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US To Lose $400 Billion on Fannie, Freddie, Wallison Says

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The Prof

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U.S. to Lose $400 Billion on Fannie, Freddie, Wallison Says - Bloomberg.com

Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to Peter Wallison, a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.

“The situation is they are losing gobs of money, up to $400 billion in mortgages,” Wallison said in a Bloomberg Television interview. The Treasury Department recognized last week that losses will be more than $400 billion when it raised its limit on federal support for the two government-sponsored enterprises, he said.

The U.S. seized the two mortgage financiers in 2008 as the government struggled to prevent a meltdown of the financial system. The debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks grew an average of $184 billion annually from 1998 to 2008, helping fuel a bubble that drove home prices up by 107 percent between 2000 and mid-2006, according to the S&P/Case- Shiller home-price index.

The Treasury said on Dec. 24 it would provide an unlimited amount of assistance to the companies as needed for the next three years to alleviate market concern that the government lifeline for Fannie Mae and Freddie Mac, the largest source of money for U.S. home loans, could lapse or be exhausted.

Lax regulation of Fannie Mae and Freddie Mac led to the mortgage companies taking on too many risky loans, Wallison said.

“It turns out it was impossible to regulate them,” he said. “They were too powerful.” He said no one knows how much will be needed to keep the companies solvent.

From 1990 to 1999, Wallison served on the board of directors of MGIC Investment Corp., the largest U.S. mortgage insurer, including a stint on the audit committee, according to Bloomberg data and company filings.

The continued government support of Fannie Mae and Freddie Mac makes buying their debt a good investment, Wallison said.

“It was always safe to buy these notes,” he said. The U.S. government was always going to stand behind them. They’re as good as Treasury notes.”
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Some observations:

1. Just 2 days ago the White House announced a THIRD bailout of GMAC, the government now owning 56% of the still bleeding Too Big.

2. Now, cede a NO CEILING increase for flat broke Fannie and Fred, already afforded FOUR HUNDRED BILLION, all gone.

3. Ah, the ECONOMICS of it.

4. Unlike Govt Motors, which owes you and me some tens of B's, the Colossi of Escrows are in to us for HUNDREDS of B's, even more than a T.

5. Proof that Mr Wallison speaks truth is the action of Treasury in having to rescale its ceiling.

6. That the roof was actually removed, not simply raised, indicates expectations of a lot more than HALF A TRILLION bankrupt bucks to come.

7. Mr Geithner implies as much by arranging for no ceiling.

8. These uber-sized underwritings of the upside down are encoded by executive fiat, Treasury orders, with no Congressional backing.

9. Oversight resulting in a 400 billion dollar loss does not inspire much confidence when it comes to concerns about the government's managing of health care.

10. These extraordinary Treasury actions have received almost no media coverage.

11. It's odd, these are the kind of stories the MSM have shown great interest in in 2009.

12. I attribute the scant attention to exhaustion.

13. On we go.

14. This overtall, overloaded federal scaffolding the president is erecting, its feet rusted, cannot longer stand.

The Prof
 
Not sure that it will actually turn out that way, but if so, that will be devastating.

On the bailout of the banks, the government turned a profit of $19b.
On the bailout of the car companies, the government lost $30b.
On the bailout of Freddie/Fannie, the government will lose ?.

And yet at the end of the day, when people think of government bailouts and taxpayer losses, who do you think they'll blame?
 
RightinNYC said:
Not sure that it will actually turn out that way, but if so, that will be devastating.
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But what's the alternative of doing nothing?

What people like Prof fail to understand is that reducing liquidity during a liquidity crisis makes the crisis worse. Shutting down support for Freddie and Fannie would do just that which should be obvious for those who are educated. At the same time Prof blames Obama for not getting us out of the crisis. So he complains about Obama not doing the necessary things to fix the economy and then blames him for doing the necessary things to fix the economy.

Is that due to ignorance or just partisan views?

The situation is they are losing gobs of money, up to $400 billion in mortgages
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Which appears to be write down losses. If and when the housing market comes back up (which given recent indicators appears to be rising), then the mortgages could bounce back similar to how the investment in Chrysler back in the day worked. It's hard to say.

Freddie and Fannie were a mistake in the first place from day one, but we can't change that now. We have to deal with the problems we have.
 
obvious Child said:
But what's the alternative of doing nothing?
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Don't know. Based on the fact that the bailouts of the auto industry, the banks, and the insurers will only result in a loss of $42b, it seems absurd that the bailout of Fannie/Freddie should result in a loss of $400b. That alone is enough to make me question whether it's the best use of money, though I doubt there's a reliable empirical way of evaluating that.
 
RightinNYC said:
Don't know. Based on the fact that the bailouts of the auto industry, the banks, and the insurers will only result in a loss of $42b, it seems absurd that the bailout of Fannie/Freddie should result in a loss of $400b. That alone is enough to make me question whether it's the best use of money, though I doubt there's a reliable empirical way of evaluating that.
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I don't know about that. The numbers reported are short term losses. It seems a bit premature to declare it a failure without acknowledging potential gains like the large gains the government got on the Chrysler divestment. Taking a bit of my money that was used to prop up a firm that survived saving huge amounts in unemployment benefits down the supply chain that earned a profit that was used to pay down the debt saving me even more money in the future? Sounds like a decent use of a small portion of my taxes.

True, not all will turn out like that as many bank take overs, but it's not unheard of.

As for the Fannie/Freddie, I suspect the $400 billion loss is due to Market to Market. The mortgages are essentially worthless, thus the auditors are forcing them to write them down which hits the income statement. It's somewhat paper, somewhat real losses. As I stated earlier, if and when the housing market comes back up, those mortgages could be worth significantly more then what the auditors at the moment believe them to be. But proper accounting does dictate that you report assets at current values. I wonder what the footnotes on the write downs state. I suspect there's some wording saying that the losses are due to current prices and that future prices may differ significantly. The down side is that the balance sheets go to pot and the fed has to pour more cash in to shore up the financials.

What I don't get is how decreasing liquidity now will help the economy which is essentially the outcome of what the Prof is arguing for. Whether he knows this is something entirely different though.
 
you explain basic economics very well, and your economics are correct

i think you got the prof wrong, tho

i haven't argued a position, i'm too smart to commit myself like that when i don't have to

instead, i observed, reported and attempted to analyze what it all means

when i'm confident, i might predict what'll come next

i try to focus on big things, and this one is big

it is what it is

for housing to recoup money of this proportion, to get back what was lost, it will have to grow on the order of 100%

but signs appear otherwise

that the roof was removed and not simply raised indicates an expectation of a lot more to come

that more backing is required rather shows the bottom's not been hit

it's certainly not a positive development

you really shouldn't say, "people like the prof," and disparage others so

happy new year
 
So are you saying you are rendering no opinion as such observations? Because you look like you're complaining about the turn of events and many of your posts blast Obama.

Where did you get the 100% magnitude?

you really shouldn't say, "people like the prof," and disparage others so
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Except that's the truth. Frankly speaking, most people here have no understanding of what the hell actually happened (or why). There's a whole thread bashing Bernake about boosting M0 without understanding why he did it. Most people here really have no understanding at all in any way shape or form the intricacies of the economy. Two recent fools here try to argue that raw data that doesn't deal with why things happen prove one factor was the cause without running linear regression to isolate it. Hello? Basic statistics. Did you even go to college? Sheesh. It amuses me to watch Bush backers who defended everything he did economically turn around and attack Obama for nearly identical policies calling him a "socialist." It would be unbelievable if I didn't know just how ignorant people here are. It's even more amusing to watch Bush bashers defend the policies of Obama that are early identical to Bush. Apparently changing the letter behind the name causes complete reversals of opinions on the same policies.

It doesn't take a rocket scientist to see why America is so screwed up. Voters are idiots.
 
whoa

anyway, what obama's doing does not seem to be working

that's the point

who cares about my personal disposition to his failure?
 
oh, yeah, in my opinion bush was a quasi-socialist

if that makes you feel any better

either way, please have a wonderful new year
 
The Prof said:
whoa

anyway, what obama's doing does not seem to be working
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The stock market suggests otherwise.

oh, yeah, in my opinion bush was a quasi-socialist
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Socialist? No. Fiscal Liberal? Yes.

Still, there was a study that gave two proposals about arms reduction to a group of Americans. One had Reagan's name on it and the other had Gorbachev's. Americans when given Reagan's name overwhelmingly supported it over one with Gorbachev's name on it. They then tried the same experiment but swapped the names. Same outcome. That suggests to me people support policies because their candidate supports it regardless of what it actually was even if it was the same policies they derided before because a candidate they did not support pushed it.
 
the removal of the ceiling is on the HOUSE, not wall street

ie, that's probably the place to look

as for gorby and ron, who cares
 
obvious Child said:
It doesn't take a rocket scientist to see why America is so screwed up. Voters are idiots.
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I knew that if I hung around here long enough, I would find something that you and I agree on, without having to hash it out first.;):mrgreen:
 
obvious Child said:
But what's the alternative of doing nothing?

What people like Prof fail to understand is that reducing liquidity during a liquidity crisis makes the crisis worse. Shutting down support for Freddie and Fannie would do just that which should be obvious for those who are educated. At the same time Prof blames Obama for not getting us out of the crisis. So he complains about Obama not doing the necessary things to fix the economy and then blames him for doing the necessary things to fix the economy.

Is that due to ignorance or just partisan views?



Which appears to be write down losses. If and when the housing market comes back up (which given recent indicators appears to be rising), then the mortgages could bounce back similar to how the investment in Chrysler back in the day worked. It's hard to say.

Freddie and Fannie were a mistake in the first place from day one, but we can't change that now. We have to deal with the problems we have.
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What happens if you take a crack head's smack away?
 
RightinNYC said:
On the bailout of the banks, the government turned a profit of $19b.
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actually no we didn't. those that paid us back paid us back with money that we gave them.

On the bailout of the car companies, the government lost $30b.
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and continues to lose more. plus i would throw in the cash-for-clunkers cost.

On the bailout of Freddie/Fannie, the government will lose ?.
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it's not "the government" it's US. you know, the people the government get's the money from.

and we are going to lose lots. fannie and freddie are shoveling money right back into these kinds of crappy sub-prime loans that we shouldn't have been making in the first place, throwing money down the toilet in the name of "helping" people (though how you help someone by getting them bankrupted or foreclosed on i'm not sure).

And yet at the end of the day, when people think of government bailouts and taxpayer losses, who do you think they'll blame?
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hopefully carter, clinton, bush, obama, pelosi, reid, frank, dodd, and above all fdr.
 
obvious Child said:
The stock market suggests otherwise.
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actually the stock market tends to agree with The Prof. typical recovery quarters see growth in terms of 8% out of a dip. i think our "big growth" recovery was 2.7? right now canada, australia, europe, and ole china are chugging along outside our borders, their recoveries having started earlier and stronger than ours. capital is extremely nervous about getting into the United States right now because it has no idea what the hell this bozo in the White House is going to try to "fix" next.
 
obvious Child said:
It doesn't take a rocket scientist to see why America is so screwed up. Voters are idiots.
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1. Woo, elitism.
2. America is screwed up? Compared to what?
3. Bold statements add emphasis!
 
obvious Child said:
It shows how people support positions based on who pushes them, not the actual position.
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There is no doubt it is a factor, but it's not the only factor.
 
RightinNYC said:
They're paying us back plus interest.
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okay. now. how did they "make" that money that they paid us back with?

hint: the Fed gave it to them. ;)

that's "gave", you'll note. not "loaned".

we gave them the money they paid us back with, and then we announced the program had been a success.
 
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RightinNYC said:
As you note, they're essentially interchangeable.
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I wish. if the government were held accountable like the people are, we would be able to put these people in jail for a laundry list of crimes.
 
cpwill said:
okay. now. how did they "make" that money that they paid us back with?
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They raised it through stock sales and public offerings.

hint: the Fed gave it to them. ;)
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Nope.

that's "gave", you'll note. not "loaned".

we gave them the money they paid us back with, and then we announced the program had been a success
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Again, you're misunderstanding how these programs worked.

(The amount of money the government gave the banks) + ($19b) = (The amount of money the banks returned to the government)


cpwill said:
I wish. if the government were held accountable like the people are, we would be able to put these people in jail for a laundry list of crimes.
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This doesn't make sense based on what we were talking about, but please, feel free to list the crimes that "government" is committing.
 
RightinNYC said:
(The amount of money the government gave the banks) + ($19b) = (The amount of money the banks returned to the government)
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alright, we need to break this up because i think i see where we are getting split apart.

several banks that were initially solid (and thus forced to take TARP funding whether they wanted it or not) have indeed repaid us.

those banks that were not solid, have not repaid us the money we have given them; in particular (this is what I was trying to point out), claims of their recovery via their ability to pay are built on sand, as they have often been getting the money that they have been paying us back with (and this is important) from us.
 
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