Fannie and Freddie --- Now owned by Tax Payers

[chinaco]

Anyone who owns a large cap mutual fund takes a hit.

VG S&P 500 IDX (last reporting period)... As of june 08 Yahoo indicates the fund has $155 M of freddie mac

Fannie Mae 10,146,981 shrs $197,967,599
Freddie Mac 6,150,763 shrs $100,872,513

Approx $300M loss


Total Assets: $105.5 Billion

VG S&P 500 IDX Shareholders pay .3% on top of the tax bail-out.

To put it in perspective. If you hold $1M in the VG S&P 500 IDX... It will cost you $3,000.

A list of a few other large cap MF and institutional investors that hold a lot of it.

http://finance.yahoo.com/q/mh?s=FNM
http://finance.yahoo.com/q/mh?s=FRE

Let's just call it FRAUD and put those @$$h0l3s in jail for 20 years.

[OAG]

I love the Accounting terms used in some of these pronouncements; like "overstated assets" which IMO translate to maybe "double booking of assets". I suspect as they drill down on this stuff it is going to come to the surface that "some" put the same mortgage packages into multiple consolidate packages. Really comes down to pure fraud - but will anyone "go to jail" - I doubt it. As an aside the WAMU CEO is gone this morning. This is going to be a very interesting week, month, year?

[F-One]

Well according to this article, looks like the CEO's may just leave with a large bonus for running their companies in the ground. Mudd of Freddie Mae gets $9.3 million and Syron of Freddie Mac gets $14.1 million. Although the article says details of the compensation package weren't disclosed by FHFA officials.

http://www.nytimes.com/2008/09/08/bu...er&oref=slogin

[donheff]

Quote:

Originally Posted by cute fuzzy bunny Only if you pay a lot in taxes, which as an ER with no debt, I dont. Its all you guys with the higher withdrawal amounts needed to make those big monthly payments that are going to be footing the bill, along with those still accumulating. Maybe something to toss into those 'arb' calculations. SO HA!!!

I knew I was smart to pay off the mortgage - I sensed this was coming.

[Running_Man]

Quote:

Originally Posted by chinaco To put it in perspective. If you hold $1M in the VG S&P 500 IDX... It will cost you $3,000.

You need to offset your losses with the money transferred to them via the financial institutions. Anyone owning large cap mutual funds will come out far ahead. It is the individuals that do not own mutual funds who will be paying for this through taxes in the long run.

[Bestwifeever]

Quote:

Originally Posted by chinaco Anyone who owns a large cap mutual fund takes a hit. VG S&P 500 IDX (last reporting period)... As of june 08 Yahoo indicates the fund has $155 M of freddie mac Fannie Mae 10,146,981 shrs $197,967,599 Freddie Mac 6,150,763 shrs $100,872,513 Approx $300M loss Total Assets: $105.5 Billion VG S&P 500 IDX Shareholders pay .3% on top of the tax bail-out. To put it in perspective. If you hold $1M in the VG S&P 500 IDX... It will cost you $3,000. ...

S&P up 2.5% in first five minutes of trading....

[socca]

Why stop with Freddie and Fannie?

I think the U.S. gov't (i.e., U.S. taxpayer) should step in and buy stock in any company that trades below its 52-week moving average. This will make investing in the U.S. stock market a risk-free proposition, leading to a great financial boom. Of course, it could be argued that stealing money from future generations via massive deficit spending (taxation without representation at its finest!) in order to prop up grossly mismanaged companies is unethical. But since when has ethics had anything to do with the way the U.S. gov't manages its finances? Don't worry, be happy!

[Gardnr]

Quote:

Originally Posted by chinaco Anyone who owns a large cap mutual fund takes a hit. ............ A list of a few other large cap MF and institutional investors that hold a lot of it. FNM: Major Holders for FANNIE MAE - Yahoo! Finance FRE: Major Holders for FREDDIE MAC - Yahoo! Finance

Ooh, ouch! Looks like Bill Miller's going to take another hit (LEGG MASON VALUE TRUST). There's no way he's bailed out of 16.9M shares of FRE since the end of March, is there?

Down about 75% on the day as of right now. He rode that bull up and now it's knocked him off and is kicking him in the dust.

[lets-retire]

Quote:

Originally Posted by socca Why stop with Freddie and Fannie? I think the U.S. gov't (i.e., U.S. taxpayer) should step in and buy stock in any company that trades below its 52-week moving average. This will make investing in the U.S. stock market a risk-free proposition, leading to a great financial boom.

It could be argued that this idea is in the interest of providing for the "general welfare" of the country and as such provided for in the Constitution.

[Gardnr]

Quote:

Originally Posted by F-One Well according to this article, looks like the CEO's may just leave with a large bonus for running their companies in the ground. Mudd of Freddie Mae gets $9.3 million and Syron of Freddie Mac gets $14.1 million. Although the article says details of the compensation package weren't disclosed by FHFA officials. http://www.nytimes.com/2008/09/08/bu...er&oref=slogin

Great, just great. I would say "UFB", but unfortunately it's very believable these days.

[FinanceDude]

So, the government's taking over, now everthing will be "all better"..........

[FIRE'd@51]

What troubles me here is that this government "takeover" appears to be solely to prevent a possible future failure. Both Fannie and Freddie currently exceed the required regulatory capital, and failing was not an imminent danger. Nevertheless, the government (and a Republican administration to boot) basically seized 80% of the company and took away the voting rights of the shareholders. I think we will see many lawsuits before this is over.

[d]

let's not pretend that these were truly "private" companies ... but even if they were, if a "takeover" is truly in the best interest of the public, shouldn't it be done?

[cute fuzzy bunny]

I would certainly hope that if jail sentences arent handed out, that some juicy civil suits are...

[Zathras]

Quote:

Originally Posted by d ... if a "takeover" is truly in the best interest of the public, shouldn't it be done?

Well, I think it would be in the public interest if the government took over the giant oil companies, should they do that too?

Aside from that, this being good for the public is debatable. Sure, it will be good this quarter. But what about an increased environment of businesses taking wild chances because, if it doesn't pan out, the government will fix it?
As for the public, tax payers just took on about 30 Billion in debt (with more possible if needed). I would rather not take on that debt, how is it good for me? Do I get paid a dividend, can I sell my part of the debt if the value of the companies goes up? Will they lower my mortgage rate because I am assuming some of the debt?

This seems to be a very bad situation, and it isn't going to get fixed with the government stepping in and making sure people that made dumb decisions can't get hurt

[cute fuzzy bunny]

After thinking it over, I have to admit its a neat trick to peel off a hunk of government, make it a publicly investable entity, take in billions of investors money, have a bunch of executives strip millions of dollars out of it, get the government to take over whats left of the husk when the whole scheme crashes down and use taxpayer money to reinflate it, then give fat separation packages to the guys who did the deed.

This is a whole new level of thievery well past Phil Greenspuns take on current corporate america...

"The Fly in the Ointment
From reading the foregoing, it seems safe to conclude that any investor can succeed merely by dumping money in an S&P 500 index fund and forgetting about it. A lot of folks apparently thought this way and the result was the massive bubble stock market of the late 1990s. If everyone wants to buy something the price of that thing will go up. The Dow went from less than 2000 in 1987 to nearly 12,000 in 2000. Were American companies really worth 6 times as much 13 years later? Historical price-earnings ratios for common stocks have averaged 15. At the peak of the late 1990s bubble, P/E ratios reached 42. With the Dow at 8000 (July 2002) the ratio is about 25, i.e., an investor is paying $25 for every expected $1 in corporate earnings. This would seem to limit the expected return in a common stock to 4% per year.

Making matters worse is the fact that corporate managers and accounting firms have been fraudulently overstating earnings. The published P/E ratios are based on the lies that CEOs and CFOs tell investors, not the actual cash coming into companies' bank accounts.

A deeper problem than fraudulent reporting is managerial theft. Investors have accounting firms and the SEC to protect them but the top managers have their hands on the company checkbook and their friends on the Board of Directors. In the old days if a company did well the managers would send a letter to shareholders: "The economy was booming last year and Blatzco prospered; your dividend is being doubled." In the 1980s and 1990s a more typical response to a boom year was management saying "Blatzco did well because we're such geniuses; we are going to take home all of the improved profit in the form of bonuses and stock options." Jack Welch in Straight from the Gut proudly states that during his 20 years as General Electric CEO the "employees", by which he means himself and some other top managers, went from 0% to 31% ownership of GE. Rephrased, Jack and his golf partners stole 31% of GE from the investors who owned the company in 1980. What's more, thanks to accounting rules that enable unlimited stock option grants without any charge to earnings, none of this had to be reported in financial statements. My cousin used to be an animator at Walt Disney. In the old days of Hollywood a boom and bust cycle of profits was to be expected. It is tough to predict whether a movie will be a hit. But after Michael Eisner joined the company in 1984 successes were attributed to superior management rather than luck. Eisner helped himself to more than $1 billion of the shareholders' money over the years. Thus when Disney ran into a string of flops the company didn't have enough cash to hang on until the next boom. Disney shut down its Los Angeles animation group and will use contract labor in Eastern Europe for future animated features.

It is tough to see how historically high rates of return on common stocks can be maintained in a world where managers steal most of the fruits that stem from the investors' capital.

Note that the 1980s and 1990s CEOs stealing from their investors are not innovators. Leland Stanford and his partners in the Central Pacific Railroad managed to steal a fabulous sum of money from their British investors by contracting the construction of the railroad to a company that they owned personally. It was a very similar scam as that pulled off by the managers of Enron except that Stanford did it in the 1860s. "

[Culture]

Quote:

Originally Posted by cute fuzzy bunny A deeper problem than fraudulent reporting is managerial theft. Investors have accounting firms and the SEC to protect them but the top managers have their hands on the company checkbook and their friends on the Board of Directors.

I agree with this, but I have no idea what to do about it. Perhaps eliminate stock options for companies other than start-ups? Limit salaries for the top 50 employees to X% of earnings? Eliminate insiders on the Board of Directors?

[Nords]

Quote:

Originally Posted by socca Why stop with Freddie and Fannie?

Quote:

Originally Posted by FIRE'd@51 What troubles me here is that this government "takeover" appears to be solely to prevent a possible future failure. Both Fannie and Freddie currently exceed the required regulatory capital, and failing was not an imminent danger. Nevertheless, the government (and a Republican administration to boot) basically seized 80% of the company and took away the voting rights of the shareholders. I think we will see many lawsuits before this is over.

Lemme get this straight.

Freddie & Fannie basically hold a bunch of mortgages that would be highly valuable if the market was more liquid. And although there will be foreclosures & defaults, those would have been survivable if the market was more liquid.

The governmental cost of allowing Freddie & Fannie to go bankrupt would have been huge-- rising interest rates, a falling dollar, worldwide economic uncertainty, <insert scary doom&gloom scenario here>.

So the govt has used its powers to step in and buy a bargain by taking it off the market and rendering liquidity irrelevant. In other words, this is the biggest flashing blue-light special ever, and our taxpayer wallets just got yanked out of a huge bonfire.

And y'all are unhappy?

Personally, from the perspective of a guy whose ER portfolio is nearly 50% financials, I'm happy!

[cute fuzzy bunny]

Phils suggestion is to skip common stocks altogether except for a small number of hand picked ones where the investor feels the company management arent a bunch of legal thieves and otherwise stick with bonds. Its a lot harder to play games of chicanery when you're borrowing a set amount of money and will pay that money back with a stated interest rate.

I dont know if I'm quite in agreement with this thesis or the proposed solution, but it sure seems like plenty of funny business goes on, the damage seems to be substantial, and the perpetrators seem to rarely get into trouble.

Every once in a while there is substantial public outcry, the spotlight falls on some basically random member of these white collar thieves that was near the edge of the herd and they get hustled off to jail.

[REWahoo]

Quote:

Originally Posted by cute fuzzy bunny ...it sure seems like plenty of funny business goes on, the damage seems to be substantial, and the perpetrators seem to rarely get into trouble.

Inspector Kemp: "A riot is an ungly thing... . undt, I tink, that it is chust about time ve had vun!"