Fannie and Freddie --- Now owned by Tax Payers

So, the government's taking over, now everthing will be "all better"..........:(
 
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.
 
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?
 
I would certainly hope that if jail sentences arent handed out, that some juicy civil suits are...
 
d said:
... if a "takeover" is truly in the best interest of the public, shouldn't it be done?
Click to expand...

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:(
 
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. "
 
cute fuzzy bunny said:
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.
Click to expand...

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?
 
socca said:
Why stop with Freddie and Fannie?
Click to expand...
FIRE'd@51 said:
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.
Click to expand...
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!
 
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.
 
cute fuzzy bunny said:
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.
Click to expand...
Yes - quite a slick trick!

It's all very well to call for privatization of government functions, but unless you completely cut the umbilical cord, as long as there is some type of implied government backing, then the above story is probably the inevitable result.

Audrey
 
Curled into a little ball-sucking my thumb

All- I'm obviously not ready for retirement or investing or even writing a check. I joined this forum with the fantasy of educating myself, to see if I could retire early. Now I'm scared s!$$less and I have even more questions.

I found out this weekend my very ill mother has 300k plus in a PIMCO bond fund. Am I happy or sad about the Fannie Mae bailout? She also has 200K in market rate securities. Her UBS "advisor" put her in those. I THINK she is okay with both those positions.

I have a large portion of my 401K in a Dodge and Cox stock fund. Is it hide the knives time?

The question I really want to ask is this: This thread has shown articles that the Dodge and Cox fund has a large position in Fannie mae stock and now is theoretically worthless (bad for me). However, when I go to the D and C fund snapshot on MSN or Morningstar there is no mention of the Fannie Mae stock among the top holdings. Who's lying to me? Did D and C unload 59,000,000 shares of Fannie Mae today? I kind of hope so. After the last 2 years I'm thinking of working until age 82. Just kidding. I THINK I'm diversified and I THINK I'm willing to weather the storm. Grey hair and no hair are the price I will pay.
 
IMO - The govt probably needed to step in... we probably have not heard all of it yet.

It restored confidence and may help the mortgage markets and the stock market.

But the positive part of the story ends there. The people running those companies were at best negligent... perhaps worse.

Shareholder of those companies, Stockholders in general, and taxpayers go the shaft.

The company management made millions. Where is all of that corporate governance that was supposed to be in place after SOX.

I think several of those people are going to Jail. :bat: We can only hope! >:D
 
Not only did the executives make tens of millions with their superb management skills, they spent about 170 million lobbying congress to maintain lax oversight regulations.

Yes, these crooks need to be tried and convicted of fraud and sent to a white collar country club retirement prison:rant:
 
cute fuzzy bunny said:
I remember around late 2003/early 2004 all the financial porn rags and the tv screamers were insisting that everyone should make huge investments in fannie and freddie.
Click to expand...
See also Peter Lynch's advice in Beating the Street (1993), pp. 263 et seq.
 
Michael Dirubio said:
I have a large portion of my 401K in a Dodge and Cox stock fund. Is it hide the knives time?

The question I really want to ask is this: This thread has shown articles that the Dodge and Cox fund has a large position in Fannie mae stock and now is theoretically worthless (bad for me). However, when I go to the D and C fund snapshot on MSN or Morningstar there is no mention of the Fannie Mae stock among the top holdings. Who's lying to me? Did D and C unload 59,000,000 shares of Fannie Mae today? I kind of hope so. After the last 2 years I'm thinking of working until age 82. Just kidding. I THINK I'm diversified and I THINK I'm willing to weather the storm. Grey hair and no hair are the price I will pay.
Click to expand...
Don't worry about it! DODGX was up 1.64% today, so no matter how much of a hit it took on FF, other things in the fund overwhelmed the effect. Sure, it could have been up more without that holding, but it's far cry from the drastic downdraft so cheerily predicted by so many articles.

Article writers often miss the forest for looking at a single tree.

Audrey
 
Apparently the fraud has been going on for quite a while. How is it that these jerks were not prosecuted?

http://www.washingtonpost.com/wp-dyn/content/article/2006/05/23/AR2006052300184_2.html


This issues with Freddie and Fannie is serious. Even though the market rallied a bit... that only occurred because the feds took them over and it was a sigh of relief.

There is a fundamental problem with our financial system. All of us will recover... and spreading out the losses amongst all investors and tax payers spreads the pain. But lets not forget that some sorry opportunists rip us off and put the nation in a tail spin. We will be paying for this for year.

Consider how the losses ($) could have been used by you and the govt for more positive purposes than fixing problems those @$$h0l3s created.
 
Standby our Great Congress is back at work - They are taking up the "great Mortgage crisis" as we type. What will come out of that will be a "big CHANGE" - hope we can afford it.

Personally, I do not think I should pay for this fiasco but that is JMHO as I have not had a mortgage to purchase a home for the past 33 years and do not ever intend to use one to purchase a place to live the rest of my life. HELOC yes, purchase mortgage NO.
 
cute fuzzy bunny said:
Just try hard to not pay any taxes over the next 5-10 years and you'll be fine!
Click to expand...

Thanks but Military Retirement makes that totally impossible. But, since I repaid my SS (to retake it at age 70) this year (2008 Taxes) I will be getting upwards of a $10K refund for previous taxes paid on SS.
 
OAG said:
But, since I repaid my SS (to retake it at age 70) this year (2008 Taxes) I will be getting upwards of a $10K refund for previous taxes paid on SS.
Click to expand...

OAG, a bit off topic, but when we discussed this on other threads, IIRC, you pointed out that one had a choice to take a deduction on Sched A for the repaid amount, or go back and figure out the past taxes paid on the SS income. Does this mean you plan to file amended returns for all those years?
 
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