Gov is expected to take over Fannie Mae & Freddie Mac

[ilwrath]

All parties involved have already caused crippling damage to the economy.

They sure have, but NOTHING like what I understand would happen should they be allowed to collapse completely.

I don't fully comprehend the monetary system in the US (I've got a lot more of it figured out than the common Joe, but not as much as I'd like to...), but I think I understand the general cycle.

Without Fannie and Freddy around to gobble up all those toxic bad loans, that loss is going to come straight out of the real economy. There isn't enough money in the system for that to possibly have a good outcome. We're talking 50% of all home loans here. That is an astounding amount of money! To have that loss hit the real economy would be pure chaos. Major bank run and massive liquidity crisis ensues. Cue a likely complete economic collapse, and possibilities as wild as complete US bankruptcy or governmental/systemic upheaval.

With Fannie and Freddy under the Fed, it'll almost work out like all that money never existed. You have the Fed pump a bunch of funny money into the system to fill that void of toxic bad loans, the money subsequently disappears (those loans and monetary instruments are worthless...), and the rest of the system ends up fairly untouched. Hopefully.

Sure, there will be some (probably significant) inflation damage... Sure, the housing market "correction" will hurt... Sure, we'll piss off some (most? all?) foreign nations... But I'd still rather see that to avoid the chance of a complete collapse.

 

[ilwrath]

All parties involved have already caused crippling damage to the economy.

They sure have, but NOTHING like what I understand would happen should they be allowed to collapse completely.

I don't fully comprehend the monetary system in the US (I've got a lot more of it figured out than the common Joe, but not as much as I'd like to...), but I think I understand the general cycle.

Without Fannie and Freddy around to gobble up all those toxic bad loans, that loss is going to come straight out of the real economy. There isn't enough money in the system for that to possibly have a good outcome. We're talking 50% of all home loans here. That is an astounding amount of money! To have that loss hit the real economy would be pure chaos. Major bank run and massive liquidity crisis ensues. Cue a likely complete economic collapse, and possibilities as wild as complete US bankruptcy or governmental/systemic upheaval.

With Fannie and Freddy under the Fed, it'll almost work out like all that money never existed. You have the Fed pump a bunch of funny money into the system to fill that void of toxic bad loans, the money subsequently disappears (those loans and monetary instruments are worthless...), and the rest of the system ends up fairly untouched. Hopefully.

Sure, there will be some (probably significant) inflation damage... Sure, the housing market "correction" will hurt... Sure, we'll piss off some (most? all?) foreign nations... But I'd still rather see that to avoid the chance of a complete collapse.

 

[smithy]

Re: Gov is expected to take over Fannie Mae & Freddie Ma

And so, Fannie and Freddie return to the place from whence they came.

This is sort of the typical cycle. Government sees a need and sets up a body to handle the need. They fill it with money. If it looks like it could be a profitable venture it becomes a business. Once the businessmen have sucked all the money out of it, they give it back to the government to refill.

Not too different from the Northern Rock fiasco in the UK. Shareholders retain any profitable or potentially profitable part of the business. Tax-payers get lumped with what's left.

Not sure where you've got your information from. Which parts, and how much, of Northern Rock do you believe these shareholders own?

 

[smithy]

Re: Gov is expected to take over Fannie Mae & Freddie Ma

And so, Fannie and Freddie return to the place from whence they came.

This is sort of the typical cycle. Government sees a need and sets up a body to handle the need. They fill it with money. If it looks like it could be a profitable venture it becomes a business. Once the businessmen have sucked all the money out of it, they give it back to the government to refill.

Not too different from the Northern Rock fiasco in the UK. Shareholders retain any profitable or potentially profitable part of the business. Tax-payers get lumped with what's left.

Not sure where you've got your information from. Which parts, and how much, of Northern Rock do you believe these shareholders own?

 

[smithy]

Re: Gov is expected to take over Fannie Mae & Freddie Ma

And so, Fannie and Freddie return to the place from whence they came.

This is sort of the typical cycle. Government sees a need and sets up a body to handle the need. They fill it with money. If it looks like it could be a profitable venture it becomes a business. Once the businessmen have sucked all the money out of it, they give it back to the government to refill.

Not too different from the Northern Rock fiasco in the UK. Shareholders retain any profitable or potentially profitable part of the business. Tax-payers get lumped with what's left.

Not sure where you've got your information from. Which parts, and how much, of Northern Rock do you believe these shareholders own?

 

[smithy]

Re: Gov is expected to take over Fannie Mae & Freddie Ma

And so, Fannie and Freddie return to the place from whence they came.

This is sort of the typical cycle. Government sees a need and sets up a body to handle the need. They fill it with money. If it looks like it could be a profitable venture it becomes a business. Once the businessmen have sucked all the money out of it, they give it back to the government to refill.

Not too different from the Northern Rock fiasco in the UK. Shareholders retain any profitable or potentially profitable part of the business. Tax-payers get lumped with what's left.

Not sure where you've got your information from. Which parts, and how much, of Northern Rock do you believe these shareholders own?

 

[smithy]

Re: Gov is expected to take over Fannie Mae & Freddie Ma

And so, Fannie and Freddie return to the place from whence they came.

This is sort of the typical cycle. Government sees a need and sets up a body to handle the need. They fill it with money. If it looks like it could be a profitable venture it becomes a business. Once the businessmen have sucked all the money out of it, they give it back to the government to refill.

Not too different from the Northern Rock fiasco in the UK. Shareholders retain any profitable or potentially profitable part of the business. Tax-payers get lumped with what's left.

Not sure where you've got your information from. Which parts, and how much, of Northern Rock do you believe these shareholders own?

 

[smithy]

Re: Gov is expected to take over Fannie Mae & Freddie Ma

And so, Fannie and Freddie return to the place from whence they came.

This is sort of the typical cycle. Government sees a need and sets up a body to handle the need. They fill it with money. If it looks like it could be a profitable venture it becomes a business. Once the businessmen have sucked all the money out of it, they give it back to the government to refill.

Not too different from the Northern Rock fiasco in the UK. Shareholders retain any profitable or potentially profitable part of the business. Tax-payers get lumped with what's left.

Not sure where you've got your information from. Which parts, and how much, of Northern Rock do you believe these shareholders own?

 

[FluffyMcDeath]

Without Fannie and Freddy around to gobble up all those toxic bad loans, that loss is going to come straight out of the real economy. There isn't enough money in the system for that to possibly have a good outcome.

Well, in a way there actually is approximately the same amount of money as debt because debt is money. If the debt is allowed to fail then the money goes away. Debt is an IOU and can be traded. Lets take an example in a barter system. A needs some carrots so he borrows them from B with the condition that he will give back the carrots plus 10% next Thursday. On about Tuesday B meets C who is willing to trade some eggs for carrots, but B is out of carrots. B asks C if he'd accept carrots + 10% on Thursday for trade on eggs today. C takes A's IOU for eggs for B. While that IOU exists it is tradable as money. When it is cashed for carrots or defaulted then the money disappears.

Debt is the most common form of money in circulation today, that is, the world trades on the promise to pay the value at some time in the future and those promises are passed around until they expire, but new promises are continually created to maintain the money supply.

If Fanny and Freddie were allowed to collapse, all the money that their debt instruments support (and it is more than the almost a trillion dollars because the debt is leveraged) disappears and suddenly there is no money any more.

This is hugely inconveniencing for the average person who doesn't have much money anyway and has to resort to barter to keep alive. It is a total disaster to the .1% of the population that actually owns 90% of the money. Those people would instantly become just like common people - it doesn't bare thinking about.

So, what can be done? Well, if the government borrows the money to cover the Freddie and Fannie debts from the Federal Reserve then the debts are backed by the US government (and its power to tax) and it is much less likely to collapse. This protects the super wealthy at the expense of the vast majority of the population who are your average taxpaying citizen.

Still, it is easier for the average Joe than suddenly having to learn about the world of trading and barter. Money makes the accounting so much simpler.

One little wrinkle in the current proposal is that it will render Fannie and Freddie shares virtually worthless and a little bit of a problem for scores of banks who hold a lot of these devices to satisfy their capital reserve requirements. If those holdings become worthless then banks don't have any reserve to issue loans against which results in banks failing and the average Joe resorting to barter while all the people who own most of the money get to keep the money.

 

[FluffyMcDeath]

Without Fannie and Freddy around to gobble up all those toxic bad loans, that loss is going to come straight out of the real economy. There isn't enough money in the system for that to possibly have a good outcome.

Well, in a way there actually is approximately the same amount of money as debt because debt is money. If the debt is allowed to fail then the money goes away. Debt is an IOU and can be traded. Lets take an example in a barter system. A needs some carrots so he borrows them from B with the condition that he will give back the carrots plus 10% next Thursday. On about Tuesday B meets C who is willing to trade some eggs for carrots, but B is out of carrots. B asks C if he'd accept carrots + 10% on Thursday for trade on eggs today. C takes A's IOU for eggs for B. While that IOU exists it is tradable as money. When it is cashed for carrots or defaulted then the money disappears.

Debt is the most common form of money in circulation today, that is, the world trades on the promise to pay the value at some time in the future and those promises are passed around until they expire, but new promises are continually created to maintain the money supply.

If Fanny and Freddie were allowed to collapse, all the money that their debt instruments support (and it is more than the almost a trillion dollars because the debt is leveraged) disappears and suddenly there is no money any more.

This is hugely inconveniencing for the average person who doesn't have much money anyway and has to resort to barter to keep alive. It is a total disaster to the .1% of the population that actually owns 90% of the money. Those people would instantly become just like common people - it doesn't bare thinking about.

So, what can be done? Well, if the government borrows the money to cover the Freddie and Fannie debts from the Federal Reserve then the debts are backed by the US government (and its power to tax) and it is much less likely to collapse. This protects the super wealthy at the expense of the vast majority of the population who are your average taxpaying citizen.

Still, it is easier for the average Joe than suddenly having to learn about the world of trading and barter. Money makes the accounting so much simpler.

One little wrinkle in the current proposal is that it will render Fannie and Freddie shares virtually worthless and a little bit of a problem for scores of banks who hold a lot of these devices to satisfy their capital reserve requirements. If those holdings become worthless then banks don't have any reserve to issue loans against which results in banks failing and the average Joe resorting to barter while all the people who own most of the money get to keep the money.

 

[FluffyMcDeath]

Without Fannie and Freddy around to gobble up all those toxic bad loans, that loss is going to come straight out of the real economy. There isn't enough money in the system for that to possibly have a good outcome.

Well, in a way there actually is approximately the same amount of money as debt because debt is money. If the debt is allowed to fail then the money goes away. Debt is an IOU and can be traded. Lets take an example in a barter system. A needs some carrots so he borrows them from B with the condition that he will give back the carrots plus 10% next Thursday. On about Tuesday B meets C who is willing to trade some eggs for carrots, but B is out of carrots. B asks C if he'd accept carrots + 10% on Thursday for trade on eggs today. C takes A's IOU for eggs for B. While that IOU exists it is tradable as money. When it is cashed for carrots or defaulted then the money disappears.

Debt is the most common form of money in circulation today, that is, the world trades on the promise to pay the value at some time in the future and those promises are passed around until they expire, but new promises are continually created to maintain the money supply.

If Fanny and Freddie were allowed to collapse, all the money that their debt instruments support (and it is more than the almost a trillion dollars because the debt is leveraged) disappears and suddenly there is no money any more.

This is hugely inconveniencing for the average person who doesn't have much money anyway and has to resort to barter to keep alive. It is a total disaster to the .1% of the population that actually owns 90% of the money. Those people would instantly become just like common people - it doesn't bare thinking about.

So, what can be done? Well, if the government borrows the money to cover the Freddie and Fannie debts from the Federal Reserve then the debts are backed by the US government (and its power to tax) and it is much less likely to collapse. This protects the super wealthy at the expense of the vast majority of the population who are your average taxpaying citizen.

Still, it is easier for the average Joe than suddenly having to learn about the world of trading and barter. Money makes the accounting so much simpler.

One little wrinkle in the current proposal is that it will render Fannie and Freddie shares virtually worthless and a little bit of a problem for scores of banks who hold a lot of these devices to satisfy their capital reserve requirements. If those holdings become worthless then banks don't have any reserve to issue loans against which results in banks failing and the average Joe resorting to barter while all the people who own most of the money get to keep the money.

 

[FluffyMcDeath]

Without Fannie and Freddy around to gobble up all those toxic bad loans, that loss is going to come straight out of the real economy. There isn't enough money in the system for that to possibly have a good outcome.

Well, in a way there actually is approximately the same amount of money as debt because debt is money. If the debt is allowed to fail then the money goes away. Debt is an IOU and can be traded. Lets take an example in a barter system. A needs some carrots so he borrows them from B with the condition that he will give back the carrots plus 10% next Thursday. On about Tuesday B meets C who is willing to trade some eggs for carrots, but B is out of carrots. B asks C if he'd accept carrots + 10% on Thursday for trade on eggs today. C takes A's IOU for eggs for B. While that IOU exists it is tradable as money. When it is cashed for carrots or defaulted then the money disappears.

Debt is the most common form of money in circulation today, that is, the world trades on the promise to pay the value at some time in the future and those promises are passed around until they expire, but new promises are continually created to maintain the money supply.

If Fanny and Freddie were allowed to collapse, all the money that their debt instruments support (and it is more than the almost a trillion dollars because the debt is leveraged) disappears and suddenly there is no money any more.

This is hugely inconveniencing for the average person who doesn't have much money anyway and has to resort to barter to keep alive. It is a total disaster to the .1% of the population that actually owns 90% of the money. Those people would instantly become just like common people - it doesn't bare thinking about.

So, what can be done? Well, if the government borrows the money to cover the Freddie and Fannie debts from the Federal Reserve then the debts are backed by the US government (and its power to tax) and it is much less likely to collapse. This protects the super wealthy at the expense of the vast majority of the population who are your average taxpaying citizen.

Still, it is easier for the average Joe than suddenly having to learn about the world of trading and barter. Money makes the accounting so much simpler.

One little wrinkle in the current proposal is that it will render Fannie and Freddie shares virtually worthless and a little bit of a problem for scores of banks who hold a lot of these devices to satisfy their capital reserve requirements. If those holdings become worthless then banks don't have any reserve to issue loans against which results in banks failing and the average Joe resorting to barter while all the people who own most of the money get to keep the money.

 

[FluffyMcDeath]

Without Fannie and Freddy around to gobble up all those toxic bad loans, that loss is going to come straight out of the real economy. There isn't enough money in the system for that to possibly have a good outcome.

Well, in a way there actually is approximately the same amount of money as debt because debt is money. If the debt is allowed to fail then the money goes away. Debt is an IOU and can be traded. Lets take an example in a barter system. A needs some carrots so he borrows them from B with the condition that he will give back the carrots plus 10% next Thursday. On about Tuesday B meets C who is willing to trade some eggs for carrots, but B is out of carrots. B asks C if he'd accept carrots + 10% on Thursday for trade on eggs today. C takes A's IOU for eggs for B. While that IOU exists it is tradable as money. When it is cashed for carrots or defaulted then the money disappears.

Debt is the most common form of money in circulation today, that is, the world trades on the promise to pay the value at some time in the future and those promises are passed around until they expire, but new promises are continually created to maintain the money supply.

If Fanny and Freddie were allowed to collapse, all the money that their debt instruments support (and it is more than the almost a trillion dollars because the debt is leveraged) disappears and suddenly there is no money any more.

This is hugely inconveniencing for the average person who doesn't have much money anyway and has to resort to barter to keep alive. It is a total disaster to the .1% of the population that actually owns 90% of the money. Those people would instantly become just like common people - it doesn't bare thinking about.

So, what can be done? Well, if the government borrows the money to cover the Freddie and Fannie debts from the Federal Reserve then the debts are backed by the US government (and its power to tax) and it is much less likely to collapse. This protects the super wealthy at the expense of the vast majority of the population who are your average taxpaying citizen.

Still, it is easier for the average Joe than suddenly having to learn about the world of trading and barter. Money makes the accounting so much simpler.

One little wrinkle in the current proposal is that it will render Fannie and Freddie shares virtually worthless and a little bit of a problem for scores of banks who hold a lot of these devices to satisfy their capital reserve requirements. If those holdings become worthless then banks don't have any reserve to issue loans against which results in banks failing and the average Joe resorting to barter while all the people who own most of the money get to keep the money.

 

[FluffyMcDeath]

Without Fannie and Freddy around to gobble up all those toxic bad loans, that loss is going to come straight out of the real economy. There isn't enough money in the system for that to possibly have a good outcome.

Well, in a way there actually is approximately the same amount of money as debt because debt is money. If the debt is allowed to fail then the money goes away. Debt is an IOU and can be traded. Lets take an example in a barter system. A needs some carrots so he borrows them from B with the condition that he will give back the carrots plus 10% next Thursday. On about Tuesday B meets C who is willing to trade some eggs for carrots, but B is out of carrots. B asks C if he'd accept carrots + 10% on Thursday for trade on eggs today. C takes A's IOU for eggs for B. While that IOU exists it is tradable as money. When it is cashed for carrots or defaulted then the money disappears.

Debt is the most common form of money in circulation today, that is, the world trades on the promise to pay the value at some time in the future and those promises are passed around until they expire, but new promises are continually created to maintain the money supply.

If Fanny and Freddie were allowed to collapse, all the money that their debt instruments support (and it is more than the almost a trillion dollars because the debt is leveraged) disappears and suddenly there is no money any more.

This is hugely inconveniencing for the average person who doesn't have much money anyway and has to resort to barter to keep alive. It is a total disaster to the .1% of the population that actually owns 90% of the money. Those people would instantly become just like common people - it doesn't bare thinking about.

So, what can be done? Well, if the government borrows the money to cover the Freddie and Fannie debts from the Federal Reserve then the debts are backed by the US government (and its power to tax) and it is much less likely to collapse. This protects the super wealthy at the expense of the vast majority of the population who are your average taxpaying citizen.

Still, it is easier for the average Joe than suddenly having to learn about the world of trading and barter. Money makes the accounting so much simpler.

One little wrinkle in the current proposal is that it will render Fannie and Freddie shares virtually worthless and a little bit of a problem for scores of banks who hold a lot of these devices to satisfy their capital reserve requirements. If those holdings become worthless then banks don't have any reserve to issue loans against which results in banks failing and the average Joe resorting to barter while all the people who own most of the money get to keep the money.

 

[Glaucus]

I didn't elect this jackass Bernanke, why is he allowed to stick his hand in my pocket yet again??

Having the companies that control half the countries housing would cause utter devastation to the US economy. You would rather that happened?

He's a conservative. For him punishment is more important then survival.

 

[Glaucus]

I didn't elect this jackass Bernanke, why is he allowed to stick his hand in my pocket yet again??

Having the companies that control half the countries housing would cause utter devastation to the US economy. You would rather that happened?

He's a conservative. For him punishment is more important then survival.

 

[Glaucus]

I didn't elect this jackass Bernanke, why is he allowed to stick his hand in my pocket yet again??

Having the companies that control half the countries housing would cause utter devastation to the US economy. You would rather that happened?

He's a conservative. For him punishment is more important then survival.

 

[Glaucus]

I didn't elect this jackass Bernanke, why is he allowed to stick his hand in my pocket yet again??

Having the companies that control half the countries housing would cause utter devastation to the US economy. You would rather that happened?

He's a conservative. For him punishment is more important then survival.

 

[Glaucus]

I didn't elect this jackass Bernanke, why is he allowed to stick his hand in my pocket yet again??

Having the companies that control half the countries housing would cause utter devastation to the US economy. You would rather that happened?

He's a conservative. For him punishment is more important then survival.

 

[Glaucus]

I didn't elect this jackass Bernanke, why is he allowed to stick his hand in my pocket yet again??

Having the companies that control half the countries housing would cause utter devastation to the US economy. You would rather that happened?

He's a conservative. For him punishment is more important then survival.