Seeking Alpha

Fannie Mae repays Treasury, and more

  • Q4 net income of $6.5B brings full year net income to $84B, aided by the release of the valuation allowance on the DTAs.
  • "While Fannie Mae (FNMA) expects to be profitable for the foreseeable future, the company does not expect to repeat its 2013 financial results, as those results were positively affected by the release of the company’s valuation allowance against its deferred tax assets, a significant increase in home prices during the year, and the large number of resolutions the company reached relating to representation and warranty matters and servicing matters."
  • The company will pay Treasury $7.2B in dividends in March, bringing the total to $121.1B vs. draws of $116.1B.
  • Full report
Comments (151)
  • That's a typo right? $84B?
    21 Feb, 08:43 AM Reply Like
  • Not a typo. They recorded a large one time earnings item when they revalued some previously written down assets that are no longer impaired. That is the "release of valuation allowance" the article speaks of. Basically they had a reserve against losses on property that came into the physical house portfolio through foreclosure events, and when house prices rebounded it became clear they wouldn't need all of that reserve. Since they had already charged earnings for the payments made into the reserve, they recorded an offsetting income when they saw they would need all of it.


    That is also why they say their future results won't look like this past year. It was a one time event. But it was also the main reason they needed the big $100 billion plus draw from the Treasury in the first place, and now they can return most of that.
    21 Feb, 07:13 PM Reply Like
  • Let our company go!
    21 Feb, 08:46 AM Reply Like
  • The company and Freddie Mac would not be in existence without taxpayers guarantees. Furthermore, they could not find anyone solvent enough to insure them and there is no way they could loan as much as they do without a blanket check by the government and the Federal Reserve pumping liquidity into the socialistic dinosaurs. Please, its not leave our company alone, its leave our capitalism alone.


    I hope the US stops funding them and lets them fade into the void they were spawned from. The model never made sense or was viable to start with. It always just a scheme to monetize government favors given by corrupt politicians to a single entity that sold America's credit to enrich management. Fannie Mae and Freddie Mac have trillions in liability and will bleed hundreds of billions every economic downturn. All their profits will evaporate overnight in a recession leaving taxpayers with one socialist stinky mess after the other until we close this garbage.
    22 Feb, 07:21 PM Reply Like
  • David read this : Discovery Should be Granted in Fannie/Freddie Litigation
    Posted by Todd Sullivan is a very very interesting article. I highly recommend everybody to read it as part of our DD (due diligence)
    22 Feb, 11:32 PM Reply Like
  • Isn't gross stupidity, not to mention fiduciary irresponsibility for the government not to stabilize both Fannie and Freddie by dropping any discussion of shutting them Down?
    The government owns 80 percent of the stock. A clear message the the now profitable entities are no longer under the threat of change will propel the value upwards. 80 percent of that upward movement can help offset the deficit or provide money for other things.
    That was the vision I saw when I bought it.


    I am extremely long on both.
    23 Feb, 08:42 AM Reply Like
  • I hope that Discovery is not needed. We need swift reform that creates a win-win scenario for everyone. Unfortunately, if this ends up like United States v. Winstar Corp, it could take years to resolve.
    23 Feb, 02:11 PM Reply Like
  • If anyone has a valid argument as to why this isn't flat out theft from law-abiding shareholders I'd love to hear it.


    Specifically, please point to the specific law, passed by congress and signed by the president, stating profits are to be held from shareholders and handed over to non-shareholders.


    21 Feb, 08:53 AM Reply Like
  • That's right!
    And any law written today is null and void under the principal of ex-post-facto. You cannot write a law that negates the past. Stockholders own these entities and any attempt to change that is expropriation.
    21 Feb, 09:26 AM Reply Like
  • Here's a question: what would of happened to equity holders if the feds did nothing in 2008? Probably would have been totally wiped out. So the government is why there is any value for equity holders to begin with.....
    21 Feb, 10:50 AM Reply Like
  • Yes,
    But what if it was Government policy that was responsible for the Crash?
    21 Feb, 10:51 AM Reply Like
  • If the government didn't step in 2008, you guys would be left with exactly nothing!


    You are a shameful case of blaming those who saved you.
    21 Feb, 01:25 PM Reply Like
  • Yes, Michael, but that would have been the risk shareholders would have VOLUNTARILY taken.


    How is what is happening to shareholders now fair?


    Was the bailout fair to taxpayers?


    If not, then at least they/we got our money back.


    But now?


    Now the unfairness is completely against the shareholders.
    21 Feb, 02:18 PM Reply Like
  • How are shareholders "saved" when the value of their assets have been stolen?


    If your house is on fire and I come over with a hose and put the fire out then tell you that I now own the house, is that fair?
    21 Feb, 02:20 PM Reply Like
  • At least he kept his promise to spread the wealth.


    21 Feb, 02:20 PM Reply Like
  • amen brother
    21 Feb, 02:40 PM Reply Like
  • There should not be any shareholders. This guy went broke. If the government pays the shareholders a penny, this is called stealing from taxpayers.
    21 Feb, 03:08 PM Reply Like
  • FNMA and FREDDIE-MAC shareholders were wiped out. All shareholders and bondholders were reduced to Zero in 2008. We were not saved.
    21 Feb, 03:11 PM Reply Like
  • True. So it could have bought all their shares from them for pennies in 2009. But it didn't. All they did was take preferred ranked ahead of the common with a requirement that they be repaid in full, with interest, before the common got anything. They could have bought the rest. They didn't. When it finally became clear the company would actually repay the Treasury in full - something basically no one had thought possible, let alone likely, at the bottom - they retroactively changed some imaginary rules to just say all future profits should go to the Treasury.
    21 Feb, 07:16 PM Reply Like
  • Saved him what? His common is worthless if the Treasury just keeps the whole enchilada.
    21 Feb, 07:17 PM Reply Like
  • But there are shareholders, hundreds of thousands of them in fact. These shareholders are also taxpayers, and due to this thing called the constitution the government is not allowed to steal from these taxpayers who hold shares of this company. Maybe you'd like the government to come and steal things from you, but I wouldn't.
    21 Feb, 08:34 PM Reply Like
  • Obama cannot be bothered with such a nuisance document as the Constitution.


    You asked for Hope & Change



    He's giving you both what you asked for, and what he promised.
    21 Feb, 11:59 PM Reply Like
  • "He's giving you both what you asked for, and what he promised. "


    Please, sir, can I have some more?
    22 Feb, 12:04 AM Reply Like
    22 Feb, 12:10 AM Reply Like
  • You are stealing from me. Your stinking company went broke. You deserve nothing.


    Your stock should be worth the same as my old Lucent stock.
    22 Feb, 12:58 AM Reply Like
    Michael you should read the complain filed by lawyers Hagen Berman & Others . The case is Washington Federal and City of Austin Police Retirement System Vs US and you will change your opinion. You can find it here
    This is basic knowledge to understand why the conservatorship is illegal. Also will help you not to underestimate the huge legal problem that the government is facing and why they may not be able to exercise the warrants. At the end the government will have to follow the law.
    22 Feb, 09:05 AM Reply Like
  • If the taxpayers have been paid back in FULL how can future profits going to the OWNERS of the company be stealing?


    Seriously...where is the logic in that?


    Was there a Soviet revolution in the U.S. that I'm not aware of?
    22 Feb, 09:59 AM Reply Like
  • dnpvd51:


    I bet you can't explain how much money you've lost because of the GSE shareholders.


    Go ahead...I'd love to hear your explanation...
    22 Feb, 10:06 AM Reply Like
  • The money invested by the shareholders is gone. The company went bankrupt.


    IF the company is now making profits, which it isn't because it is making loans for too low interest rates with downpayments which are too low. THis is taxpayer money backing this investment.


    Shareholders have already been busted out, they deserve nothing, and should get nothing.
    22 Feb, 03:53 PM Reply Like
  • "The company went bankrupt."


    Show me the bankruptcy filing. Show me the creditor they asked a court to protect them against, who failed to collect on any claim because a court stood between them and their collateral.


    You can't. They didn't declare bankruptcy. They sold preferred stock to stay open, at terms the Treasury agreed to, and covered their just debts with the proceeds. They have since earned back what was invested in them this way, and haven't cost the taxpayer a dime, net, as a result. (A risk taken, definitely, but a realized loss, no).


    Repeatedly claiming they went bankrupt when they didn't isn't helping your case.
    22 Feb, 04:19 PM Reply Like
  • Explain to me what these shareholders have invested in this company? All their investment is gone. It is now taxpayer money invested in these company. The company did not declare bankruptcy because taxpayers sent them money.


    And further, all these bailed out companies have paid us back in depreciated money. When we loaned these companies the money, the purchasing power of the money in terms of assets and securities was much greater than it was when the money was paid back. This is taxpayer loss no matter how you try to rationalize it.
    22 Feb, 04:27 PM Reply Like
  • 1bank·rupt noun \ˈbaŋk-(ˌ)rəpt\
    : a person, business, etc., that is unable to pay debts


    This definition does not demand a judicial determination.
    22 Feb, 04:48 PM Reply Like
  • d:


    Oh, please.


    Every dollar paid by anyone to anybody has "depreciated" by some amount every second, as long as the inflation rate is positive. I suppose, then, by that definition all borrowers amortizing their debts are deadbeats. Anticipated inflation is built into every interest rate or preferred yield. It's not some unexpected surprise.
    22 Feb, 06:01 PM Reply Like
  • dnpvd51:


    Saying the company went bankrupt doesn't make it true.


    Got any facts?
    22 Feb, 08:07 PM Reply Like
  • dnpvd51:


    The taxpayer money invested in the company has been returned to the taxpayer.


    Taxpayers can't receive their principle but still lay claim to the operations.


    We aren't talking about the Gambinos here!
    22 Feb, 08:12 PM Reply Like
  • What "debt" hasn't been paid?


    What the heck are you talking about?!?
    22 Feb, 08:12 PM Reply Like
  • He may be referring to the opportunity cost. The government could have 'invested' that money in more entitlement programs which have much greater returns...
    22 Feb, 09:39 PM Reply Like
  • Tack,


    Your idea that these bailed out companies have paid back the government is complete BS.


    In the case of the the banks and Fannie and Freddie. The government poured trillions of taxpayer dollars into these companies at favorable interest, bought the paper at high prices in which these companies were invested and further poured trillions more into the housing market to raise the price of their collateral.


    This was value stolen from folks with savings accounts and given to these bailed out companies. So we have had trillions of dollars stolen from folks with savings accounts and given to these scalawags that should be bust. And now that they have paid back the government with depreciated dollars after having stolen all this value from savers and they are still stealing value from savers you claim the government was paid back.


    What a stinking joke. This is a transfer of wealth and theft.
    23 Feb, 01:07 AM Reply Like
  • He may be referring to the opportunity cost. The government could have 'invested' that money in more entitlement programs which have much greater returns...




    And these bailouts of Fannie and Freddie are not an entitlement program?
    23 Feb, 01:09 AM Reply Like
  • Not a single dime was "stolen" from anybody's account or through taxation, and all the money loaned to banks was paid back with sizable interest payments.


    You think somebody "owes you" a high rate of interest on your savings accounts? How's that work, when borrowing demand is low and nobody needs your deposit? It just requires you to pursue other investments. That's the way life is, not laid out on a platter.


    Oh, and I suppose it's ok that you have paid back your mortgage, or any other loan you ever made in your life, with "depreciated" dollars.


    One sense you're not doing well in your investments, given the anger expressed. Perhaps, you might consider your own decisions, rather than thinking you've been robbed.
    23 Feb, 01:34 AM Reply Like
  • Don't worry about my investments.


    And it is value stolen from savings accounts, not dollars. It seems that this concept is beyond your understanding.


    The great majority are on the wrong side when it comes to the bailouts and the government taking value from savings accounts and giving this value to politically connected Wall Street banks. PLenty of people are pissed off, and if more people better understood what is happening people would be even more pissed off. There is a massive media propaganda machine selling this larceny.


    23 Feb, 01:51 AM Reply Like
  • dnp:


    Yes, I have a feeble understanding of value, I mean, being a value investor for more than 20 years, and all.


    What seems to escape you is that there's no guarantee that your cash, as opposed to bonds, equities or some other investment, maintains value or that there's some God-given privilege to receive some high rate of interest on your cash savings accounts, regardless of economic conditions. Those that have recognized this have adapted and fared well; those that haven't, well, whose fault is that?
    23 Feb, 10:51 AM Reply Like
  • Prove what you are saying. Please post a link from the U.S. government explaining these trillions handed over to Fannie and Freddie.


    You can't do it because it isn't true.
    23 Feb, 12:26 PM Reply Like
  • Tack,


    Why does the Constitution demand that money must be gold or silver?


    Perhaps there is no God-given privelge, but there sure as hell is a Constitutional implication that money should be a store of value.
    23 Feb, 03:24 PM Reply Like
  • dnp:


    Section 10 of the Constitution, the only time the world "gold" appears a single time in the document, has to do with the enumeration of powers, as between the Federal Government and the States. It forbids the States from creating money and mentions gold (and silver) because they were the money of the day. If salami sandwiches had been the coin of the realm, then that section would have referenced luncheon meat.


    It neither says nor implies anything about "stores of value." It's entirely about the medium of exchange to satisfy debts.
    23 Feb, 03:40 PM Reply Like
  • Whatever,


    The Bible has a prohibition against theft and the big banks and the politically connected are stealing value from savings accounts.
    23 Feb, 04:27 PM Reply Like
  • dnpvd51,


    Don 't worry. The banks will do their share to help boost the economy by bidding up Oil & NatGas futures contracts, along with warehousing/hoarding of industrial metals :)
    23 Feb, 04:49 PM Reply Like
  • No one is stealing from savings accounts. No one has to own savings accounts in the first place, those who have one freely choose to out of all their alternatives. No nominal account carries any contractual guarantee about purchasing power - if you want an inflation adjusted bond, buy one; if you want a basket of commodities, buy those. If you want a fixed nominal amount, contract for it, but don't then cry when it is a nominal account. The only one responsible for the future exchange value of anything they freely choose to own, is that owner.
    23 Feb, 09:08 PM Reply Like
  • We have savings accounts obviously losing value because the rate paid is less than inflation.


    Where is this value going?




    1.) it is going to the government.




    2.) the banks and the politically connected are taking the value.


    In actuality in my view it is going to both of the above, but we have an absolute mathematical proof that value is being subtracted from savings accounts. Apparently your view is that this the natural order of the universe. Nonsense. THe value is disappearing because some entity is taking the value.
    23 Feb, 10:38 PM Reply Like
  • Other banks and corporations were set free, after they paid back the taxpayers' money, WHY NOT FNMA AND FMCC?


    Are we seeing double standard here?


    Plus the fact GM cost taxpayers' $10 billion, and their shareholders still get their company back, isn't it strange?
    24 Feb, 04:32 AM Reply Like
  • >Where is this value going?


    From lenders to debtors, as always, no? I'm not sure how that is "stealing".


    If you want to be on the other end of the inflation trade, you can borrow, not lend.
    24 Feb, 08:34 AM Reply Like
  • >Why does the Constitution demand that money must be gold or silver?


    Why did the Constitution say that African-Americans were 3/5 of a person?


    Do you think the "founding fathers" had infinite wisdom?
    24 Feb, 08:38 AM Reply Like
  • dnorm,


    Well, if these shareholders in Fannie and Freddie get anything, that is out and out stealing.


    I will grant that bailing out the guy that paid too much for his house, took out a HELOC, bought a fancy car and took a vacation to Europe, is merely welfare for the financially reckless perhaps not stealing. This is a transfer of wealth from those on fixed incomes with savings accounts to spendthrifts.


    The value that went to the politically connected banks is theft.
    24 Feb, 01:15 PM Reply Like
  • Value doesn't go anywhere. Value changes. It is not a fluid, or a physical anything. The exchange value of anything is determined by other people in the future and their demand for any given good, at that point in the future. Every action that everyone else takes between now and then changes every other value. Both ways. You cannot own an exchange value, because ownership implies something that can be divided and possessed independent of the actions or choices of any other person. But future exchange value is entirely determined by other people's free choices in the future. You may think that their choices will be stable enough that you can count on them or that they will remain similar - but that is just another forecast by you that may or may not prove accurate. None of your potential future counterparties has any obligation to you in the matter. If no one wants silver next Tuesday and you want to sell some, then its value will be low when you want to sell it - but it didn't go to anyone else, it didn't disappear, it wasn't taken from you. You just made a prediction about the future value of silver to other man on that day, that proved inaccurate.


    If you believe that the value of dollars will go down in the future, then you can choose to be short dollars instead of long dollars. No one put any gun to your head and forced you to bet on the future exchange value of dollars. No one ever guaranteed to you that it would remain the same. No one ever made any promise to you, to restrict their own trading, their own credit decisions, or anything else, specifically to support the future exchange value of your dollars.


    Silver miners didn't promise you they wouldn't mine any more silver. Toyota Motors didn't promise you it wouldn't make any more cars. And the Federal Reserve never promised you it would never issue another dollar. If you choose to own any of the above, you do so knowing full well that those parties produce that item and will go on producing it, for their own reasons, not yours. Your demand that other men should restrict their free economic activity simply to support the future price of an item you picked to own, is a desire to restrict their freedom, or to force them to pay you more for something later than they freely want to pay for it.


    If you want a guaranteed floor price for an item in the future, buy a put contact on that item - that's what it is. No one has ever written you free put options on everything you own, including any nominal currency accounts you own. A bank promised you to pay you back dollars, not an exchange value. And it will pay you back dollars, as it contracted. If you gain exchange value in the meantime, you don't have to had it back to the bank. And if you lose exchange value in the meantime, you and only you are responsible for that trading outcome, because you and only you choose to hold your assets in that specific contractual form.
    24 Feb, 01:19 PM Reply Like
  • Another point about borrowers verse lenders. All this stealing is not helping present borrowers because our larcenous policy of stealing from savings is raising the prices of everything that people would choose to buy with the borrowed money.


    So it is really only the entities receiving the stolen value that benefit.
    24 Feb, 02:41 PM Reply Like
  • Short dollars?


    OK clue me in tell me how to be short dollars.


    Do you realize that everyone would be short dollars if possible? We have basically guaranteed inflation baked in the cake.
    24 Feb, 10:00 PM Reply Like
  • (UDN), (UDNT).
    24 Feb, 10:08 PM Reply Like
  • "OK clue me in tell me how to be short dollars"


    Seriously? Borrow them, of course.


    Or you could put on an FX trade, short Dollars/long Euros, for instance.


    Are you sure you're on the right site?
    24 Feb, 10:08 PM Reply Like
  • Borrowing dollars may put one short dollars, but nobody is going to lend at 0% interest or anything that even resembles the rate of inflation. Unless of course you have inside access to Federal Reserve money.


    So borrowing dollars for the sake of being short dollars and paying interest makes zero sense.


    Are you sure that you are on the right site?
    24 Feb, 10:41 PM Reply Like
  • Also borrowing dollars in and of itself, even at 0%, does not make one short dollars.
    24 Feb, 10:54 PM Reply Like
  • By that definition, can you be short anything?
    24 Feb, 10:57 PM Reply Like
  • "So borrowing dollars for the sake of being short dollars and paying interest makes zero sense"


    I borrow dollars to buy real assets, like housing.
    If inflation rises, I'm locked into a long-term, tax deductible loan.
    24 Feb, 11:02 PM Reply Like
  • "Also borrowing dollars in and of itself, even at 0%, does not make one short dollars"


    Of course it does, just as your deposit of dollars in a bank, earning 0%, makes you long dollars.
    24 Feb, 11:04 PM Reply Like
  • No, everyone would not be short dollars if possible. One, because it is possible for any who choose, two, because dollars are useful and that is why people choose to hold them in the first place, and three, because people with that freedom empirically choose to be long the things. They make their own decisions in such matters and do not need to conform to your ideological prescriptions.


    As for how, personally my total holdings of nominal dollar claims in the form of checking accounts, savings accounts, bonds, and the bonds owned by mutual funds I own, are in total smaller than the mortgage I have on my primary residence. The two positions are comparable, but the mortgage is larger. I am thus net short dollars. If dollars fall in value, I get to repay the mortgage in less valuable dollars, and that completely offsets anything I lose in purchasing power on the nominal dollar assets. Anyone can do this.


    A second way to be short dollars is just to keep savings in other currencies, or to use futures or forwards to adjust a net currency position. This is more of a trader's or macro strategy approach than the middle class method above, but it is perfectly simple to execute. If someone has $1 million in nominal dollar accounts but expects the dollar to fall relative to the Swiss Franc, say, they they don't need to eliminate their dollar accounts. They can just short dollar futures vs the Swiss Franc - or equivalently buy Swiss Franc futures - to the tune of $1 million face value. They have hedged their nominal dollar exposure, and effectively shifted their "numeraire" exposure to Swiss Francs.


    If you don't like other fiat currencies, you can do exactly the same thing as described in the previous paragraph with gold futures instead of Swiss Franc futures. Naturally, anything you thereby bet will do better than dollars in the future, may or may not actually do better than dollars in the future, and if you are wrong about it you take the consequences.


    Yet another way to be short dollars, indirectly, is to invest in equities that themselves borrow to carry real assets, or in other words that use leverage. There is risk in that as in all of the previous. But if dollars are going to be worthless the day after tomorrow, then every large company with extensive bonds outstanding is going to be able to repay all of those debts by selling a few pencils (I exaggerate for purposes of clarity). And equity owners of those companies will therefore benefit from a fall in the exchange value of dollars.


    Choosing to be net long nominal dollar claims is a choice, it is forced on no one, and its value consequences are the same as that of any other trading decision. Being right about it can raise your future purchasing power, and being wrong about it can lower your future purchasing power. And the person in charge of how well you do on all of that --- is you.
    25 Feb, 08:51 AM Reply Like
  • >Are you sure that you are on the right site?


    I'm not sure why the guy who doesn't understand how to go short dollars is throwing stones...


    >Also borrowing dollars in and of itself, even at 0%, does not make one short dollars.


    You borrow $1000 at 0% for 5 years, inflation is at 5%. You're gaining from the depreciation of the dollar by repaying a 0% loan with dollars worth less than today, 5 years in the future.


    You are short the dollar, expecting to gain from its loss in value.
    25 Feb, 09:04 AM Reply Like
  • Ok, we have pretty much shown that dollars cannot really be shorted by the responses here. One needs to borrow dollars and pay interest on the dollars and then purchase another asset with the dollars. Of course this is what people are now doing but it is not really a dollar short.


    Also one could just purchase gold or silver but this is not really a dollar short. The reason being in all these cases one is taking a position in something else that May or may not be correlated to dollars.
    25 Feb, 01:25 PM Reply Like
  • dnp:


    You're shorting dollars every time you buy something, anything. Conversely, anytime you sell anything and hold the dollars, you're, in essence, going long the dollar.
    25 Feb, 01:32 PM Reply Like
  • So instead of putting money in a savings account I can go on shopping spree at the mall?


    Further, capital naturally has a return. When banks pay less than the rate of inflation this value(return on capital) is going to some entity or other(not the saver).
    25 Feb, 01:57 PM Reply Like
  • dnp:


    You just don't seem to have either history or monetary policy on your side.


    The risk-free rate of return is at all times less than inflation, except when the Fed adopts a specific policy to quell inflation by setting short-term rates higher to make saving, rather than spending, more attractive.


    The "natural" rate of return, to which you refer is almost perpetually negative in "real" terms, by design, in a fiat-currency system. The Fed wants money to move, not be hoarded. It intentionally makes saving dollars unattractive, versus the alternatives.


    Yep, the value is going to those that make decisions to invest in things with a positive rate of return. There's no God-given right to expect inert dollars to achieve this. You're operating under the delusion that risk-free savers are automatically owed something. It ain't so.
    25 Feb, 02:32 PM Reply Like
  • "Ok, we have pretty much shown that dollars cannot really be shorted by the responses here"


    Your confusion does not prevent me from shorting dollars.


    "One needs to borrow dollars and pay interest on the dollars and then purchase another asset with the dollars"


    Or put on a futures porsition favoring another currency or hard asset.


    "Of course this is what people are now doing but it is not really a dollar short"


    Of course it is.
    25 Feb, 08:53 PM Reply Like
  • It is all very simple. If today, we have x dollars in the world and the economy is growing, these dollars should become more valuable. If the economy is shrinking, obviously the dollars will become less valuable.


    Now I understand that we have fractional reserve currencies and all kinds of this and that, but the bottom line is that a dollar can only become less valuable if some entity takes the value.


    It is really very simple.
    25 Feb, 10:39 PM Reply Like
  • Let us say that I buy another currency or hard asset with my dollars, and that asset price falls in the toilet while the price of everything else in the world starts rising like crazy.


    How is that a dollar short?
    26 Feb, 12:03 AM Reply Like
  • One more point. People here are trying to make the argument that it is better for society to buy a house with the extra bedroom and fancy car rather than put the money in the bank. The bank can then loan this money out to productive enterprises.


    Most of economics is a bunch of BS. Certain policies are better for certain classes, and different policies shovel value over to other classes altogether. So most of economics is just BS justifications for taking a bigger share of the pie.
    26 Feb, 01:06 AM Reply Like
  • "Let us say that I buy another currency or hard asset with my dollars, and that asset price falls in the toilet"


    When you make a trade, sometimes you lose.
    People who bought homes in 2007 with mortgages were short dollars. Many thought inflation would make their trade a profitable one. Many of them were wrong.
    26 Feb, 09:44 AM Reply Like
  • "When you make a trade, sometimes you lose."


    Not when you're TBTF Wall Street playing with depositor's money. There, you're guaranteed every taxpayer backstop and you get to keep your bonuses.
    26 Feb, 10:32 AM Reply Like
  • "a dollar can only become less valuable if some entity takes the value."


    Not even remotely. I don't get why this is so hard to understand, but *value* is not a physical quantity, it is not fixed, it is not allocated, it changes all the time with every shift in the constellation of demand and the well adaptedness or lack thereof of existing configurations of supply to meet those demands. I can gain value that no one else in the world lost - it is called adding value. Total value in the world can fall dramatically if people simply stop cooperating with each other or do so in a much less coordinated or intelligent fashion, without that lost value going anywhere at all. (Except "away", disappearing, destroyed). This is not just true of the value of one item or another or the value owned by one person or another, it is true of the total value in existence.


    Next to the comment that if value the world increases the value of dollars should increase. This does not remotely follow. First, the value of dollars is determined by specific demand for dollars among all forms of money, and secondly by demand for money among all forms of goods, and both vary as full demand time series. Neither is remotely a constant. Value in the world might increase with all of the new money demand occurring in Yuan. Value in the world can increase while demand for money specifically falls, and that for longer dated and riskier assets rises. Conversely, the demand for money could spike while overall value contracts, as people become more risk averse and seek safety in immediately liquid goods.


    The whole premise that the demand for money is a constant, let alone that the demand for dollars will always be a fixed portion of the demand for money, is false to the bottom. It fundamentally misunderstands the phenomena of value, and treats money as magical among goods. The reality is the value of any good is always determined by two forces, its specific supply and its specific demand, and that specific demand does not need to be and in practice is not even remotely constant. Neither absolutely constant, nor constant as a fraction of total value in existence.


    The real value of the broad US money supply has increased by more than a factor of 2 in the last 40 years, and of the narrower money supply by a factor of 4. If you want the details graphically, see my instablog posts on the real value of the US money supply. It is not a constant, there is no reason to expect it to be a constant. It not only grows secularly with the overall economy, but it also accelerates and decelerates around its trend for cyclical reasons. Everyone who pretends it "ought to be" or "generally" will be a constant is just flat wrong, empirically. And that position also has no firm theoretical or economic reasoning behind it. The ordinary laws of supply and demand predict otherwise, and empirical evidence fits those ordinary laws of supply and demand, when money is treated just like any other good.
    26 Feb, 02:10 PM Reply Like
  • Leftfield - then why did 25% of the entire banking industry lose their jobs in the last crisis, including the heads of almost every major bank? James Dimon is the only one still in his seat, all the rest got replaced if their firm even survived - which half of them didn't.


    If you think banking is a cushy protected industry with guaranteed safe returns, you can be a banker in 5 minutes for a $7 commission. Just invest every cent you have in bank accounts in bank stock instead, and you are on the other side of the trade you claim is so stacked against you. You may well do better in the long run. But I can assure you, the ride will seem one heck of a lot more rocky. Ask any holder of Citi stock, if you doubt it.
    26 Feb, 02:12 PM Reply Like
  • JasonC


    Sorry, but you really don't know what you are talking about. But you do use a bunch of words to not say much of anything.


    Value is a physical measure just like temperature is a physical measure. I have no idea what you are trying to convey here.
    26 Feb, 02:40 PM Reply Like
  • All the Banksters that lost their jobs, retired rich & wealthy.


    ALL of them, while many bagholders got wiped out
    26 Feb, 02:56 PM Reply Like
  • > One needs to borrow dollars and pay interest on the dollars and then purchase another asset with the dollars. Of course this is what people are now doing but it is not really a dollar short.


    How do you go short a stock? Borrow it, pay interest on it, sell it for something you think will appreciate in relative value. Same thing you do with dollars. It isn't terribly complicated.
    26 Feb, 03:12 PM Reply Like
  • >So instead of putting money in a savings account I can go on shopping spree at the mall?


    If you believe the goods you can buy now will appreciate in value relative to the dollar, yes.


    > is going to some entity or other(not the saver).


    "Saver" is just another name for the lender. When you "save" at a bank, you are lending to them. So an inflation rate above the return on capital benefits the borrower. In the case a a savings account, that's the bank.
    26 Feb, 03:15 PM Reply Like
  • going short the dollar is a little bit complicated. The only way to do it really is to buy everything.


    Because if this thing goes up in price and this other thing goes down in price, you may take a big loss even though the dollar is actually losing.


    So it does not make sense to say one is short when one can take a big loss even though the dollar is losing value.
    26 Feb, 03:58 PM Reply Like
  • Value is not a physical measure. Value is a measure of the subjective willingness of other men to part with other goods in order to command control of something. It depends on their will and their subjective impressions of the utility any given item has for them.
    26 Feb, 05:50 PM Reply Like
  • The value of my gold coins, is that in my Physical possession.


    Just ask the Mt Gox bitcoin bagholders
    I like to hold my own bag.


    Just ask Jon Corzine. He'll tell ya.
    26 Feb, 05:56 PM Reply Like
  • dnp:


    That you have no idea is at least one thing on which we can all concur.
    26 Feb, 06:05 PM Reply Like
  • 1980XLS - the gold coins in your physical possession you can own. They are goods, they have a physical existence, their existence does not depend on the opinions of any other men, they remain what they are by natural laws as you hold them through time.


    But their *value* is none of those things. Their *value* is not something you can own exclusively or that naturally preserves itself through time or that is independent of the opinions - and even, the wealth - of other men. If the day after tomorrow, no one else on earth wants to own gold or would give away a single pencil for all of the gold ever mined, then the *value* of all the gold you own would - for as long as other men felt that way - simply not exist.


    You may trust, expect, or predict that other men will continue to value gold as they have in the past, and that prediction may prove accurate, and the gold you own therefore preserve its value. Its value may increase if others desire it more. Its nominal price in exchange for other goods that men feel they have more than they need of, and whose subjective value to them therefore falls, may increase as a result. But all of those processes depend not on anything physical or anything determined by real quantities. They depend on subjective preferences of other men in the future.


    If no one else on earth would give a fig for your gold, you would still own it. You would not have been robbed of anything, everything you actually own in the matter would remain yours, just as you bought it. No one anywhere guaranteed any future purchase price to you in the matter, no one wrongs you in the slightest if they change the amount they are willing to give up to get any individual piece of your gold. That is all just their own freedom. You also do not have to trade away your gold for any price you consider too low - your free opinion in the matter is just as much involved, and is just as subjective, as theirs. If you and one other counterparty agree and trade, bully. If not, the gold will remain yours, and their property will remain theirs, and no one was robbed of anything in the matter.


    This demonstrates that *value* is a relation between free men and their opinions, not any physical thing. Goods can be owned. Values can be realized in exchange now or then, but are always dependent on the state of a market, and that means on the whole constellation of supply and demand for every good in existence, to every owner of anything, anywhere. There can be empirically stable relations in all of that, but their stability (when and if present) is a stability of men's opinions, and not a physical law of any kind.


    And that is why total value in existence is not anything constant, and is not divided or redistributed like any physical thing, when values change. Values can change without the change having gone anywhere. There is no natural law of conservation of value. It simply depends. And because that is simply what value is, no one can *own* an exchange value. They can own goods. They can own diverse baskets of goods, perhaps so diverse that typical changes in markets have little net impact on the whole ensemble. But it is still goods that they own, and not an exchange value. The future exchange value of anything anyone can actually own, depends on the free decisions of other men in the future. No one owns those decisions ahead of time, or can.


    27 Feb, 12:13 AM Reply Like
  • JasonC,


    You can make up your own definitions if you want, but value is clearly measurable. When the stock exchange opens tomorrow, the value of the securities will be measured in bid ask and settlement prices.


    The value of a currency is more abstract and more difficult to measure, but this does not take away the fact that the dollar has a value.


    Further it is obvious that the value of dollars in a savings account held at .1% interest is dropping and it is completely idiotic to suggest otherwise.
    27 Feb, 01:18 AM Reply Like
  • Of course value can be measured. But what it measures is a subjective opinion to counterparties trading any given good. You say it is measured with settlement prices - fine. What makes a price in the first place? Do prices fall out of the sky? Are prices physical objects like chairs or tables? No. If someone is willing to part with an item for N dollars, and another is willing to part with N dollars to get that item, then they can agree to trade, placing the two sets of goods in the hands that value them more.


    If there isn't a counterparty willing to buy an item, there isn't a price. Whether anyone is willing to buy an item and how much he is willing to pay for it, is entirely up to him. It is a free choice on his part. Every scrap of value of every good you possess depends on those opinions of willing counterparties. Those values - not the goods you own, but *what others are willing to give up to get them* - can change overnight just by those other men changing their minds. And when that happens, you have not been robbed, value hasn't gone anywhere else, nobody took anything from you. All that happened is that other men weren't willing to give as much to obtain possession of some good or other that you currently own.


    Why did I need to clarify this in the first place? Because you spoke about changes in the value of money as though you own not specific quantities of dollars, but something else, an exchange value or a purchasing power, and that any change in the exchange value of the dollars you own is robbery or must have gone to somebody else. And neither is remotely true. If you own $100,000 today and $100,000 tomorrow, you own the same goods. If those dollars purchase fewer cashews tomorrow, it doesn't mean you were robbed or that the value of your dollars went somewhere - it just means that other men are less urgent in their call to get dollars, or more urgent in their desire for a salty snack, than yesterday, or any combination of both. You still own the dollars. Nobody took any of them from you. You can't lose ownership of an exchange value instead, because you can't own an exchange value in the first place. You can only own goods.


    (Hypothetical) "But I want to own an exchange value, the goods are to me only a means to that end". Fine, but you still can't own an exchange value. It depends on free decisions in the future by other men, and you do not own the future actions of other men. Nobody else on earth is obligated to give you diddly squat for any good you offer for sale. They can leave every offer to sell you make untouched and walk on by, for any reason they please, and they have not remotely wronged you in the matter. You never had a right to demand they take any specific good from you at all, let alone at any specific price. You cannot be robbed of something you never possessed in the first place.


    You may act as though values will be stable, because you trust that other men's opinions will mostly be stable, and what they wanted yesterday they will still want tomorrow, about as urgently. But that is a trading forecast of your own, not any obligation on those other men. If you are right about it, great, you can achieve your subjective end of securing a future purchasing power by using this or that type of good that you forecast will have a steady demand tomorrow, to carry value into the future. But whether you are right or wrong in such forecasts is your affair, you are responsible for it, and you take the consequences, good or bad, for being right or wrong about such forecasts.
    27 Feb, 12:54 PM Reply Like
  • I read through your thing here. How is owning a dollar not owning an exchange value? The paper the dollar is printed on is not all that valuable.
    27 Feb, 02:34 PM Reply Like
  • A dollar is a good. It is scarce, has a physical manifestation if you want it, its existence does not depend on anyone else or their opinions. If other people desire it and will give up something else to obtain it, then is has value. A dollar is not paper, just as the Taj Mahal is not a brick. If you doubt it, try paying the Barista with blank slips cut out of 8 1/2 by 11 notepaper and see if she accepts it. She won't.
    27 Feb, 03:06 PM Reply Like
  • I don't understand what the hell you are talking about.


    If a dollar has value over and above the paper and ink, it must be the exchange value.


    Why are your comments getting likes? We must have members of the Federal Reserve reading this stuff.
    27 Feb, 03:25 PM Reply Like
  • LOL.


    Now that's funny
    27 Feb, 04:09 PM Reply Like
  • "If a dollar has value over and above the paper and ink, it must be the exchange value"


    Sure and that "exchange value" bought 1/1331st of an ounce of gold today and only 1/1900th of an ounce of gold about 2.5 years ago.


    Did you steal that change in value from gold owners? Why not?
    27 Feb, 05:21 PM Reply Like
  • Jim,


    Apparently, your point is that gold goes up and down in dollar terms and yet there is nobody stealing the value of gold. The market is making this decision outside of any thieves.


    So if this happens in gold it must be true that dollars go up in down in value, and nobody is stealing the value of dollars. The market is making this decision.


    I am not so sure that your logic here is all that sound.


    Anyway, we have the Federal Reserve claiming that they can influence the value of dollars. The Federal Reserve openly claims that their policy targets the inflation rate. Further, since the interest rate on savings is clearly lower than the inflation rate, the Federal Reserve is implying that their policy of raising inflation will take from savers.


    So let me ask you how the Federal Reserve can increase the inflation rate without taking from savers?
    27 Feb, 08:33 PM Reply Like
  • Because as we have all laboriously taught you, inflation doesn't take anything from savers. They had dollars before, they have dollars after. They are in charge of their trading decisions, and responsible for any change in the value of the dollars they continue to own. The Fed is not under any obligation whatever to not produce more dollars just to support the future exchange value of yours. No more than Toyota is under any obligation to refrain from making more cars, just to support the resale value of used Toyotas. When you choose to hold dollars, if you do, you do so knowing that the Fed will make more of them. Same with Toyotas. Same with silver pulled out of the ground by silver miners. All goods have producers or they would not exist. No producer gave away their freedom to produce to you, to support your one way trading decisions. You can own goods that others produce - you can't own their right to engage in production or in trade, nor can you force others to buy from you later at prices you, not they, stipulate. Therefore, again, you can own goods including dollars, but you cannot own an exchange value.
    27 Feb, 10:44 PM Reply Like
  • "So if this happens in gold it must be true that dollars go up in down in value, and nobody is stealing the value of dollars. The market is making this decision"


    Welcome to the party, pal.


    "Further, since the interest rate on savings is clearly lower than the inflation rate"


    Savings? Be more specific. If you mean perfectly safe, perfectly liquid, checking account savings, sure.
    I hold several bond funds that have a yield much, much higher than inflation.


    "So let me ask you how the Federal Reserve can increase the inflation rate without taking from savers?"


    You feel the Fed is taking from savers? If you feel the Fed will do this, don't be a net holder of cash savings.
    28 Feb, 04:09 AM Reply Like
  • "Leftfield - then why did 25% of the entire banking industry lose their jobs in the last crisis, including the heads of almost every major bank?"


    The "entire banking industry" is not TBTF Wall Street; there life at the top, even if one is replaced, includes dazzling golden parachutes that go a long way to cushioning any and all setbacks. And it has been demonstrated that their firms will survive the leveraged losses of their depositor's money while they benefit from the diminution of their less-favored competitors.
    28 Feb, 10:03 AM Reply Like
  • You don't see that your point about gold does not logically say anything about dollars?


    I give up. The bottom line is that our policy is stealing from savers to pump up the housing market and the bond market. Fannie and Freddie's profits are basically stolen from savers.(And there are plenty of very smart people that share this view. So it is not like it is out in left field).


    I enjoy reading mathematics and mathematical proofs. I was hoping to prove the above statements mathematically. But we have a guy that claims that value cannot be stolen because dollars don't hold value or some nonsense, well I give up.


    Now all the victims of Maddoff can just keep their shares and pretend that they were holding dollars instead. Then they would have had nothing stolen from them.
    28 Feb, 12:57 PM Reply Like
  • Did you just steal a Porche 911 from me? Well I don't own one now, does that mean you stole it from me? Oh wait, right, I never owned one in the first place. So I guess no, you couldn't have stolen it from me, if I never owned it in the first place.


    There is the problem you face, in a nutshell. First you have to establish that "savers" actually own anything like what you claim was stolen from them. Certainly no one stole their actual dollars out of their savings accounts. So what is it that you claim they actually owned, that was supposedly taken from them? When you raise claims of theft, you first have to prove you owned the item supposedly taken from you.


    If a stock you owned yesterday and still own today went up, it doesn't mean you stole from everyone else on earth. If the value of goods others own goes up, it doesn't mean they are stealing from you.
    28 Feb, 03:31 PM Reply Like
  • "their firms will survive" - sure, right, like Bear, and Lehman, and Countrywide, and New Century Financial, or for that matter Wachovia, or Merrill Lynch, or...


    Actual financial reality has nothing to do with your class war morality play. The actual financial reality is that the folks hurt the most by the financial crisis were financial company shareholders. And the folks who have money shoveled to them continually for nothing are mostly mainstreet - to the tune of $2.5 trillion annually in government transfer payments. But populists and leftists never want to admit which direction government policy shovels money. Just like common thieves don't want to admit their actual means of livelihood, either.
    28 Feb, 03:34 PM Reply Like
  • "You don't see that your point about gold does not logically say anything about dollars?"


    If your dollars are buying less, you scream "Theft!", if your dollars buy more, why can't the holder of gold accuse you of theft?


    "I give up."


    We'll miss you.


    "The bottom line is that our policy is stealing from savers to pump up the housing market and the bond market"


    Don't be a net saver of cash in that case.
    28 Feb, 05:00 PM Reply Like
  • J:


    You have too understand. We live in the Entitlement Age. dnpvd51 thinks he has an indelible entitlement to a 5% yield on his passbook account, regardless of economic or monetary conditions. Logic cannot defeat this belief; it's a religious conviction.
    28 Feb, 07:48 PM Reply Like
  • Tack - we don't need insult religion with such a comparison. Religion is a generally a sane thing that calls a spade a spade. Cheers...
    28 Feb, 11:20 PM Reply Like
  • Fannie and Freddie went bankrupt because they lent money to folks that paid too much for their house, then borrowed against their house and bought cars and yachts and college educations and trips to Europe.


    And then when sky high housing prices started dropping these same folks quit paying the loans and Fannie and Freddie were left holding the bag.


    Before this Fannie and Freddie were private in the sense that the profits went to the shareholders and bondholders and the overpayed executives.


    But of course the losses go to the government, and the government solution was to print money to bail all these yahoos out and now the shareholders even have the nerve to ask for more money. And when the government prints money to bail people out, the effect is that savers lose the value of their savings.


    And then through some perversion of logic or religion or whatever, the savers have somehow become the entitled ones. WTF?


    And earlier you claimed "The risk-free rate of return is at all times less than inflation." Where did you get that idea?
    1 Mar, 12:58 AM Reply Like
  • Except they didn't go bankrupt. Ever. And except the government didn't make any losses supporting them, but is now making large profits for having done so. So large that there is now an argument over who owns the extra upside of those profits, beyond repayment of the government and their contractual 5% interest. So, no, the losses did not go to the government.


    What actually happened is while house prices were very low, executives at those firms *thought* they might have large losses in the short run, and the Treasury agreed to invest in their preferred stock to get them through those losses. But once rates fell, and then house prices stabilized, and then began to recover, it turned out the credit losses on loans made at peak house prices were not so bad after all, and that the companies could cover them out of the profits they make on their other operations. So they got a capital buffer for a while, and they paid interest for the use of it, and they no longer need that buffer and have paid it back. And the Treasury would like to keep their future profits too.


    But there are no losses to taxpayers or the public in any of it. Many feared there would be and spilled lots of ink on their outrage over those losses - which inconveniently evaporated underneath their outrage, leaving them precious little to be outraged about. But having ginned themselves up into high dudgeon, the outraged are now studiously avoiding all of the above facts, and pretending lots of things happened that simply didn't - from bankruptcy to losses. But lying repeatedly to cover embarrassment will not make it so. You can have your own opinions in the matter, but not your own facts. And the fact is, there was no bankruptcy declared by either firm, which continued to pay their creditors as contracted. And the fact is, there was no loss to the public, but a modest profit for the risks run supporting them.


    And none of us need your permission to understand all of that...
    1 Mar, 09:54 AM Reply Like
  • • I am copying here an article written by Dean Baker. It is very important for our trading business and for the future of American people. Please spread it.
    • I also emailed a copy of the article to the office of my Congressman. Every decision making person in DC should be aware of what this article says.
    Privatizing Fannie and Freddie and the Return of Subprime By Dean Baker
    February 10, 2014
    In his State of the Union Address President Obama made a quick reference to his hopes for reforming Fannie Mae and Freddie Mac. Unfortunately, reform in this context doesn’t mean “better.” Reform is likely to mean privatization. In fact the most likely form of privatization at this point would feature the sort mix of private incentives and government guarantees that makes another financial disaster virtually certain.
    The smart money in Washington is betting on the Housing Finance Reform and Taxpayer Protection Act (S. 1217), better known as the Corker-Warner bill after its two lead sponsors. This bill, which was put together by two of the more centrist senators in both parties, does not just get the government out of the mortgage guarantee business. There actually would be a plausible argument for that position.
    But the Corker-Warner bill does much more than just eliminate Fannie and Freddie. In their place, it would establish a system whereby private financial institutions could issue mortgage-backed securities (MBS) that carry a government guarantee. In the event that a large number of mortgages in the MBS went bad, the investors would be on the hook for losses up to 10 percent of its value, after that point the government gets the tab.
    If you think that sounds like a reasonable system, then you must not have been around during the housing crash and ensuing financial crisis. At the peak of the crisis in 2008-2009 the worst subprime MBS were selling at 30-40 cents on the dollar. This means the government would have been picking up a large tab under the Corker-Warner system, even if investors had been forced to eat a loss equal to 10 percent of the MBS price.
    The pre-crisis financial structure gave banks an enormous incentive to package low quality and even fraudulent mortgages into MBS. The system laid out in the Corker-Warner bill would make these incentives even larger. The biggest difference is that now the banks can tell investors that their MBS come with a government guarantee, so that they most they stand to lose is 10 percent of the purchase price. This doesn’t bode well for a Corker-Warner future, since banks obviously had little difficulty selling junk filled MBS that carried no government guarantee at all.
    Certainly the Justice Department’s treatment of the bankers who packaged fraudulent mortgages and misrepresented their quality to buyers will not discourage the same behavior in the future. None of these people went to jail and in most cases they are much richer today than they would have been if they had pursued an honest career.
    The changes in financial regulation are also unlikely to provide much protection. In the immediate wake of the crisis there were demands securitizers keep a substantial stake in the mortgages they put into their pools, to ensure that they had an incentive to only securitize good mortgages. Some reformers were demanding as much as a 20 percent stake in every mortgage.
    Over the course of the debate on the Dodd-Frank bill and subsequent rules writing this stake got ever smaller. Instead of being 20 percent, it was decided that securitizers only had to keep a 5 percent stake. And for mortgages meeting certain standards they wouldn’t have to keep any stake at all.
    Originally only mortgages in which the homeowner had a down payment of 20 percent or more passed this good mortgage standard. That cutoff got lowered to 10 percent and then was lowered further to 5 percent. Even though mortgages with just 5 percent down are four times as likely to default as mortgages with 20 percent or more down, securitizers will not be required to keep any stake in them when they put them into a MBS.
    Anyone banking on the bond-rating agencies to protect against the proliferation of junk MBS wasn’t paying attention to what happened to the Franken Amendment in the rules writing process. This amendment, which passed the Senate with a huge bi-partisan majority, would have eliminated the conflict of interest that results from having the bank issuing a MBS paying the rating agency that assigns the rating.
    This conflict of interest would have been eliminated by having the Securities and Exchange Commission (SEC) pick the rating agency. This simple step would take away the incentive to rate every piece of junk as investment grade, as was the case during the bubble years.
    This change would have taken effect, except the SEC, after being inundated with industry comments, deciding that picking rating agencies was too complicated. As a result we have the exact same system in place as we did during the bubble.
    In short, the Corker-Warner plan to privatize Fannie and Freddie is essentially a proposal to reinstitute the structure of incentives that gave us the housing bubble and the financial crisis, but this time with the added fuel of an explicit government guarantee on the subprime MBS. If that doesn’t sound like a great idea to you then you haven’t spent enough time around powerful people in Washington.
    Dean Baker is co-director of the Center for Economic and Policy Research and author, most recently, of The End of Loser Liberalism: Making Markets Progressive
    21 Feb, 09:05 AM Reply Like
  • thanks culudio...
    could you post this as an instablog as well, so it can easily be found in future?


    21 Feb, 09:30 AM Reply Like
  • @Jamesingram32
    I am not very familiar with instablogs, How do you do that? or can you do it please?
    21 Feb, 09:35 PM Reply Like
  • YUP,nice how they are ILLEGALLY giving the Treasury Dividends.Read most of that transcript.They back 46% of single family loans...hey Ben/yellen when this ponzi scheme/QE gonna End.?You print money,to buy (FNM ,MBS) ala backed by the Federal government and keep interest rates at 0%.Nothing manipulated or Illegal about all that,joke.? and easy to prove.It mentions Jan 1 2008 as the Target date for last $600 million paid to Treasury,so is that when QE ends...hmmm.I mean why would Yellen/Congress allow QE to end,or " using other means @ FED" might be just buying that mbs vs all.Either way,the home prices going up,due to artificially low rates and 200k of REfI/workovers..etc.has allowed all this to continue vs allowing it to Collapse,25-40% to affordable prices,which they can't let happen due to taxes,on higher home prices to support Non funded Liabilities/Pensions of overpaid/Government workers or a Congress that keeps needing to overspend and raise the DEBT limit vs Cutting Budgets/Farm Bill ala food stamps, and unemployment extensions.When this is sold and they are looking to sell it,housing will correct,2-3 yrs to more affordable levels.Happy Trails
    21 Feb, 09:19 AM Reply Like
  • more of the same financial engineering with phony interest rates and asset prices.
    21 Feb, 09:27 AM Reply Like
  • I could not agree with everyone here, I WANT TO SEE the GSEs returned to the PEOPLE (owners = shareholders).


    That said, the lawmakers (general term) in DC are the same guys that spend our taxpayer money wrecklessly and want to keep their cash cow as long as possible.


    In my humble opinion, the way ahead includes a court victory for the stock holders (with multiple appeals) and after many years, the courts will direct Congress and FHFA to create a plan that restructures the GSEs. I do not believe the solution will include repaying the current stock holders any returns. That would be an admission of guilt, and not likely in the US Govt.


    I agree and want FNMA and FMCC to be returned to the stock holders, but don't see it happening. Outside of complaining, does anyone see a different set of events for the GSEs?
    21 Feb, 09:43 AM Reply Like
  • It's Obama's money.


    He is above the law.


    You didn't build that anyway.


    The mainstream media will not let you argue otherwise.
    21 Feb, 09:54 AM Reply Like
  • I believe I've got 28 posts on SA and 98% are about the injustice of the Feds seizure and plundering of Fannie and Freddie. It's maddening!


    But to those who don’t believe that they’ll be returned to public ownership, I would point to all the municipal 401k’s belonging to First responders (Police, Fire Fighters, Nurses and Paramedics) and the civil servants whose retirement funds have billions invested in these two.


    Would you be the public official up for a midterm reelection telling the local Fire Dept, that you’re voting to shelve these two and flush a portion of their retirement funds down the toilet while the Government rakes in BILLIONS!


    The time to wind down these two was 5 years ago when the idea of shuttering your $0.01 per share value was palatable. THAT TIME IS OVER! What replaces them? The banks? Spare me!


    I refuse to believe there is enough political will to shutter Fannie and Freddie any longer. It would destroy the housing recovery and a huge portion of the economy.
    The voices (like many on this page) are all screaming the same thing.
    21 Feb, 10:23 AM Reply Like
  • New cry for FNMA independence from the Gov' "No Confiscation Without Compensation (For us shareholders)."
    21 Feb, 10:48 AM Reply Like
  • Does anyone here understand why the Fannie mae preferreds keep going up??


    I bought these back in the day for income, and they went to a dollar...


    I didn't sell them and now I have 2000 shares at $11+!!! I thought they were dead and I was waiting to sell to shelter gains..but now i'm thinking people must feel there will be a dividend in the future..i'm still way down (par is $25) but i'm wondering whether I should take the money or hold on
    21 Feb, 11:25 AM Reply Like
  • I thought it would take about 20 years to get back to the lending system we had before the housing implosion. But it seems to be right around the corner with JPM dropping the FICO to get a loan to 600 from 640. I am sure Zero down is next. "Happy days are here again"-oh wait that song is from just before the 1929 crash.
    21 Feb, 12:12 PM Reply Like
  • Subprime?


    What could possibly go wrong?


    Check out CONN yesterday. (down over 40%)


    History always repeats itself.
    21 Feb, 12:23 PM Reply Like
  • time to buy fannie
    21 Feb, 02:43 PM Reply Like
  • It is disgusting that all these people here want government welfare to shareholders. This company went bust. Your shares should be worthless if not for a taxpayer bailout. Further the taxpayers are likely to take another massive loss in the future when this guy goes down again.
    21 Feb, 03:12 PM Reply Like
  • They could have let these companies go bust. But there were too many important creditors who expected repayment of the debts issued by these companies, so the government instead stopped them from going bust by investing in new issues of preferred stock in these companies.


    You simultaneously want the common shareholders wiped out as though there had been a bankruptcy, and all the creditors kept whole as though there hadn't been a bankruptcy.


    There was an honest way for the government to engineer even that outcome, had it seemed important to it at the time. That honest way would have been to buy all the common for $1 a share or something equally nominal, at the same time it invested in the preferred. Then it would have owned the company outright, it would have prevented any going bust legally speaking, and would *fairly* own all of the upside now, because it would have paid for that upside.


    But what they did instead was not pay the common anything, because they figured it was worthless, because they never thought the company would be able to pay back everything they were investing in the preferred. Because they thought the long term upside was worthless, they disdained to pay anything for it.


    Then as soon as it turned out that long term upside wasn't worthless, they didn't do the honest thing and offer to buy out the common. They just declared that they hadn't done what they transparently and legally actually did, but lawlessly declared that all the future earnings belong to the Treasury, when it never paid for them.
    22 Feb, 12:11 AM Reply Like
  • The bondholders should have taken a hit also.
    22 Feb, 01:17 AM Reply Like
  • Taking ownership of the GSEs would put them on the Treasury's balance sheet along with their several trillion of liabilities, not something Treasury was keen on. The method employed kept the balance sheet neater.
    22 Feb, 08:38 AM Reply Like
  • JasonC:


    Nice summation of what is REALLY going on.
    22 Feb, 10:15 AM Reply Like
  • Let the bondholders lose their asses, and there are no liabilities. This was the cleanest solution but too many politically connected crybabies.
    22 Feb, 03:56 PM Reply Like
  • d:


    Yes, and they could have allowed all the major banks to collapse, too. The massive deflationary collapse and major depression that would have followed would have been a nice "clean solution."


    Of course, no "crybabies" would have emanated from the all-understanding American public in that circumstance, one supposes.


    I suspect that most of the crybabies that have appeared have been those those on the wrong side of the economic and market recoveries that have followed these actions.
    22 Feb, 06:07 PM Reply Like
  • dnpvd51:


    Do you have any idea what you are talking about?
    22 Feb, 08:14 PM Reply Like
  • THey should have let all the major banks collapse. At least let the banks that made stupid risky loans collapse. The executives at these companies were paying themselves huge salaries and bonuses for being stupid. OF course they needed to go bust to correct these excesses.


    David Stockman has explained at length that there were plenty of entities that did not overextend themselves. The banks that took stupid risks would have gone bust and other companies would have purchased their assets.


    Now we have a very unstable economy. Folks cannot make knowledgeable investments because the market is skewed. This creates all kinds of waste. And it is as obvious as day follows night that another crash is coming down the road. We are doing the same thing as before the last crash but this time on steroids.
    And if the economy did need a boost, why not send every citizen a check for 10 grand instead of all the crony politically connected bailouts?
    23 Feb, 01:19 AM Reply Like
  • dn:


    Obviously, memories are short.


    The financial system was so frozen that banks would not lend each other money overnight. Complete paralysis, system wide. The idea that the entire system, not a bank or two, could have been allowed to implode worldwide, but would have suddenly seen surviving banks eager to make investments is almost too ludicrous to be considered seriously.


    Absent aggressive intervention by the Treasury and the Fed, it's almost a certainty that we would have plunged into a global deflationary crisis approaching or exceeding the Great Depression. Everyone should be thankful that we didn't go there.


    In fact, since 2009, the economy has been ridiculously stable, gradually expanding year after year. And, markets have exhibited very little volatility as this has progressed.


    It seems apparent that you didn't believe in the actions taken, probably didn't make appropriate investments, as recovery ensued, and, now, are directing your anger elsewhere than at your own miscalculations.
    23 Feb, 01:43 AM Reply Like
  • Let me grant your arguments, although they are really only BS rationalizations for theft. We could have just kept sending citizens checks. This would have unglued the financial system without enriching the politically connected. In fact this would have injected liquidity and wealth equality at once.


    But everything you say is nonsense. People were still getting up each morning, people were going to work, and the wheels were turning. The only problem was politically connected people were about to lose a lot of money.


    And your other argument about my investments is further crapola. It is not even worth responding to it. It just proves the bankruptcy of your ideas. You are trying to justify theft by my supposed bad investments. What complete nonsense.
    23 Feb, 02:47 AM Reply Like
  • dnp:




    In the 1930's, they tried your approach. They allowed it all to implode, no bailouts, no increase in the money supplies. The result? Thirty percent unemployment, mass destitution and a stock market that lost almost 90% of its value. And, it lasted for many, many years.


    Yes, let's do that again to avoid your silly "theft" claims.


    You can't even see that people were getting up each morning precisely because the Government didn't adopt your suggested strategy. Thankfully, the Fed was not run by people spouting populist nonsense. But, it is a free country, so you can rant on.
    23 Feb, 10:58 AM Reply Like
  • David Stockman has never said that Fannie and Freddie bondholders should have taken a haircut.


    He has said a lot of other stuff but not that.
    23 Feb, 12:30 PM Reply Like
  • Sorry but you are the clueless one.


    We now have FDIC insurance, which would prevent the bank runs of the 1930s. And we can find countless examples in history where governments did this crony capitalistic type of stealing like we have here in the USA and the countries went bust. The Roman Empire being one of the earlier examples I can think of right off.


    And there is all kinds of debate about this 1930s depression and we are not going to decide that here.


    Also, why not send every citizen a check if we supposedly need liquidity? Why do we need crony capitalism to provide liquidity?
    23 Feb, 03:36 PM Reply Like
  • Come on we need to start pumping out 125% loans again so house prices can make us all rich. what do u think another 100-200% upside in 5 years enough?
    21 Feb, 03:46 PM Reply Like
  • The government should have let Fannie, Freddie, AIG, General Motors, and Chrysler collapse and liquidate. Shareholders? Bondholders? Eat it.
    21 Feb, 04:31 PM Reply Like
  • Yes well, one of those bondholders in the case of the agencies was this little outfit called the People's Republic of China, to the tune of over $1 trillion, and they would not have been terribly happy with that treatment. The Treasury needed to place $1 trillion a year in new bonds, and someone has to buy them, and that someone has to think they will actually be repaid at maturity - or they won't.


    People who actually pay for their spending can afford to be high handed with creditors. The largest debtor on earth has to be a bit more careful how it treats the folks who actually pay all of its bills.
    22 Feb, 12:14 AM Reply Like
  • Nonsense,


    We should have let all the bondholders lose also. And the bondholders wouldn't have gone bust. The bondholders would have taken a big loss.


    We should have let the bondholders at the big banks take losses also.
    22 Feb, 01:02 AM Reply Like
  • dnpvd51:


    Very easy for you to say when you aren't the one in the Oval Office taking that very, very, very angry phone call from that nuclear power called China.
    22 Feb, 10:17 AM Reply Like
  • What??? HUH???


    We paid off the bondholders to keep China happy. IF that be the case, our policy was even more brain dead then even I thought.
    22 Feb, 03:58 PM Reply Like
  • ...and what would your solution be to a ticked off China dumping hundreds of billions of dollars worth of T-Bonds on the open market?


    If we can't make good on the GSE debt then what choice would they have?
    22 Feb, 08:17 PM Reply Like
  • To JasonC


    << The largest debtor on earth has to be a bit more careful how it treats the folks who actually pay all of its bills. >>


    If you're talking about the US and it's relationship with China, I'll go out on a limb and disagree with you:


    China sucks in dollars like a vacuum cleaner, and if they didn't lend those dollars back to us in the US, then they would have to spend those dollars in the US, or make equity investments in the US.


    (China could sell dollars to other foreigners, but they couldn't sell very many without crashing the dollar which would hurt themselves and help US exports, and any other foreigner who bought China's dollar holdings would then have similar choices: lend, spend or invest in the US.)


    If the Chinese want to continue their trade surplus with us, then I don't we even need to say "Thank You" for the loan. Whatever they do with their US dollars (lend, spend or invest) will help the US economy. Right?
    22 Feb, 08:27 PM Reply Like
  • The Federal reserve balance sheet says otherwise, same for banks, GM etc


    Thanks for playing though
    22 Feb, 06:39 AM Reply Like
  • Hot off the presses!


    "Big upside to Fannie, Freddie: Billionaire investor Bill Ackman tells investors he’s making a big bet on mortgage finance giants Fannie Mae FNMA and Freddie Mac FMCC, according to a report in The Wall Street Journal. Ackman, speaking at an investor conference, said he believes that shareholders will win the lawsuits against the government that challenges the bailout agreement for the two companies and that common shares for Fannie and Freddie will be worth ten times their value in a few years"


    ...and there are plenty of other voices who are echoing the same message.


    IMHO, the political will to shelve theses two is evaporating and for good reason! They’re winners!
    And as long as they don’t ever again allow the banks and the S&P to conspire to dump fraudulent AAA rated instruments on these two, they’ll work to keep housing an affordable reality for the middle class…and that’s what they were set up to do!
    24 Feb, 12:48 PM Reply Like
  • No sooner said!


    "A federal judge on Wednesday granted Bruce Berkowitz’s Fairholme Funds Inc. a motion to conduct discovery in its lawsuit against the U.S. government that challenges changes that the Treasury Department made to its bailout of Fannie MaeFNMA +10.64% and Freddie MacFMCC +10.51%."
    26 Feb, 09:27 PM Reply Like
  • ", do you agree with Bove?
    would you buy FNMA at $5?


    27 Feb, 06:51 PM Reply Like
  • James,
    If you check my prior comments, I actually called this as an $18 stock by Christmas last year believing that there would be expedited legal action by the Hedge funds and others would come on board a lot sooner.


    But I am not one to give advice as I truly consider myself an extremely unsophisticated investor and believe free advice is usually worth what you pay for it.
    That being the preface, I've got a long painful history with both these stocks.
    I've been buyin and selling Fannie and Freddie since 2008 and got into Fannie under $1. Almost sold everything when the Fed stared harvesting all the cash believing that they'd succeed in “hiding the body” and figured it was lost money.
    But I saw no way to replace either without destroying housing market and economy, I decided to hold on and see where it went.


    When the tax valuation news sent everything through the roof, I got out clean and ahead and sold Fannie @ $3.50. At that point, I took the profits, bought Freddie on the dip that the Corker, Warner bill brought and have sat on it ever since.
    So, to answer your question, yes, I absolutely agree with Bove.


    However with all the shorting and “front loading” going on with the big intuitional investors, there’s gonna be ample opportunity between now and $18 to buy either of these at under $4 or maybe even $3.


    But I also believe that these stocks are now starting to stabilize and as the courts start rendering decisions that make it clear the Fed actions to seize and plunder these companies was illegal, the political will to engage in a court battle with shareholders is gonna die by the midterm elections.


    So, I’m now looking at these two as long term investment and expect to see some dividends by this time next year...but what the hell do i know?
    (“Hope Springs Eternal” : )
    28 Feb, 11:12 AM Reply Like
  • thanks blitz, for the reply.


    i think you are properly focusing on the raison d'etre of these sites, i.e. S.A. Which is investment, The rest is interesting dinner party talk, but, the real issue is how, and if it is possible to invest and make money.


    i bought a tiny amount of FNMA at $2.50 and sold at $2.95, as I was worried about the government/preferred and then last in line common share holder ques of creditors issue.


    I think this time is different as there are a substantial number of highly connected big investment names now wading onto this stock, and I would lay a bet on their due diligence.


    It's interesting you think there will be pullbacks, and the 18 month history of FNMA is indeed some savage pullbacks. e.g. 2 cycles ago, last year, when they rode to $5 and back to $1:30 or so within 2 weeks. I watched real time, without was terrifying.
    Like I say, I think this time is different, however, I appreciate your input and reply, and will indeed sit this out and wait to see if there is a better opportunity than the current price.


    Many thanks and good luck all.
    1 Mar, 03:57 PM Reply Like
  • James,
    Yep, I rode that pullback all the way down and yes it was scary. But trading these two is not for the faint of heart.


    There’s tons of money to be made and being made day trading either of these. But, as you know, you gotta be buying large lots to show large gains and as the big investors keep jumping in an out its gonna remain volatile.
    And I may be completely wrong, but I really expect a big selloff when it hits the $5-$6 range as the Institutional investors try to close out the quarter with big gains for their books.
    But I never expect to see either of these stocks close below $3.50 again and believe if this dip occurs, it will be short lived. Those sitting on the sidelines waiting to buy will jump in and this stock will hit and sustain $7 + before the end of June. After that, it’s on its way to the Bove # and beyond.


    The new factor in this equation is gonna be the courts and the early indications are, they’re gonna give the shareholders a chance to make their case and recover their property.


    So, as I said, my focus on these holdings is now long term.


    I believe these stocks will either put me on a road to early retirement or an Off Ramp with a cardboard sign : )


    Best of luck to you as well ; )
    2 Mar, 11:05 AM Reply Like
  • Thanks Blitz. i will keep this one firmly on the watch list, and may jump on if it does have that next dip.


    3 Mar, 03:06 PM Reply Like
  • 3/2/2014


    "And I may be completely wrong, but I really expect a big selloff when it hits the $5-$6 range as the Institutional investors try to close out the quarter with big gains for their books.
    But I never expect to see either of these stocks close below $3.50 again and believe if this dip occurs, it will be short lived. Those sitting on the sidelines waiting to buy will jump in and this stock will hit and sustain $7 + before the end of June. After that, it’s on its way to the Bove # and beyond"


    Hope everybody started buyin at $3.50. I did! ; )
    11 Mar, 02:59 PM Reply Like
  • thanks BLITZ


    good call. I did not back the truck up in any wasy, but bought 1000 at $3.74. Not enough to make much difference, but enough to make it interesting.


    I will monitor and perhaps add over the next few days
    14 Mar, 04:53 AM Reply Like
  • 3/2/2014
    "And I may be completely wrong, but I really expect a big selloff when it hits the $5-$6 range as the Institutional investors try to close out the quarter with big gains for their books.
    But I never expect to see either of these stocks close below $3.50 again and believe if this dip occurs, it will be short lived. Those sitting on the sidelines waiting to buy will jump in and this stock will hit and sustain $7 + before the end of June. After that, it’s on its way to the Bove # and beyond."


    Did I call this or what? I'm watchin and then I'm buyin!: )
    11 Mar, 02:18 PM Reply Like
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