SilverLeaf

Nationalization of the U.S. Mortgage Problem

Edward Harrison: Great work. While I don't agree with all your conclusions, I do applaud your research and tone. A few comments:

(1) Is there any other solution? That's a fair question. Like you, I choose to be critical, but respectfully so, of Hank Paulson and Congress. It is much easier to criticize them, than it is to propose a better plan, i.e. do a better job than they are.
(2) Contrary to what you indicated, shareholders were effectively wiped out. Theoretically, we were not. Ask any shareholder (me), and they would agree with me. I believe the 'moral hazard' problem would've been less imperfect if shareholders were diluted 50%, which is actually what Bill Ackman suggested. There was a precedent for something like this, in the Chrysler bailout, which ended up benefiting shareholders AND the government alike. Your comments on bondholders is dead on correct.
(3) Something that I've been itching to know (would appreciate it if you did know)...All articles about Fannie/Freddie conspicuously leave out their history in the 1980s and early 1990s...As I recall, Fannie was considered insolvent in the 1980s, and the stock price was well below $1.00..the government did not takeover, however. Fannie did recover, I'm not sure how, and you and I know where the stock price went (up).

Bill Ackman's Letter to Paulson On Restructuring Plan

Ackman's plan, despite his short positions, in hindsight was much more equitable to all investors. I'm still totally dumbfounded by Treasury's theft of the GSEs.

Fannie & Freddie: Just the Tip of the Iceberg

thowze: another reason the media ignores the CDS situation is it's complex; its their job to describe news/events in black and white terms. Very few reporters have the combination of intelligence and eloquence to describe the situation in simple terms.

Fannie/Freddie Bailout 'Disastrous Fiasco'

freejack: personally, I think secretary just crucified Legg Mason and other shareholders, for the salvation of everyone else.

Could Frannie Have Prevented the Housing Bubble?

madasiwannabe: Sadly, I think there is potentially great truth in your conclusion.

Sell-Side Analyst on Fannie: A History of Being Wrong

You know, what's sad? Bernanke and Paulson's calls on the economy, housing, and the markets make the fannie/freddie sell-side analysts look like geniuses...you know what's even worse? They have authority! (I'll grant you that Bernanke and Paulson are doing their best, are in a very tough position, and I honestly don't know of anyone who could've done a better job). Having said, I repeat: Bernanke and Paulson (and the government) truly make sell-side analysts shine in comparison.

The US Treasury Gave $10bn (and Maybe More) to China

So much for moral hazard, huh?

GSE Bailout Likely Marks a Bottom in Financials

Is it just me, or do Hank's actions (and really, he's a scapegoat too, for the current administration) and words yesterday and today sound VERY bad for the economy. I truly hope you're correct, that this signals a bottom in Financials. However, the risk of high unemployment, low wages, increasing interest rates, high inflation, greater poverty/crime, greater income disparity, have increased greatly, with this move.

Frannie's Future

True...the irony, I see here is, households are taxpayers are households are shareholders are bondholders... this is a circular mess!

Frannie Bailout: Private Profit, Socialized Risk

Lavalyn: I think we're in full agreement (we don't have to, but I think anybody who truly looks at this situation from all angles would have a hard time not coming to the same conclusion). You know what scares me? Based on Treasury's actions, as well as Hank Paulson's tone yesterday and this morning, this is VERY bad for the US economy. I truly hope it signals a bottom in the housing market and financial markets...Sadly, I think many reasonable observers have reason to believe otherwise...

Subordinated Debt Holders: Missed By the Bus?

"Otherwise the sermonizing about moral hazard is pompous cant." Exactly. I'm glad some (such as yourself) are pointing this out. It's like the Bush administration justifying the Iraq War via "weapons of mass destruction." Whatever your position on the war in Iraq, that was simply not true.

Frannie Bailout: Private Profit, Socialized Risk

Lavalyn: appreciate your comments. Here's the thing: (1) I believe the facts I brought up, regarding public benefit, is relevant because in order to reasonable assess moral/economic impact of any government endeavor, you need to look at both the costs and benefits. (2) "moral hazard" is quite relative, and I'm skeptical that it's a rationale that justifies Paulson's actions. I agree that the moral hazard you brought up exists. What I think people don't see, however, is that they are avoiding one moral hazard, for another: protecting debtholders, via intervention, at the expense of shareholders. It doesn't matter that shareholders bear the most risk. The fact is, a bankruptcy or financial distress would impact all capital holders.

Frannie Bailout: Private Profit, Socialized Risk

squashnut: you have a point. Those of us (you and I) who've never owned a home and pay taxes have not benefited. Our parents/family members/friends, may have. "Stabilize financial markets in turmoil"... who are you quoting? I don't think I included that... bottomline, my point here is that the catch-phrase "private profit, socialized risk" is exactly that. a catch-phrase. The reality isn't clear. That's my point. By the way, I stand to lose a lot of money if Hank Paulson's quest to save debt investors at the expense of shareholders screws the common. I'm an individual, so actually represent the 'public'...so hank's plan actually privatizes the profits (by compensating the former ceos for agreeing to leave, and hiring new ceos; and also preserving bondholders, when a bankruptcy wouldn't spare them necessarily), and publicizes the losses.

Frannie's Future

Interestingly, I believe that the the Fannie/Freddie common share prices will now directly reflect what the market perceives will happen to Fannie/Freddie.

2) If the market thinks they will go private (via merging, splitting into several entities, etc.), the market will believe that current shareholders will benefit - big time.
3) If it thinks that the GSEs are nationalized, then the stocks will tank.

So perhaps there will be some classic George Soros-esque reflexivity action going on where, the stock prices may impact perception of what will happen, and speculation on what will happen will impact stock prices...This drama is nowhere near over!

Make your bets accordingly.

Frannie Bailout: Private Profit, Socialized Risk

Matt, I haven't read your previous posts. I have reason to believe, though, that you have intelligent and well-intending view. So, question about "private profit, socialized risk". Is this really true? I ask because, as I see it (and I certainly have not done exhaustive research on Fannie/Freddie as well-intended people on all sides of this debate that seems older than I am):
(1) Taxpayers have benefited for decades via (a) potentially lower mortgage rates (b) an entity that served as more or less "NYSE" for mortgages (I know it's more complicated than this) and insurer. (c) someone who actually furthers social justice, via encouraging homeownership for all races, creeds, etc.
(2) Common shareholders have benefited via dividends, but capital appreciation? shareholders have been screwed. At least those with a 1, 3, 5, 10, etc. year time horizon
(3) Preferred investors have been shafted, while subordinate debtholders have not.
(4) Foreign banks have benefited - whether this is public or private is debatable.
(5) Politicians have benefited - Are politicians private or public? I'm not sure.

What I'm trying to get at is, I fail to see how "Private Profit, Socialized Risk", at best is a nice-sounding headline or campaign slogun for Barack Obama, and at worst....totally false, and actually criminalizes the victimizes, and victimizes the criminals...

I'm confused.