Fannie Mae and Freddie Mac stocks have been tumbling. They were selling for high 60s, and now at this moment it's selling for 10. It's incredible how much it has dropped.
There are three things the government can do:
1) If the government decides to not bail out Fannie Mae, the US economy will completely be ruined -- this organization is one of the backbones of the US economy.
2) If the government decides to take over the organization, everyone will have 0 value in stocks.
3) Open reserves for FNM and FRE
Info on Fannie Mae:
http://en.wikipedia.org/wiki/Fannie_Mae
Article:
http://money.cnn.com/2008/07/11/news/companies/fannie_freddie_shares/index.htm?cnn=yes The value of these stocks like the value of many stocks is not based on how the companies are doing. Instead the values are based on speculation. Stock markets are flawed.
You can thank speculation for the hugely inflated price of crude oil too.
Interesting I have never heard of either of them before. Sounds kind of stupid to put so much importance on only 2 entities.
Good grief you guys... Mae and Mac are doing what they're supposed to be doing. They buy loans - and risk - away from other entities. They're absorbing the fallout just as planned.
Freddie Mac and Fannie Mae are the two major home lenders. Together these two companies own more than 40% of the mortgages in the US.
From what little I have read about these, both companies say they are OK. They do have a lot of loans but that is their business. If they did not have a lot of loans they would not be doing their jobs.
The concern centers around unpaid mortgages but the numbers I have seen are a very small portion of the overall amount that both companies own. I think they have outstanding loans in the area of $5 trillion and loans that have defaulted in the range of $11 billion. That is less than 1% so what why is there so much fear?
In my opinion, things are as bad because people over react and the media blows things out of proportion.
Fannie Mae and Freddie Mac, which own or guarantee almost half of the mortgages in the United States, may have to be bailed out by the US government amid speculation that they are facing losses of billions of dollars. This proves the housing-credit crisis is not over and I think we can expect to see more bankruptcies and foreclosures.
Isn’t unabashed borrowing great? When I bought my house in 1994 I was approved for a lot more money than I knew I could afford, so what did I do? Not borrow myself into a hole. Now fast forward to 2008 - what’s the status quo on mortgages? Borrow yourself up to your eyeballs and get one of them below minimum payment plans - whoo hoo.
Between ignorant consumers and greedy lenders, it’s no wonder we’re in this mess today. Fannie Mae and Freddie Mac are just the latest casualties.
Names like Fanny Mae and Freddy Mac would not exactly inspire my confidence. Sounds more like the name for a couple of hillbilly fast food joints 
It is really bad that the government has to bail out the risky investors. This means it is the taxpayer's money which is getting doled out to protect those Americans who spend much beyond their earning capacity.
The average American, if I am not wrong, spends most of his paycheck even before he earns it, and his life revolves around managing credit card debts (At least this is the impression I am getting from coverage in most newspapers and the rest of the media).
Firstly, the Americans must be taught to live within their means. Then only will the bail out of Freddie Mac and Fannie Mae make sense so that in the future such situations do not arise.
| ganesh wrote: |
| It is really bad that the government has to bail out the risky investors. This means it is the taxpayer's money which is getting doled out to protect those Americans who spend much beyond their earning capacity. |
That's depressing. Especially (from what I heard) when it will be in their trillions. Larger than the UK, Frenach and ereryone below them, economies.I have a question? Could Americans share if they took any finance courses in high school? Or if they at least had to option to take finance courses? We have to pass a mandatory "Career and Life Management" course in order to graduate high school, which teaches us budgeting, how to calculate interest, how mortgages work. Is this available to students is US public schools?
Lumberjack - no, to my knowledge no Highschools have such a thing. The closest thing that we have is an Economics class that pretty much teaches us about supply and demand.
You would typically learn about finance if you're an econ/accounting/finance/etc major in college.
Most people in the US have no clue about such things, that's why many Americans are in debt. Can you believe that many Americans think that they can just pay the minimum payments on their credit card and have no clue about the interest? It's ridiculous. It's no wonder people are having problems with their mortgage.
Update: News have said that Government is considering a take over FNM and FRE. This will wipe out investors money completely.
This is not good at all. It appears the economic slump has not hit bottom yet.
| Liu wrote: |
Lumberjack - no, to my knowledge no Highschools have such a thing. The closest thing that we have is an Economics class that pretty much teaches us about supply and demand.
You would typically learn about finance if you're an econ/accounting/finance/etc major in college.
Most people in the US have no clue about such things, that's why many Americans are in debt. Can you believe that many Americans think that they can just pay the minimum payments on their credit card and have no clue about the interest? It's ridiculous. It's no wonder people are having problems with their mortgage. |
It is ridiculous, talk about not setting up fellow Americans for success. Such a simple thing could go along way in preventing credit disasters like this. I have no problem with people using credit if they wish to. But, if people were to make more informed decisions, then I think people would avoid situations like this. Surely, there must be other reasons than this.It may be a blood bath on Monday. News just in that FNM and FRE may be bailed out come beginning of Monday. Shares have already dropped 20% after market closed today.
It's official FRE and FNM have been taken over (possibly temporarily) by the Government. Asia and Europe stocks have rallied because of it. I hope that in the long run that this will help save the economy.
Shareholders are saved a bit, albeit the shares most likely will be diluted, atleast they didn't wipe out everyone's investments.
I shudder to think about them failing. All that mortgage paper. <cringes>
Seriously bad news that the 2 companies are being taken over by the government.
It is the greed of the investors that made the 2 companies take over sub prime mortgages. Now the investors are being made to pay for it.
The really puzzling thing is the severance package being provided to the company heads who are being fired. If I remember right, it is in the order of 9 million and 14 million respectively. Do they deserve such costly severance packages after mismanaging the investor's money? On top of that, it is the taxpayers who have to bear the whole burden now.
If only the Americans learn financial responsibility and begin to live within their means, things would be much better for the US economy as well as the whole world.
| ganesh wrote: |
Seriously bad news that the 2 companies are being taken over by the government.
It is the greed of the investors that made the 2 companies take over sub prime mortgages. Now the investors are being made to pay for it.
The really puzzling thing is the severance package being provided to the company heads who are being fired. If I remember right, it is in the order of 9 million and 14 million respectively. Do they deserve such costly severance packages after mismanaging the investor's money? On top of that, it is the taxpayers who have to bear the whole burden now.
If only the Americans learn financial responsibility and begin to live within their means, things would be much better for the US economy as well as the whole world. |
To be fair, the CEOs were trying to help the company (I hope) the best that they could. The ones that easily escaped were the previous CEOs that made off with hundreds of millions before this whole crisis.Liu, there's no evidence the current, overpaid CEOs were trying to help Fannie & Freddie.
They should be fired for incompetence. They and the last batch should probably be tried for various frauds, but it's quite likely they didn't quite do anything illegal.
There should be a 'windfall profits' tax on all CEOs and top execs of all financial firms which have losses this year or last year from mortgages. The tax should be on the falsely earned bonuses. Many of the top execs got millions in bonuses.
They should be taxed on the cash they got that they didn't earn.
The shareholders should be zeroed out -- share value of 0.
Enron is gone, the shareholders got just about nothing. Shareholders own a risky asset.
The US economy needs a healthy, sustainable mortgage market. It doesn't necessarily need Fannie. It certainly doesn't need 'experts' who accept Liar's Loans, mortgages based on no documentation, no money down, and the borrower's claims of employment income.
The mess is based on the top execs pretending to be 'private', and acting like rich, smart, investors, while all the time making risky bets knowing the taxpayers would have to pay if they lost the bet.
Disgusting.
I work with Countrywide / Bank of America, and we are seeing a lot of Fannie Mae loans coming through wholesale lending then we ever used to.
Starfoxx, maybe you could describe wholesale lending more?
Isn't it when 10-100 similar mortgages are bundled together into one 'financial instrument', or product, and this bundle is sold to investors?
Countrywide -- they lost billions, too, and were 'bailed out' / saved by Bank of America. Which is the way capitalism is supposed to work.
