why are e going to bail out the two largest subprime lenders?

[D-Bo]

Something that everybody is ignoring is that property prices never should have spiraled up like they did. The people who buy in at the high end are the ones getting burned. Why should I as a person who didn't buy get stuck with the bill for paying for the greedy short sighted people?

You're not digging deep enough. The buyers aren't the primary reason the subprime mess is going on. The problem is more complex. Just think, there are a ton of people getting very rich from this entire mess. But you have to go further than the buyer. You've got the builders, the brokers, the agents, the appraisers, and the lenders to blame before you even get to the buyer.

What happened should not be a surprise to anyone. The writing was on the wall 6 years ago. Many in this country have been fooled by the illusion of false wealth. It bought a lot of votes. Now we have this mess. Now we have folks that are more concerned in how much they pay in taxes when the real concern should be what your tax money is being spent on. Tax rate doesn't mater if it's being spent to your detriment.

This market is going to get a lot worse before it gets better. Hold on. The thing about this problem is that there is no single catalyst to bring us out of it.

 

[Thebadcat1313]

Something that everybody is ignoring is that property prices never should have spiraled up like they did. The people who buy in at the high end are the ones getting burned. Why should I as a person who didn't buy get stuck with the bill for paying for the greedy short sighted people?

I don't disagree with you. Unfortunately, it was the hedge funds, pension funds, etc who made lots of easy money available to buy homes a few years ago. The same folks who are now speculating oil through the roof. Property prices climbed in response to easy credit. If you were conservative and got a loan you could afford, you should be fine. But the ramifications of Freddie and Fannie going broke are almost unfathomable.

 

[cjdriver]

Something that everybody is ignoring is that property prices never should have spiraled up like they did. The people who buy in at the high end are the ones getting burned. Why should I as a person who didn't buy get stuck with the bill for paying for the greedy short sighted people?

Because the majority of voters elected our current gov't.

 

[skyboat]

yes you might be right im not an economist but i do no they lend in the secondary market(subprime) which is what got them in trouble.In adition from what I understand they are a spuedo private company that pays "0" tax go figure!!

You are incorrect. Fannie/Freddie do not lend in the secondary market. They sell in the secondary market. The secondary market is nothing more than the market that enables non primary dealers and brokers to participate in the marketplace. The primary market allows companies to sell equity and debt to primary brokers and dealers, usually as part of a syndicate. The secondary market allows the primary dealers to sell to individuals and institutions (like you and me).

Fannie/Freddie have never, and will never, buy subprime or alt A debt. They are not able to even purchase jumbo loans. Fannie/Freddie buys prime loans, securitizes the loans, and then sells them in the secondaty market. Additionally, they will guarantee the debt through the purchase of insurance on the debt they securitize.

 

[BoilerUP]

IndyMac did all the Alt-A loans...

 

[hate2bL8]

bottom line they were careless, wreckless and greedy!they did not follow strict lending guidlines it is thier own falt! WE SHOULD NOT BAIL THEM OUT. If they fail and the government does not tinker and prolong the agony thier would be an instant niche for the strong healthy banks. ECON 101

 

[hate2bL8]

sorry Fault

 

[Poahi]

the government does not tinker and prolong the agony thier would be an instant niche for the strong healthy banks. ECON 101

Which banks? Many thought INDYMAC was strong. Remember seeing TV interviews with depositors who were shocked? You think Citi is strong? I used to...

Here's what would happen under your scenario. When a bank fails, and there will be more, depositors will pull their money out. That will cause banks to go below their reserve requirements creating more failures. In addition, no banks will be able to lend so it will be more difficult for quality borrowers to obtain loans. This will cause a drop in home prices, construction, and the overall economy. It's a horrible situation, but this is the least bad of the alternatives. The problem with the mortgage mess is that everyone has to pay for it. The goal is to minimize the losses.

 

[skyboat]

bottom line they were careless, wreckless and greedy!they did not follow strict lending guidlines it is thier own falt! WE SHOULD NOT BAIL THEM OUT. If they fail and the government does not tinker and prolong the agony thier would be an instant niche for the strong healthy banks. ECON 101

If they fail, this country will be in a world of hurt. There will be no secondary market for mortgage debt. We will go back to the pre WWII days when a consumer could only get a five year loan with a ballon payment. Homeownership in America has been the largest wealth creation mechanism in the history of the world.

Without the secondary market for securitized loans, no bank will lend for fear of repeating the S&L crisis during the last housing downturn. S&L made 30 year balance sheet loans with low interest rates. When rates went to the low teens in the 70's/early 80's, all the S&L's had low rate long term assets on their balance sheets. However, they paid high interest rates on their short term deposits they had to back the loans. There was a complete mismatch between assets and liabilities. For example, they loaned at 5%, but then borrowed at 7%. In traditional banking, the profits come from the spreads between borrowing and lending. With upside down spreads, major losses will occur.

In conclusion, without the secondary market, borrowing rates will go up significantly for the consumer significantly impacting homeownership in this country. Without this wealth creation mechanism, our economy will be affected for many generations.

hate2bl8, I am not trying to be flippant or disrespectful, but this crisis was caused by lax oversight by the govt. of the loan originators (NOT Fannie/Freddie), insatiable demand by the investment community (pension funds, investment companies, sovreign wealth funds, hedge funds, investment banks, etc) and the desire of many people to achieve the American dream. Fannie/Freddie were simply adhering to their government mandate to buy loans from the originators.

 

[WMUSIGPI]

This situation will make the savings and loan scandal look like a picnic. One wrong move could bring about the next great depression. Ugly times for many people are unavoidable at this point.