{"id":1245,"date":"2008-09-07T14:53:44","date_gmt":"2008-09-07T18:53:44","guid":{"rendered":"https:\/\/blacknell.net\/dynamic\/?p=1245"},"modified":"2008-09-07T14:53:44","modified_gmt":"2008-09-07T18:53:44","slug":"how-youre-going-to-clean-up-the-fanniefreddie-mess","status":"publish","type":"post","link":"https:\/\/blacknell.net\/dynamic\/2008\/09\/07\/how-youre-going-to-clean-up-the-fanniefreddie-mess\/","title":{"rendered":"How You&#8217;re Going to Clean Up the Fannie\/Freddie Mess"},"content":{"rendered":"<p>Let me admit up front: while I understand the mechanics of the parts involved in the Fannie\/Freddie rescue, I&#8217;m not fluent enough in the involved markets to truly appreciate the various big picture results. \u00c2\u00a0 So I&#8217;m turning to sources that I trust to understand these things better than me.\u00c2\u00a0 The first place I go is the Wall Street Journal &#8211; their Op-Ed page may be run by poo-flinging monkeys, but their financial reporting is consistently excellent (and their general reporting is reliably good, too).\u00c2\u00a0 So here we get <a href=\"http:\/\/online.wsj.com\/article\/SB122079276849707821.html?mod=hps_us_whats_news\">the outline of the rescue plan<\/a>:<\/p>\n<blockquote><p>[C]ontrol of [Fannie Mae and Freddie Mac go] to their regulator and allow[s] the Treasury Department to purchase billions of dollars of the firms&#8217; senior preferred stock.<\/p>\n<p class=\"times\">The plan, offered jointly by the Treasury Department and Federal Housing Finance Agency, also gives the Treasury authority to purchase mortgage-backed securities from the firms in the open market and a lending facility through the Treasury from its general fund held at the Federal Reserve Bank of New York.<\/p>\n<\/blockquote>\n<p>Again, I understand the mechanics, but need a little help on the meaning.\u00c2\u00a0 Jerome a Paris <a href=\"http:\/\/www.eurotrib.com\/?op=displaystory;sid=2008\/9\/7\/1206\/98853\">provides quite a bit of help<\/a>.\u00c2\u00a0 He explains what the second paragraph above means:<\/p>\n<blockquote><p>This is huge. This is the federal government taking over the &#8220;toxic waste&#8221; in a way that will have an impact not just on Freddie and Fannie, but on the whole market. By &#8220;buying&#8221; mortgage-backed securities instrad of taking them as collateral, the Treasury does two things at the same time:<\/p>\n<ul>\n<li> it takes off the assets and liabilities off the balance sheet of the two companies in a definitive way (rather than temporarily) and assumes, for sure, the associated risk;<\/li>\n<li> it sets a price on these securities. This has been the biggest problem to solve the credit crisis: nobody has been willing to set a price on these assets, because of the uncertainty on the real value of the underlying assets (or because everybody could see that they were falling by the day). By setting such a price, the government creates a highly significant precedent &#8211; and, in all likelihood, provides a floor to these prices, ie an implicit commitment (or at least the expectation of a commitment) to buy more such securities.<\/li>\n<\/ul>\n<\/blockquote>\n<p>I quite recommend reading both articles, but the takeaway is:<\/p>\n<blockquote><p>This would seem to be an incredibly ambitious gambit: a nationalisation, an attempted bailout of ALL the banks, and an open-ended commitment of taxpayer money to save the financial world.<\/p><\/blockquote>\n<p>US Treasury Secretary Paulson&#8217;s no idiot, but neither is he much of a public servant.  This is worth worrying over.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Let me admit up front: while I understand the mechanics of the parts involved in the Fannie\/Freddie rescue, I&#8217;m not fluent enough in the involved markets to truly appreciate the various big picture results. \u00c2\u00a0 So I&#8217;m turning to sources that I trust to understand these things better than me.\u00c2\u00a0 The first place I go [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"ngg_post_thumbnail":0,"activitypub_content_warning":"","activitypub_content_visibility":"","activitypub_max_image_attachments":4,"activitypub_interaction_policy_quote":"anyone","activitypub_status":"","footnotes":""},"categories":[13,6,8],"tags":[],"class_list":["post-1245","post","type-post","status-publish","format-standard","hentry","category-eu","category-policy","category-politics"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/blacknell.net\/dynamic\/wp-json\/wp\/v2\/posts\/1245","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blacknell.net\/dynamic\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blacknell.net\/dynamic\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blacknell.net\/dynamic\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/blacknell.net\/dynamic\/wp-json\/wp\/v2\/comments?post=1245"}],"version-history":[{"count":0,"href":"https:\/\/blacknell.net\/dynamic\/wp-json\/wp\/v2\/posts\/1245\/revisions"}],"wp:attachment":[{"href":"https:\/\/blacknell.net\/dynamic\/wp-json\/wp\/v2\/media?parent=1245"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blacknell.net\/dynamic\/wp-json\/wp\/v2\/categories?post=1245"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blacknell.net\/dynamic\/wp-json\/wp\/v2\/tags?post=1245"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}