Muzie

Pension Benefit Corporation Rolls the Dice at Exactly the Wrong Time

Augustus: Imagine you have a portfolio, have no other source of income, and owe more money than the value the income from your portfolio.

So you decide to change your tactical allocation to more stocks, hoping that'll pay the bills for you.

That sound like a good idea to you?

It seems odd that they are saying this is "less risky", when it's obvious the main trigger for their strategy is they need more income than they have now.

10 Financial Entities On the Brink

Wow... 100% of the comments here are BULLISH on these banks? Really?

I mean...

Really??

Why I Finally Bought Fannie Mae

"My reasoning is that there is no way that the government can allow Fannie and Freddie (FRE) to fail, or let the common shareholders be wiped out. To do so would signal the total failure of capitalism, and the collapse of the US economy, not unlike the collapse of the Soviet Union. "

Please explain to me how baling out FRE stockholders helps to defeat the "failure of capitalism".

No long-term investor in their right mind has ridden this stock down this 95% decline. The only "stockholders" in FRE are speculators like you who have no interest in the business of the company but are looking to make a quick buck on the assumption the governmnent will buy them out.

There's no "failure of capitalism" here. Just "failure to reward mindless risk-taking".

Fannie Drops on Freddie's Poor Earnings - Rebound Today?

If you're just going ot guess like everybody else, please don't bother writing an article about it. I for one am quite tired about everybody trying to out-guess which banks are going up and which are going down (which these days has no correlation whatsoever with which banks are the profitable and which aren't).

Ten Bear Market Phases, Current Edition

Sunburned: "They presumeably still have the money/credit and have the ability to do something stimulative with it. You know the old velocity of money trick."

That's a weak argument. The previous sellers will need a place to stay as well, as you said, and in most cases they will have put down gains in an upgraded home, which today translates into a greater monetary loss. Aka let's say your house is worth 100k and doubles. You sell it for 200k and decide to move in a 300k house, keeping your mortgage the same. Then housing crashes 30%, say, so the house is worth 240k. In this case you now owe 240k instead of 100k. No wealth was created, you just owe way more on the mortgage, which actually makes it less likely you'll spend on other sectors of the economy.

Saying rents must put a bottom to housing prices doesn't hold water either because rents have long decoupled from housing prices during the housing bubble in many areas. In large cities prices have come up so much that even a 50% drop will not make the properties cash flow positive.

Credit checks are mandatory from most landlords - and foreclosure wrecks credit. People in foreclosure will have more difficulty finding good rentals as most landlords will be weary of renting to them. They've already renegued on their agreement with the bank - why wouldn't they do the same with their landowner? Most people in this situation will have to cut back on their lifestyle and rent lower-quality housing stock as a result. There may be upward pressure on cheaper rentals but the housing prices are certainly not based on a meaningful ratio with respect to cheap rentals right now.

Let the GSEs Fail

To Eric:

It's going to cost trillions and trillions anyway.

Think about it. You can't magically create value out of thin air. If the market says a house isn't worth 500,000$, then it's not worth 500,000$. Having the government bail (some) banks out by, say, guaranteeing the extra 200,000$ on that house which is now valued at 300,000$ still cost society 200,000$, regardless if the bank or the government pays it.

All that Paulson is doing is trying to shift the damage so it hits as many people as possible so the total burden loss on each individual and institution is not as great. The cost will still show up, whether it bank losses, homeowners stuck barely paying the interest on their loans for years, or just plain folks who cannot afford to buy a home right now, and who will be priced out as long as the government tres to prop up house prices in this manner.