My opinion is that there is always more trouble when the government gets involved. Bureaucracy never streamlines a process, it has a way of impeding it. Personally, I see higher rates, and less sales. More importantly I see a lot less consumer confidence in the economy and stocks. The government intervention makes all shares of common almost worthless, and totally worthless if the two companies never emerge out of conservatorship. From what I have read online the largest holders of much of the common stocks are insurance companies and pension funds. What happens to the confidence of their investments? What happens if your retirement fund is invested in these 2 companies? If I lost money on a sure bet, I would be not likely to invest more with the same company. That is a hard sale! The reality is that the shift and the losses will be borne more by the US Taxpayers.

I'm not so sure that Homebuyers with cash are helped by this government bailout. You're right that the interest rates go down a little, but what about the actual price of the house? The buyout will stem the price drop by enabling more people to have "easy money" mortgages. That 0.5% in interest isn't going to outweigh the 10% lower price that the house would have sold for.

This deal is bad for everyone.

I think it's strange that commentators keep saying that taxpayers are going to pick up the bill for this takeover. The truth is that no one dares to raise taxes in the current political climate. Any suggestion of a tax increase generates cries of "Tax and spend liberal!" from the Republicans, and then the Democrats fall all over themselves to assure voters that they plan to cut taxes, not raise them.

In the end, the federal government will pay off the loan guarantees it has assumed by issuing more debt. Then it will pay that debt (and the related interest) by issuing still more debt. When will people realize that even the U S government can't keep this pyramid scheme going forever?

The good news is that your average mortgage loan is now as secure as a U S Treaury bond.

The bad news is that a U S Treasury bond is now as secure as your average mortgage loan.

For those who wish for more government involvement, for larger government with more regulatory power - this is what you end up with.

The storm is just starting - today, Tues., Lehman Bros. is wobbling, it will probably go out of business or be folded into another investment bank. Wamu, Washington Mutual is next. With the failure of Wamu, the FDIC will effectively be bankrupt. The FDIC will have to to the government for a handout. The big 3 automakers are lined up at the begging bowl asking for 50 billion.

Small and large banks having purchased fannie/freddie perferred stock for income, will no longer have that income.

I know Fannie/Freddie's bailout was necessary, but it's wrong nonetheless. We have effectively burdened our children and our grandchildren with our debt.

All I have to say, you haven't seen anything yet.

Winners - you forgot the Fannie Mae and Freddie Mac CEOs and other executives and their golden parachutes who bankrupted the company then left for their mansions and country clubs. Thanks, guys!

I didn't see anything in the article about Fannie and Freddie *bonds*. Are the owners of these going to be winners, losers, or neutral?

Here's a copy of an email I had sent to my friends on the same subject, from a little different perspective...   

I read Xin Lu's article with a sense of deja vu

...........................................................................................................

The Freddie /Fannie problems is not well understood, by the public, by congress, or by the experts..

The total amount of Mortgages outstanding in the US is about 12 trillion dollars, of which Freddie and Fannie have guaranteed about 5 Trillion.  

Mortgages are debts, that come due over a period of time, thus, when you buy a home, for let's say $200,000, over the thirty year period, the total amount that will be paid, including interest at 7.5%, would be $504000. 

The $504,000. Is debt.  Fannie Mae buys this debt from banks that issued the mortgage.  In effect, the bank transfers the mortgage that is owed, to Fannie Mae... but realizing that there is risk involved (that the mortgage will not be paid off in full), they will sell the debt for an amount less than the total amount due. 

For instance, a mortgaging bank may sell the $504000 owing, for $480,000... to Fannie Mae..  Fannie Mae now, can take the full amount of the debt, and hold it on its books,  or in turn sell it off to others.  (The mortgaging bank, is then free to reinvest the amount it received for the mortgage). 

Some people think that the stockholders own this debt.   That is not so.   They own shares in the company.  The Debt is separate.

The "others" that Fannie sells the debt to, include, but are not limited to: .1.  Sovereign Wealth Funds owned by Foreign Nations . (China alone, owns approximately $300 Billion of this debt) .  2. Pension Funds... Private and Public.  2. Banks and Brokers. 3. Endowment Funds,  4. Insurance Company funds, 5. Private individuals.  This debt is usually sold at "auction".

So far, so good.  Initially, the  operation of Fannie Mae was governed by strict rules, requiring the Corporation to adhere to accounting standards, to maintain operating liquidity, and to maintain assets using valuation assessments that looked at the true conditons for the debt according to time and present  value (mark to market). 

As a result of financial firms' lobbying efforts, the rules were eased... eroded by Congressional action... That allowed Fannie (and Freddie) to operate with more freely, and to make risky decisions that now have resulted in the reported book assets being valued at much more than they are actually worth.

That in a nutshell, (without explaining CDO's, Credit Derivative Swaps and a few dozen more exotic financial instruments) is about what happened.   Because the mortgages were sliced, diced, insured, re insured and revalued by questionable mathematical formulas, the actual value is almost impossible to fairly evaluate. 

Almost for certain, the amount at risk is many times the $500Billion that the government has estimated.  Some of the Conservative economists who really understand the situation have estimated the actual loss to be about  $1.3 Trillion .  Depending on the length of time before the markets begin to agree to trade the questionable assets ... the actual  losses could possibly reach as much as $3 Trillion Dollars... and that is just for Fannie Mae and Freddie Mac .

Now for the final nail in the coffin... With the Government now having agreed to "back" the assets, so that the Sovereign Wealth Funds, Pension Funds, and Brokerage Houses won't have  take a loss on their investment... The final result could be debt of $1 to $2 Trillion dollars to be paid for by the US Government... That's you and me.

At this rate, the individual personal debt of each and every American (our part of the Federal Debt), could go from today's $32,000 to somewhere between $34,000 and $36,000.

Yes... In order for Uncle Sam to pay off in full on  those investments in Freddie and Fannie (which normally would be at risk to the investors...), every US citizen (man woman and child) is going to have to kick in $2,000 to $4,000.  

For the next big dollars that you're going to have to pay out of your future, watch the FDIC, which will pay off when the banks go belly up, and the Pension Benefit Guaranty Fund,both of which are already "Broke". 

No one has yet estimated either of these losses, though a year ago, the Pension Funds were in the red by about $600 Billion Dollars. It looks as though about 100 banks may close by the end of this year, and I've heard that as many as 1,000 are on the near time "watch list".  Wouldn't dare estimate these losses

.. and that doesn't even take into consideration hyperinflation, depression, or global warming...   :-) :-) :-) 

Thank your congressmen for the way they've protected your interests. 

my opinion only

I'm worried about the long term effects of this bailout and whether it will make the recession (are we officially using this word yet?) last longer than is normal for an economic re-adjustment.

-Suz

I have a friend that was/is a victim of the Katherina storms and lost everything. I can't help even help him and I have a job and I may need to sleep in my 43 day behind car note car so I can not miss work. Who has enough money to purchase a WOODEN TOY ARROW.