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Bankers Urge Gov't To Pull Plug On Fannie, Freddie

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http://www.foxbusiness.com/markets/2010/09/08/bankers-urge-govt-pull-plug-fannie-freddie/

The federal government should take mortgage finance giants Fannie Mae and Freddie Mac off life support sooner rather than later, the Mortgage Bankers Association urged Wednesday.

The bankers said Fannie Mae and Freddie Mac should move beyond the "conservatorship" that started two years ago and be placed "receivership."

"Fannie Mae and Freddie Mac have already moved well beyond the points where any other financial institution would have been put into receivership," MBA Chief Executive John Coursonand MBA Chairman-elect Michael Berman wrote in a seven-page letter to the Federal Housing Finance Agency.

As the financial crisis unfolded in 2008, then-Treasury Secretary Henry Paulson effectively took control of the firms,although he stopped short of full nationalization by placing them in a "conservatorship" to keep them off the federal balance sheet.

The government controls 79.9 percent of Fannie Mae and Freddie Mac, just shy of the 80 percent threshold for placing them on the federal books. Conservatorship is intended for firms that could be restored to health, while receivership is the end-of-the-line liquidation phase.

"The current situation is not unlike a brain dead patient who is being kept alive indefinitely by artificial life support," Courson and Berman wrote.

The mortgage bankers urged the FHFA to make it clear what would happen to the two firms so creditors will know who will be paid if and when they are put into receivership.

"What is paramount, however, is that FHFA protect all the cash flows associated with the (mortgage backed securities)from the demands of any other class of claimants," the bankerswrote.

The FHFA in July issued a proposed rule on how the entities would be placed into receivership and asked for public comment.

Treasury Secretary Timothy Geithner said last month the U.S. government's role in housing finance should undergo "fundamental change," but that it should still provide some guarantees in the $10.7 trillion mortgage market.

Why should anyone get paid if Freddie and Fannie go bust, they are private companies it's just tough.

That's risk it's moral hazard. However the implications of Freddie and Fannie going under would probably be much bigger than Lehman's.

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Oh, So Now Fraudie/Phoney Should Be Euthanized?

Chuckle....

"Fannie Mae and Freddie Mac have already moved well beyond the points where any other financial institution would have been put into receivership," MBA Chief Executive John Courson and MBA Chairman-elect Michael Berman wrote in a seven-page letter to the Federal Housing Finance Agency.

Uh huh. (ed: What is it with the myriad typos - most of them missing spaces - in this article?!)

Let me make something very, very clear:

Fannie and Freddie were beyond that point several years before the crisis blew up in 2007. With a leverage ratio on book of some 80:1, they had "Tier Capital" (by whichever measure you cared to use) of less than one and a half percent, which is about 1/4 of the legal minimum for any other financial institution to be "well-capitalized" and also well-beyond where the FDIC would come in and seize a bank.

Their "off-book" leverage ratio (that is, the true exposure of the firms) was closer to 200:1.

I said months before it all came apart:

....both Fannie and Freddie are very likely to be in serious trouble either now or very shortly. Possibly critically bad. As I said the other day, I believe Fannie in particular is a short-to-zero candidate due to their attempt to prevent market-to-market losses via their "secured to unsecured" program; I'm willing to bet there are some CDS games in there somewhere too that make preventing those marks a bit more "urgent" than they would be otherwise.

If I could see it simply by examining balance sheets and quarterly reports so could everyone else. It required nothing magical, no inside information, nothing.

Yet now, more than two years later, we still have financial institutions who believe they should be protected for continuing to own the paper that these clowns emitted.

"What is paramount, however, is that FHFA protect all the cash flows associated with the (mortgage backed securities) from the demands of any other class of claimants," the bankers wrote.

In a word:

What part of this didn't you bother to read?

It was right there in your face for decades. You knowingly and willfully bought securities in entities you knew were bankrupt on any reasonable and ordinary metric in the banking universe.

The MBA has no right to demand protection. None.

In fact, any such demand coming from this group should be treated as a criminal conspiracy to extort the American Government and her people, given the clear black bold-faced print on each prospectus, and should it continue, these associations and individuals must be brought up on Racketeering charges.

You cannot buy a thing that says "you are taking risk - if this entity fails you have no recourse beyond the entity's assets" and then when it does fail due to publicly-available information you not only continue to hold the paper you bought but in many cases buy more with the full intent of extorting the US Federal Government via threats of "imminent financial collapse" if you are forced to actually eat the loss that was not only foreseeable but in this case was, on any sort of dispassionate analysis, an absolute mathematical certainty.

Denniger's view on it.

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The federal government should take mortgage finance giants Fannie Mae and Freddie Mac off life support sooner rather than later, the Mortgage Bankers Association urged Wednesday.

....who else would see the problem as being that simple...?....these guys are vultures waiting in the wings to make a quick buck at a discount .....if these two go down (2xFM )the US economy takes a neutron hit..... :rolleyes:

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Good old Denninger - not a clue on what's going on outside the USA and what exotic pies Uncle Sam has his fingers in.

To be fair I don't think many in the US have much idea what happens in the rest of the world.

One of my ex-colleagues had a son in working in the US and she couldn't believe how insulated they are from the outside world, the news she said was all focussed on the local area and they never had anything on from the rest of the world. She said the further into the US you got the more insular they are.

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To be fair I don't think many in the US have much idea what happens in the rest of the world.

One of my ex-colleagues had a son in working in the US and she couldn't believe how insulated they are from the outside world, the news she said was all focussed on the local area and they never had anything on from the rest of the world. She said the further into the US you got the more insular they are.

Now and again they look further afield. We nearly fell off our chairs in July 2007 when Tampa Bay news showed aerial shots of Tewkesbury Abbey surrounded by floodwater.

But yes with the notable exception of people we've talked to in Boston and New York, for most Americans The World = North America.

Edited by xux42

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What pies exactly are you refering to?

(please dont say 'all of them'!)

If China and Russia were big buyers of Fannie and Freddie Bonds it's understandable why the US government would wished to see it bailed. The decision to do so would be more to with politics than economics.

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If China and Russia were big buyers of Fannie and Freddie Bonds it's understandable why the US government would wished to see it bailed. The decision to do so would be more to with politics than economics.

And to bailout Freddie and Fannie won't it take borrowed money from China? :ph34r:

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  • 261 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • up 5%



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