US Nationalizes Mortgage Lenders

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1. Sep 9, 2008

Mental Gridlock

The US has taken over Freddie Mac and Fannie Mae, the two biggest privately owned mortgage lenders in their country.

They fired and replaced the CEO's and board of directors.

They will now conduct the day to day operations of the companies.

They are taking money away from the investors by eliminating their dividends.

Here is the source for all of the above factual claims:

http://money.cnn.com/2008/09/07/news/companies/fannie_freddie/index.htm?eref=edition

Besides these consequences, the takeover may have big costs for the US taxpayers as well. Treasury secretary Henry Paulson stated he was unsure how much it would be costing, but certainly did not deny the expenditures. The treasury department said they would possibly spend as much as 100 billion dollars over time. The following is the source for these claims:

I am posting this thread to inform people of what is going on as well as the consequences that it will have on its investors and the taxpayers, as well as to inquire on what the good side might be or to simply discuss if it's a good decision, or other concerns for why it might be bad. I would like to know what other people think about its effectiveness as well. Do you believe that this will help the economy and the housing market, or could it make things worse? I invite anyone from anywhere in the world to comment or dispute.

The following is my opinion about the matter:

I don't like it because it is a step towards communism. I feel the government's role is not to interfere in the affairs of private corporations so much, let alone take them over. And nationalizing any company in any industry may be a slippery slope. Today it's okay for them to take over private institutions, this might mean that they could do the same in the future for other companies as well, perhaps even outside the finance industry. This of course is speculation on my part. But I'm no fan of a move towards communism.

2. Sep 9, 2008

Alfi

They fired and replaced the CEO's and board of directors.

Ya right.
I bet they walk away free and clear with millions.

3. Sep 9, 2008

Ya got that one right. $15 million for the CEO's. That is the reward for failure. 4. Sep 9, 2008 Mental Gridlock "ya right." ????? Are you denying that they were ousted? http://www.marketwatch.com/news/sto...x?guid={832C8CA2-92B9-4AE4-9D8F-6105C62DBA1B} They were forced out. Removed. aka fired. Like was mentioned, they failed and so were removed. They fired the CEO's and there certainly doesn't seem to be any choice they had in the matter. They were fired. Ousted. Discharged. Dismissed. Relieved of their command. Let go. Shown the door. Got the axe. Got the pink slip. Terminated. Call it what you want; that's what happened. This isn't changed by the fact that they got a severance. Their severance payment was part of the contracts (source is my link above).. The goverment couldn't do much about that. But the fact they got paid doesn't change the fact that they were ousted. 5. Sep 9, 2008 cristo Staff Emeritus Isn't this a little ironic: how can people be "free" if their government is getting more and more power, and now owns the monopoly on mortgage lending. Doesn't this go against the whole American ideal? 6. Sep 9, 2008 wildman Yep. But I think you all missed why Bush and the Congress are doing this. They did it because the Chinese ordered us to do it. We have lost our independence due to the large amount of money we owe others. 7. Sep 9, 2008 Alfi 15 Million severance. ( 300 years worth of my average pay ) They earned that! Who pays for that? Taxpayers or the investors? 8. Sep 9, 2008 edward 9. Sep 9, 2008 mgb_phys So should china have just bought them? A bankruptcy sale on a financial company with no assets, they should have paid around 10c on the$, since they were set to lose 10% they could have got the whole thing failry cheaply.

10. Sep 9, 2008

edward

Do you really think that the American people would go for that?? We wouldn't even let them buy Maytag. China would much prefer that the American tax payers pick up the tab.

For that matter other foreign companies might oppose that kind of deal.

http://www.forbes.com/finance/2008/09/09/fannie-freddie-roubini-pf-ii-in_rl_0909croesus_inl.html

11. Sep 9, 2008

mgb_phys

It's a free country, they are a listed public company ;-)
It's not like the USA is some S. American banana republic that would just unilaterally nationalise foreign owned companies.

12. Sep 9, 2008

f95toli

AFAIK both companies were founded by the federal government (early 30s?) and although they were later privatized (mid 60s?) they have never been "private corporations" in any normal sense of the world, it has ALWAYS been implicit that the US government was behind them and that they would never be allowed to collapse.
Hence, the government simply had no choice in this case; not saving them would have amounted to breaking an implicit promise to the market.

13. Sep 9, 2008

Specifically, Fannie Mae and Freddie Mac are not private corporations, but Government Sponsored Enterprises (see http://en.wikipedia.org/wiki/Government_sponsored_enterprise ). And while there is no explicit guarantee of any of their instruments, it has always been assumed (with good reason) by pretty much every one that the Federal Government would not allow them to go bankrupt.

It's funny how shocked some people get by things like this; I guess all the years of portrayal of the United States as the epitome of unrestrained capitalism (both inside the US and without) have made people forget that the US is, in fact, a mixed economy, just like most other countries.

14. Sep 9, 2008

Staff: Mentor

Just so we're clear, was that intended to be a serious statement? Do you have a source for it?

15. Sep 9, 2008

wildman

Last edited: Sep 9, 2008
16. Sep 10, 2008

Staff: Mentor

Um - the 2 FM's are not privately owned. They are publicly traded companies, and are actually GSE's. They may however be delisted from the NY Stock Exchange, but one can still by their common and preferred stock.

Economics dictated the takeover. The 2FM's were having trouble raising capital - so the government stepped in with it's full faith and credit.

The world financial markets are jittery, and it could very well be that the aggregate debt now exceeds the ability to pay. Certainly the US economy appears to be over-leveraged.

17. Sep 10, 2008

Jimmy Snyder

Here is a quote from the link you provided:

Language is weird. Publicly traded means privately owned (though not vice versa obviously). See the wiki quote above concerning GSE's.

Last edited: Sep 10, 2008
18. Sep 10, 2008

Jimmy Snyder

Here is an excerpt from the US Code. It is from a definition of the term "government-sponsored enterprise", but it is just a snippet, not the entire definition.
US Code
That means that when you say Fannie Mae and Freddie Mac are not privately owned, you are breaking the law.

Last edited: Sep 10, 2008
19. Sep 10, 2008

kronon

The Regulators sit on their hands for 7 years just watching as a 5 trillion dollar hole opens in economy, bringing it to the brink.

They ignore the warning signs that others have been pointing out to them.

And now they are the saviours?

Terrorist before the explosion and doctor after it.

In my view they are a major disappointment who have very seriously failed their obligations.

20. Sep 10, 2008

Staff: Mentor

Ah - my mistake. Thanks for the correction.

So publicly-owned implies owned by the government.

Presumably privately-held and privately-owned don't mean the same thing.

I have to wonder if the laws are written to obfuscate the details and snooker the general population with respect to investing.

Edit: With respect to "is privately owned, as evidenced by capital stock owned by private entities or individuals;" - what is a private entity - anything not the government? So in essence, a publicly-traded company is still a 'private entity'.

Last edited: Sep 10, 2008