen , maybe the totally unrealistic banking system would end up being changed by world Governments, so that a few private citizens can no longer manipulate & use their enourmous wealth to basicly hold everyone else hostage.
I mean lets be fair , why should any institution be able to lend out more than 80% of what they actually own/control in real (tangible) assets

[morefngdbs]

At 9/23/08 10:27 PM, MortifiedPenguins wrote:

At 9/23/08 09:42 PM, Elfer wrote: Yes. This has happened before. It was called the Great Depression.

It wouldn't be that bad again. Yes it would be bad of course, but the Great Depression developed through a strange combination of events progressing from WW1 and Germany's reconstruction to postwar politics of Europe and American margin purhasing.

Of course a collapse will make the progression faster, but there's a huge price to pay for it. Most people don't want to waste ten years of their life suffering in the name of economic idealism.

This is what Capitalism is, a market with different fluctuations, great ones and horrible ones. For the system to work correctly, there has to be the negatives, the crashes and the rises. The market can't just be up and up, there's the downs.

;;;;;;;;;
According to this Great Depression essay by Paul Gusmorino... there are some very big differences.
http://www.gusmorino.com/pag3/greatdepre ssion/
This was the shortest overall discription I could find.
The U.S. is no longer attempting to be the Worlds manufacturing centre, & we're not helping Europe out after a massive war (WW1) like they were just prior to the crash...but I agree its going to hurt the ordinary person...but if allowed to happen , maybe the totally unrealistic banking system would end up being changed by world Governments, so that a few private citizens can no longer manipulate & use their enourmous wealth to basicly hold everyone else hostage.
I mean lets be fair , why should any institution be able to lend out more than 80% of what they actually own/control in real (tangible) assets

[Earfetish]

I really didn't like this idea when I heard about it but the more I read and consider, I think, "it might be a gross nationalising of the banking system, it might be very expensive and it might funnel taxpayer's money into big business for no real reason, but then so does Iraq and people are dying there."

so it's not like it's the worst thing that they've done, and I know so little about the economy and political theory tbh so I'll just see how it pans out. I'm inclined to agree with all you guys though and stuff like this seems like gross mismanagement of your money and a government that doesn't know the meaning of conservatism.

[LazyDrunk]

This bailout is like, 4 years of Iraq.

Also, the stock market crash of '29 had a good bit to do with buying on margin profits... sorta like spending a ton of money of potentially minimal-return loans. There should be a national referendum, but since Freddie Mac and Fannie Mae were both pretty much federal agencies (agencies don't go broke, right?), it's not really up to voters anymore.

Hold profiteers from each company ransom instead of the taxpayer, please.

[adanac]

Why should we bail greedy fucktards?

[cellardoor6]

At 9/24/08 05:55 PM, adanac wrote: Why should we bail greedy fucktards?

We're not bailing out greedy fucktards although I admit it appears that way. We're bailing out ourselves and our entire economy. These government sponsored enterprises and their assets are so large and so essential to our economy now that we really have no choice, unless we want what could potentially be a total crash of our entire financial system.

I understand that it seems "unfair" that we're doing this, but it would be even more unfair if we didn't. If we don't act pretty soon, the flow of credit in our country is going to dry up. Imagine a situation where nobody can get loans for just about anything, employers have no ability to get money for their operational costs and can't pay their employees' wages etc...

And, despite the confusion by just about everyone, it's not like all of that $700bn is being thrown away, we're buying assets that still have some value and may very well appreciate in value after they are purchased and the markets stabilize.

But... the fact of the matter is, we should have never allowed Fannie Mae and Freddie Mac to grow into the monsters that they are now. Memorize is right, we can rightfully blame the Democrats for it. Republicans have been trying to regulate these GSEs for years, and the Democrats have been blocking it. The Democrats got us in this trouble because they used these organizations for their welfare/socialist agenda to get poor people into loans that they couldn't afford. It's just amazing that the media has given the Democrats and Obama specifically, suck a gigantic pass on this issue. The whole economic crisis started because of bad housing loans that would never have been approved if the Democrats weren't so cuddled up with Fannie Mae and Freddie Mac and didn't give them such free reign.

[JudgeDredd]

At 9/24/08 05:32 PM, LazyDrunk wrote: This bailout is like, 4 years of Iraq.

Yep, and even the projected cost of Iraq was only perhaps 20 to 60 Billion. Whereas we know it's ended up costing a LOT more. (approaching 1 Trillion??)

This measue, [the bailout] has to achieve the impossible. It needs to guarantee it's own success.
Should the bailout fail, EXACTLY how much worse does that make the initial problem of say, a partial or severe collapse in the financal markets?

Where is the line where you say "ok, we're now officially bankrupting the country if we take such and such a step and it subsequently fails..".

This is certainly unchartered territory, regardless of how someone like Cellar likes talking up the cross-purpose percentages, and positivity in the "real America".

[g0t]

At 9/24/08 09:49 PM, cellardoor6 wrote: The whole economic crisis started because of bad housing loans that would never have been approved if the Democrats weren't so cuddled up with Fannie Mae and Freddie Mac and didn't give them such free reign.

I agreed with you completely up until this point. I believe the main problem in this situation was the rate of inflation caused by the FRS (Federal Reserve System) was marching past the 1-2% inflation rate of pre 1913 gold standard inflation. The FSR printed money out of thin air with low interest rates and just completely flooded the system with it. It completely fucked things up IMO.

I agree though, we obviously do need to bail out the banks or else it would completely destroy what we've tried to accomplish. Taxing the corporations and people (I'm thinking mostly about business owners) making over $250,000 per year would be a huge mistake because they wouldn't have the money to invest in capital and labor for their businesses in turn making it even worse for the Economy.

[RaharuHaruha]

I agree the bailouts were a bad idea, but that's not what they're doing. They're buying stock. The companies are issuing stocks, the treasury is buying them, and the companies will now have money. This money can be used to fix the mess, and can latter be sold to turn over a profit once it's all settled.

[VigilanteNighthawk]

At 9/24/08 09:49 PM, cellardoor6 wrote:

At 9/24/08 05:55 PM, adanac wrote: Why should we bail greedy fucktards?

And, despite the confusion by just about everyone, it's not like all of that $700bn is being thrown away, we're buying assets that still have some value and may very well appreciate in value after they are purchased and the markets stabilize.

I have serious doubts we'll make a profit on these. These assets we're buying are mortgage backed. Now, the problem of course is that the securities are toxic because they are backed by mortgages that have been defaulted on, meaning that they are now backed by the value of the houses themselves, whereas before they were backed by the value of the mortgage, both the principle and the now lost interest. Now, we'll also have to pay more than the current market value for these securities. Currently, there is a market for these securities, but they are valued so low that in the process of unloading them, the ailing financial institutions would go under. Therefore, in order for this plan to work, we must purchase these securities at above market value.

Here's the problem. We will already be purchasing these securities for more than they are worth. Furthermore, they will continue to lose value until the housing market stabilizes. So we are purchasing a security at above market value at a price that will depreciate at least in the short term. In order to gain value, the housing market has to first recover, and the properties that back these securities must appreciate in value. We will have to sell these securities at higher than what we paid for them in order to break even once we consider not only the drop in the real value of the dollar but also the interest we will have to pay for the loans we will have to take to buy these securities.

But... the fact of the matter is, we should have never allowed Fannie Mae and Freddie Mac to grow into the monsters that they are now. Memorize is right, we can rightfully blame the Democrats for it. Republicans have been trying to regulate these GSEs for years, and the Democrats have been blocking it. The Democrats got us in this trouble because they used these organizations for their welfare/socialist agenda to get poor people into loans that they couldn't afford. It's just amazing that the media has given the Democrats and Obama specifically, suck a gigantic pass on this issue. The whole economic crisis started because of bad housing loans that would never have been approved if the Democrats weren't so cuddled up with Fannie Mae and Freddie Mac and didn't give them such free reign.

True, but that is only part of the story. First of all, Freddie and Fannie were only allowed to buy Prime mortgages. They are therefore not responsible passing these mortgages into the system.

Now, it is also true that tthe Democrats do deserves some blame for this mess because they forced banks to make loans to less than qualified borrowers, namely the economically disadvantaged. These individuals, though, are not the only ones who received subprime loans though. Many people who could have afforded homes decided to take out subprime loans like the interest only loans and ARM's because they wanted another house or a bigger house than they could afford. These people are part of the cause of this mess but they are not the fault of the Democrat's coercion. If you don't believe that banks would be dumb or greedy enough to grant these loans, just remember that they collected a lot of fees for originating these mortgages and selling securities backed by these mortgages, so there was plenty of short term gain to be made by selling them.

Third, there was, as other posters have commented, the fact that the Fed set the interest rate too low, allowing for the housing speculation that created the bubble in the housing market in the first place. This led to the subsequent loss of value in the homes, causing some to be worth less than the outstanding principle on some of these loans.

Fourth, we have the fact that many of these investment banks that are going under were leveraged well beyond their ability to repay. Prior to 2004, these banks were only allowed to have $12 dollarsfor every $1 in capital they had. In 2004, these limits were removed, and some of these companies were leveraged to the tune of $30 : $1, well beyond their ability to repay.

Lastly, we have the credit default swap bomb. These, if I understand correctly, are basically insurance against default on bond offered by investment firms. When a bond fails, they collect the value of the policy. The problem is that there was zero regulation of these swaps. Many of issuers never had the ability to cover these swaps with capital they had on hand. Now, as the financial markets fail, this will trigger swaps that can't be covered, which in turn will trigger more swaps. This cascades bringing down the financial markets. This is of course a ponzi scheme that the government had nothing to do with.

The situation is much more complex than just Freddie and Fannie. Both parties have their crosses to bare.

[poxpower]

At 9/24/08 09:49 PM, cellardoor6 wrote:

We're not bailing out greedy fucktards although I admit it appears that way.

Ok well tell me this: are any of the ultra-rich wallstreet people who own those business going to be accountable for anything? What's going to happen to them?
They can't go to jail. They won't be punished as far as I see. They're just laughing they asses off aren't they?

[Fishdert]

Yeah, this is practically like feeding poisoned people poisoned food or something like that. This is going to open up a lot more problems than people realize...