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Thread: Wall Street Financial Crisis

  1. #1
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    Fannie Mae and Freddie Mac are placed in conservatorship

    If you're an American citizen, congratulations, you officially own $5 trillion in mortgages.

    Washington Post: washingtonpost.com - nation, world, technology and Washington area news and headlines

    A financial blogger I read: The Big Picture | Roundup: Fannie & Freddie Bailout

    His take on an article he wrote last night when it looked likely but hadn't happened yet, The Big Picture | Here Comes the Half Trillion Dollar Fannie/Freddie Bailout! :

    As to the crappy derivatives that Phony and Fraudy bought when they thought of themselves as giant hedge funds -- the first person in government that suggests taxpayer money be used to cover those losses, I will personally feed into a wood chipper . . . Feet first . . . Slowly.
    Last edited by rj1; 06 Sep 08, at 16:16.

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    Click this link to see a graphic chart on the company:

    The New York Times > Business > Image > A Closer Look at Fannie Mae

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    That's what I call a free market economy...

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    An t-aimiréal chléthúil Senior Contributor crooks's Avatar
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    Quote Originally Posted by Oscar View Post
    That's what I call a free market economy...
    Funnily enough, I was thinking the exact same thing .
    Although it is not true that all conservatives are stupid people, it is true that most stupid people are conservative.
    - John Stuart Mill.

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    Resident Curmudgeon Military Professional Gun Grape's Avatar
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    Quote Originally Posted by rj1 View Post
    If you're an American citizen, congratulations, you officially own $5 trillion in mortgages.

    Washington Post: washingtonpost.com - nation, world, technology and Washington area news and headlines

    A financial blogger I read: The Big Picture | Roundup: Fannie & Freddie Bailout

    His take on an article he wrote last night when it looked likely but hadn't happened yet, The Big Picture | Here Comes the Half Trillion Dollar Fannie/Freddie Bailout! :

    And how is this different that the S&L bailout 20 yrs ago?

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    Military Professional Ray's Avatar
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    How many trillion $ is being shoved in to salvage?

    Does it mean socialism comes to fore? And capitalism fails?

    And the best part is that they next Administration picks up the tab!

    Also check how many jobs were lost last week!

    Great going!


    "Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

    I don't have to attend every argument I'm invited to.

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    artist Senior Contributor Donnie's Avatar
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    Quote Originally Posted by Ray View Post
    Does it mean socialism comes to fore? And capitalism fails?
    if it were capitalism then the government would have never backed the loans in the first place, and the banks would have never took the risk, it was socialism that caused the colapse.
    Whoever is unjust let him be unjust still
    Whoever is righteous let him be righteous still
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    Listen to the words long written down
    When the man comes around- Johnny Cash

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    artist Senior Contributor Donnie's Avatar
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    Quote Originally Posted by Oscar View Post
    That's what I call a free market economy...
    unfortunatly it was never free market to begin with, i underwrite loans for a living, if i could get the government to back the loans i write and knew that the goverment would bail me out no mater what risk i took, i would write everything that comes across my desk, thats not a free market, there would be no real risk.
    Whoever is unjust let him be unjust still
    Whoever is righteous let him be righteous still
    Whoever is filthy let him be filthy still
    Listen to the words long written down
    When the man comes around- Johnny Cash

  9. #9
    Military Professional Ray's Avatar
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    Quote Originally Posted by donnie View Post
    if it were capitalism then the government would have never backed the loans in the first place, and the banks would have never took the risk, it was socialism that caused the colapse.
    Bush is a socialist?

    America is for individual courage and enterprise, so those who took the risk should sink and not have ''more government'' to impose on them!

    I thought the US stood for ''less government".

    This bailing out is like European govt who are detested by you all as socialists!
    Last edited by Ray; 07 Sep 08, at 19:28.


    "Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

    I don't have to attend every argument I'm invited to.

    HAKUNA MATATA

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    Quote Originally Posted by Ray View Post
    Bush is a socialist?

    America is for individual courage and enterprise, so those who took the risk should sink and not have ''more government'' to impose on them!

    I thought the US stood for ''less government".

    This bailing out is like European govt who are detested by you all as socialists!
    You don't get it Ray, socialism is only for Europeans, on the other side of the atlantic they call it "anglo-saxon capitalism".

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    Quote Originally Posted by Ray View Post
    Bush is a socialist?
    In this instance, yes. As is his Treasury Secretary that used to be the CEO for Goldman Sachs, Hank Paulson.

    This is really corporatism more than socialism, although the two are very close. In socialism, money is taken away from the rich and middle-class and given to the poor. In corporatism, money is taken away from the middle-class and poor to corporations to bail them out of investment decisions they made that originally made them tons of money but later turned out bad. (Yes, if you're an American taxpayer, you are paying for this. It might be two years until you find out, but don't doubt it.)

    Gun Grape: And how is this different that the S&L bailout 20 yrs ago?
    For starters, the amount of money we're talking about is significantly higher. As far as banks go, it looks like they are losing more money than comparable S&Ls 20 years ago (see article I link to below). Not to mention that without Fannie Mae and Freddie Mac, you'd see a large rise in new mortgage interest rates.

    Also, the entire banking system is far more interconnected today than it was in the 1980s. I was looking at information yesterday and put this together. Sorry for the long quote but it's hard to make short and get the point. This is from this past Friday:

    naked capitalism: Two Surprisingly Costly Bank Failures in Two Weeks

    Reader Steve A has been on the Friday night FDIC bank euthanasia watch, and in the last two weeks, he has discerned a disturbing trend. If this pattern persists, it seems a sign that things in bank-land may be much worse than is widely acknowledged.

    From last week's post, "This Week's Bank Failure Surprisingly Costly," on the demise of the faith-based Integrity Bank of Alpharetta:

    $250 to $300 million of losses for a mere $1.1 billion in assets bank? As reader Steve A noted:

    Today's failure of the amusingly named Integrity Bank of Alpharetta, GA, confirms two very ugly trends: once again, FDIC was only able to pass cash and cash-equivalents to the assuming bank, and the FDIC's loss estimate is extremely high ($250M - $350M on $1.1B of assets). I don't have hard numbers handy but I seem to recall that receivership losses in the range of 25% - 35% were unusual in the commercial bank failures of the late 80's. I could be wrong, but the numbers this year are extremely high. FDIC's expected losses certainly make me wonder what on earth the bank examiners were doing for the last year besides critiquing the bank's coffee and color scheme.
    Now to this week's FDIC prepack, Silver State Bank of Henderson, Nevada:

    As of June 30, 2008, Silver State Bank had total assets of $2.0 billion and total deposits of $1.7 billion. Nevada State Bank agreed to purchase the insured deposits for a premium of 1.3 percent....

    Silver State Bank also had approximately $700 million in brokered deposits that are not part of today's transaction. The FDIC will pay the brokers directly for the amount of their insured funds....

    In addition to assuming the failed bank's insured deposits, Nevada State Bank will purchase a small amount of assets comprised of cash and securities. The FDIC will retain the remaining assets for later disposition.

    The transaction is the least costly resolution option, and the FDIC estimates that the cost to its Deposit Insurance Fund is between $450 and $550 million.
    The losses are stunning. and proportionately almost identical to the levels last week. a range of 22.5% to 27.5%. One wonders why the same loss estimate ranges are being applied to banks in two different states. Regardless, the estimates raise questions as to how these banks could have gotten in such bad shape without anyone taking notice.
    The reason the range of losses matter is that yes, the FDIC insures all banks if they go bust, but the FDIC does this on a fractional reserve basis. The charge they give to banks is something along the lines of 0.05% for every FDIC-backed dollar. The FDIC has a list of 90 or so banks on their "danger list". They don't publicize who is on the list because they don't wish to start a run. I have very good confidence though my own personal bank of Wachovia is on there based on reading the news.

    This is the best I can do as far as giving an idea of how money the FDIC actually has in backing the American banking system. It was written in late July shortly after Indymac Bancorp went under:

    Mish's Global Economic Trend Analysis: You Know The Banking System Is Unsound When....

    There is roughly $6.84 Trillion in bank deposits in the American banking system. $2.60 Trillion of that is uninsured (the amount in bank accounts greater than $100k). There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

    Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.
    Later in the first article in the comments section regarding the two small failed banks, an anonymous poster follows up with this:

    I'm in [commercial real estate] in [Los Angeles], and banks are sending me more and more C+D [subprime] or land loans they want off their books. The reason that no market exists for these loans is that, even under the most optimistic scenario in which I could foreclose on these loans quickly and cheaply and then lease up res/retail or "blow out sale" some condos, the loans pencil out to being worth less than 50 cents on the dollar. Of course, the banks can't sell at this price, as the FDIC would quickly take them over. I have seen over seventy term sheets come across my desk in the last two weeks. These are the best loans out there. I asked the banks what they are holding back with C+D loans, and they said nothing. Think about it. What a phenomenal mis-allocation of resources. Not only was all the equity wiped out on these deals, but the debt part is worth less than 50% of the principal. In a hard asset like real estate! I have generally eschewed development deals, but even I was a small player in two local condo deals that started in 2005 and were basically given back to the bank. The reason these bank losses are so large is that the banks don't write them down until it becomes clear that the condos won't sell or the res/retail can't be leased up. This is all coming to a head right now as the developers are finally giving up their "call options" (they know they've been dramatically under water for a year) and just handing the keys back to the bank en masse. If my experience is at all representative (and it appears from these two bank failures that it might be), this is just the beginning. We are talking about huge losses on C+D loans, all coordinated to hit the banks in the next 9 to 12 months.
    Just a couple weeks ago the head of the FDIC came to the Treasury Department saying they might need loans to continue covering failing banks. Now the Treasury Department is covering all losses in Fannie Mae and Freddie Mac. They have two ways to do these things: higher taxes for everyone or printing money. That's it. Knowing this country as well as I do, we will probably do option 2, because Americans in general have a hard time understanding inflation and the effects of the printing press on what they buy and their life, unlike higher taxes which they can grasp pretty well.

    This whole thing is really just a perfect storm with all the contributing factors being out there in plain sight but they were allowed to fester and grow for a few years.
    Last edited by rj1; 07 Sep 08, at 20:01.

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    Senior Contributor antimony's Avatar
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    Quote Originally Posted by donnie View Post
    unfortunatly it was never free market to begin with, i underwrite loans for a living, if i could get the government to back the loans i write and knew that the goverment would bail me out no mater what risk i took, i would write everything that comes across my desk, thats not a free market, there would be no real risk.

    Absolutely true, and that is exactly what happens in nationalised banks in India. Even if the loans they give turtrn to dust, the Government is expected to make good on the depositor's monies.

    Phony and Fraudy are private corporations and are not federally backed, regardless of popular perception. There should not have been any expectations of the Government bailing them out. Sadly, if the federal government does not do it anyway, the economic repercussions would probably be more severe than the tax collections needed to support this.

    Another example of the government not doing the regulatory job that it should have

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    artist Senior Contributor Donnie's Avatar
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    Quote Originally Posted by Ray View Post
    Bush is a socialist?
    not exactly, but you knew that. The US has tons of socialism, the idea is to have a safe mix.

    Quote Originally Posted by Ray View Post
    America is for individual courage and enterprise, so those who took the risk should sink and not have ''more government'' to impose on them!
    FNMA was a "New Deal" socialist program, they were "more government" your right, they should have never existed in the first place.

    Quote Originally Posted by Ray View Post
    I thought the US stood for ''less government".
    well now, every now and then we get a president that expands government, then many years later we have to pay for those socialist projects like FNMA.

    Quote Originally Posted by Ray View Post
    This bailing out is like European govt who are detested by you all as socialists!
    your right, but at this point they have been allowed to exist and operate under the guise of "privitised government" for so long they have been entrenched into our economy, and until we can allow these companies to rise or fall of thier own volition, then we will always have to pay.
    Whoever is unjust let him be unjust still
    Whoever is righteous let him be righteous still
    Whoever is filthy let him be filthy still
    Listen to the words long written down
    When the man comes around- Johnny Cash

  14. #14
    A Self Important Senior Contributor troung's Avatar
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    If you're an American citizen, congratulations, you officially own $5 trillion in mortgages.
    Will the people who ran these banks go to the gulags?

    Be fined?

    Go to prison and have all of their assets and the assets of great-grand kids seized?
    To sit down with these men and deal with them as the representatives of an enlightened and civilized people is to deride ones own dignity and to invite the disaster of their treachery - General Matthew Ridgway

  15. #15
    artist Senior Contributor Donnie's Avatar
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    Quote Originally Posted by troung View Post
    Will the people who ran these banks go to the gulags?

    Be fined?

    Go to prison and have all of their assets and the assets of great-grand kids seized?
    im all for debtors prison
    Whoever is unjust let him be unjust still
    Whoever is righteous let him be righteous still
    Whoever is filthy let him be filthy still
    Listen to the words long written down
    When the man comes around- Johnny Cash

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