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Fannie & Freddie Bailout Good for the Dollar?

Original post made by Dollar wonk, Embarcadero Oaks/Leland, on Jul 22, 2008

Taxpayers will shell out $25 billion to bailout loan-mortgage companies Fannie Mae and Freddie Mac. This is on top of the Bear Sterns bailout, the Iraq war, and the stimulus checks. The dollar has already fallen to multi-year lows because of the exponentially rising national debt. Is the solution to simply create more debt? While failures of Fannie and Freddie cannot be good, bailing them out cannot be good for the dollar, or can it?


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Posted by Give Bush what he wants
a resident of Palo Verde
on Jul 22, 2008 at 10:31 am

Whatever Bush and his men want, the Congress gives.

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Posted by Bankruptcy Bush
a resident of Another Palo Alto neighborhood
on Jul 22, 2008 at 10:36 am

Before becoming President George W. Bush headed up a company that bellied up. That's his experience, so now he's leading the way into bankruptcy for the whole nation.

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Posted by Walter E. Wallis
a resident of Midtown
on Jul 22, 2008 at 7:57 pm

I wonder how many of the defaulted loans were behind the no longer legal "Red Lines"?

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Posted by Give Bush What he wants
a resident of Professorville
on Jul 22, 2008 at 8:27 pm

Well, it looks like Paulson had his way with Congress. You and me are going to shell out $25 billion from our pockets to the bankers who made those loans.

Talk about dipping fingers into pocket books.

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Posted by Eerily similar to the Iraq war
a resident of Greenmeadow
on Jul 22, 2008 at 9:13 pm

Congress' rush to give Paulson basically a blank check to bail out Fannie and Freddie, eerily reminds me of Bush's rush to war in Iraq. Bush capitalized on the crisis of 9-11, sold it as a quick and cheap war, and it has been anything but. Somehow I get the feeling that approving the Fannie and Freddie bailout isn't going to be just $25 Billion.

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Posted by Se la vie
a resident of Esther Clark Park
on Jul 22, 2008 at 10:02 pm

Bad for the dollar. However, not bailing out Fannie or Freddie was not an option. The implication of that would have been a complete halting of mortgage lending in the US.

Bottom line: Unregulated financial risk leveraging has again screwed over the Amnerican consumer; this time with international repercussions.

We are currently seeing unregulated arbitrage on oil. Note the results on that.

Until we decide to regulate these markets - in a way that let's them innovate paper risk (without overreacting to the current crisis) - we are going to continue to be hurt.

There is a LOT more pain on the way from the subprime fiasco.

What we have experienced from this is a few tens-of-thousdands of arbitrage traders making massive fortunes, and billions paying a dear price for the former's new mansions.

The dollar is still king only because certain nations continue to hold it - - for ransom.

Essentially, the dollar is so over-leveraged that we now must tend to the political manipulation of our own monetary (and other) policies by those (like China) who hold dollars for ransom.

what politician is going to risk the *immediate* short term pain, and mid-term fiscal crisis that would be caused by calling China's and other country's bluff? It won't happen.

This means that your London latte is going to continue to cost $12, for quite some time, if not for good.

America has been screwed by special, unregulated interests. We're still wealthy, but we're wealthy like the old British blue bloods who suddenly realize they don't have the money to keep up the castle...

In short, the post WWII party os OVER. Get used to it. Crying won't help, nor will blaming anyone.

Get off your duff and invent! Learn a second language, and a third! Learn to garden. Make friends. Learn what "enough" is. Stay educated. Work hard.

Hegemony was nice while it lasted...

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Posted by Walter E. Wallis
a resident of Midtown
on Jul 23, 2008 at 10:49 am

Folks still vote with their feet, SeLa.
"I love the forests of Versailles, their green battalions drill..."
The strength of our economy is in unregulated. Without the right to dare there is no leap into the unknown, and in the unknown there is the future.

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Posted by Se La Vie
a resident of Esther Clark Park
on Jul 23, 2008 at 12:44 pm

Right Walter, Please do regale us of the advantages no bank regulation, circa 1929. And no home finance regulation, recently.

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Posted by Walter E. Wallis
a resident of Midtown
on Jul 23, 2008 at 12:50 pm

A contract will protect just as well as a regulation, and a contract can be tailored to need. The recent home finance regulations punished lenders who were reluctant to loan money for property in ghettos [redlining] and so the regulation was the direct cause of the meltdown.

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Posted by Se La Vie
a resident of Esther Clark Park
on Jul 23, 2008 at 2:53 pm

Walter, So Stockton and Florida are redlined areas? Get real. There were lots of contracts in 1929. Why did they fail?

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Posted by good thing
a resident of Monroe Park
on Jul 26, 2008 at 10:57 pm

The point is that by trying to regulate the mortgage companies into forcing them to give risky loans so that more people of color would have loans, they gave out risky loans and SURPRISE, guess what failed?

On the other hand, SURPRISE, many people who wouldn't otherwise be in their own homes are in their own homes still, the single biggest determinant of rising out of poverty.

And, those who have foreclosed out of their homes have now made them much more affordable to people who didn't dare dream of having a home.

So, all in all a good thing!

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Posted by Flippers
a resident of Midtown
on Jul 26, 2008 at 10:59 pm

And, don't forget, at least half of all foreclosures are on behalf of house flippers, ie speculators. Trying to make a quick and easy buck, made bets, and lost. Oh well, that is life! No pity.

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Posted by Justice
a resident of Charleston Meadows
on Jul 26, 2008 at 11:13 pm

"So, all in all a good thing!'

You can't be serious. the international repercussions of the subprime fiasco have been enormous; it's hurt 100's of millions of people. It's a primary determinant of the dollar's recent nosedive, and many other problems.

Of course, there are winners in down markets, but those who brought this on have made a fortune on the backs of others. It's an egregious abuse of the capital markets that will lead to regulations that _stifle_ economic innovation.

The people who led this charge should be forced to lose _everything_...... _everything_ just desserts.

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Posted by what a joke
a resident of Monroe Park
on Jul 27, 2008 at 10:53 am

justice, you have no clue about any of this, do you? The ones who have lost homes were primarily either speculators or RENTING before, therefore didn't own homes,then "owned" a home with no money down, then paid mortgages on homes at below their prior rent, then quit paying and walked away when the mortgage came due. Lost nothing. The banks who were stupid enough to lend to them in the first place are being rescued. No loss.

The winners are..the ones who bought who couldn't have otherwise bought and are STILL in the their houses. They win.

The 95% of our nation's mortgage holders who are still paying their mortgage on time..they still have their homes, and managed to make wise decisions when they bought in the first place, and take the responsibility for their choices.

More winners are..those who are buying houses now who thought they never could afford a house..

Both of the above groups are from which segment of our society??

The losers are: those of us who make our living building and selling new homes. Guess what? We are losing like crazy, going up in flames. People are buying already built homes. Banks aren't financing new home building. So we, all of our employees, the companies that supply our parts et al are out of the count.

The speculators who tried to buy and flip houses. Oh well. No pity.

The people who are afraid now because they buy the constant media harping that the sky is falling...yet we have yet to have a single month of actual contraction of our economy. In spite of the best efforts of the doomsayers, our economy keeps growing. But, because people are afraid, they don't buy, they don't move, which adds to the economy not growing as fast as it could.

What a bunch of BS. The "justice" you speak of is b.s. Those who made their fortune on the backs of others? What do you listen to, Che Guevera? Is he your economic advisor? Nobody made any fortunes from this fiasco, the only ones who won were those in the lower economic brackets. They own homes now who wouldn't have otherwise.

Let the markets work, let the buyer beware, and stay out of the way.

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Posted by justice
a resident of Charleston Meadows
on Jul 27, 2008 at 2:35 pm

what a joke, Nobody made any fortunes from this fiasco, the only ones who won were those in the lower economic brackets."

This is going to be easy. Clearly, you know very little about financial markets. Who profited?

Short sellers made a fortune: Web Link

Mortgage brokers, real estate agents, mortgage banks, hedge funds all made a ton in the up market. Now they're paying for their lack of diligence. boo-hoo, now all they can do is whine? I don't feel _one-Bit_ -sorry for them
Web Link

Do you have _any_ clue about how Wall St. technicians leverage financial paper? They create market rules (their _own_ market rules) that are so convoluted and complex that most Congressional staffers - even those with financial backgrounds - can't see the entire value chain. Wall St. and other financial sector groups say "trust us, because *we're* the ones who understand money" Yeah, right!

In fact, what happens is that these greedballs, time-and-again, know that Congress will BAIL THEM OUT if their hackneyed schemes fail. That's been happening forever.'
There was pure

The fallout has trickled through most international markets, causing massive financial harm Web Link

There are MILLIONS of people who submitted truthful mortgage applications that would ordinarily have been rejected. They weren't.

Yes, *some* property flippers got caught in this mess, and I don't feel one bit sorry for them, either. However, lots of hard-working folks lost everything because they were sold a bad bill of goods.

What about the people who live near new home developments that were hard hit by the subprime crisis? MILLIONS of people who have lived in their houses for years, and paid the mortgage, have lost signifiicant equity because their long-established homes are now worth less.

You're blaming the victim, and need to rethink your position.

Last, we need to see a few thousand subprime players in high positions do SERIOUS jail time for this. Will that happen, probably not. We're bailing THEM out. Don't you get it?

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Posted by to justice
a resident of Midtown
on Jul 28, 2008 at 7:43 am

to justice: you are going to believe the template you believe, obviously.

Markets go up, markets go down. I have lost almost everything in housig..twice. Once from 9/11 consequences ( nobody rescued me then) and once from the 1989 housing crash combined with bad luck from the 89 earthquake affecting the land I owned on.. where I lost 30% of the value of my holdings. Nobody rescued me then, either. I am currently on my way down and out again, hoping we can pull it together long enough to not be forced to shut down. Nobody is rescuing me from this one, because I wasn't stupid enough to take the bait, but I am paying the price of the fools who took it and the fools who offered it.

My only comfort is that a lot of people are in homes now who wouldn't have been otherwise. They are lucky to have gotten in when they could.I doubt in 5 years when they realize they have more in equity in their home than they could have ever saved on their own that they will be crying over these mythical big bad people.

I made the choices, I lived with the results. So does everyone else, unless they get rescued so they don't learn. I hope you aren't a parent, teaching your kids there are no consequences to their choices, that it is someone else's fault for "luring" them to that street corner to buy whatever...

of course I am blaming the ones who took the bait. how many didn't? it is called caveat emptor. I have no pity at all. I do not pity those who took the bait, and I do not pity the ones who lent them. They need to all "lose" so that there is some kind of learning that happens in our country that we are each responsible for our choices.

Clearly, you believe that people are stupid and need to be taken care of. I believe that people are smart, can learn, and don't need a nanny. It is called ADULTHOOD. I do not expect to be rescued from my poor choices, of which there have been several, and I do not want to rescue others.

Your template is that a lot of big, bad people have gotten rich off the backs of the poor.

Ok. I bet you also believe we are in a recession.

If you want socialism, please go somewhere else ( though all the socialist democracies are backpedaling like crazy away from that..again..socialism fails EVERY time it is tried). stop trying to destroy this country, too.

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Posted by nothing like '29
a resident of Downtown North
on Jul 28, 2008 at 8:53 am

Even educated Palo Altans don't get it, for the most part. The financial system has been co-opted and corrupted by a handful of poeple who are still on top of the game. Our entire system is in imminent collapse, but doomsday is being delayed until the key players can get their money out. Then...hold on to your seats, because there is going to be a massive market "correction" the likes of which we have never before seen.

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Posted by Justice
a resident of Midtown
on Jul 28, 2008 at 2:47 pm

"of course I am blaming the ones who took the bait."

Who offered the bait, in the first place. THINK!