The US Economy in the crapper starting Monday?

[FlashLackey]

Before I go, a couple others in that 1% that calls Fannie Mae a lender like I do:

A mortgage broker, author, guest on CNN, etc.:

Fannie Mae does not directly loan money to you, the "primary" Borrower, but rather loans money in the "secondary market", or to lending institutions. In short, by lending money to your lender, this frees up capital for your bank so they can go on to make more loans.

http://www.escrowhelp.com/articles/20040222.html

A Senior writer for Fortune:

Investors might want to take a closer look at Fannie Mae's latest earnings report. Lost in the unsurprising news of the mortgage lender's heavy losses was a critical change in the way the company discloses its bad loans -- a move that could mask that credit losses that are rising above levels that the company predicted just three months ago.

http://money.cnn.com/2007/11/15/maga...ion=2007111509

It's all good. Good night!

[hanratty21]

Are you sure that they aren't lenders?

Yes. I am. Very much so.

[jAQUAN]

I think that summary was about as hysterical and unhelpful as possible.

[Not to mention nauseating when they got to the part where Jan starts scaremongering about how risky the stock market is for social security. As opposed to the... inevitably insolvent government program banking on endless and consistent growth rates? lol. What a joke.]

agreed. Totally useless. I need flow charts and diagrams man!

[hanratty21]

All arguments are useless now...deal is done.
http://www.cnbc.com/id/26885273

[FlashLackey]

Yes. I am. Very much so.

Good. But, do you now understand why people educated and qualified to discuss this subject do refer to them as lenders? Do you now see that it was legitimate for me to do so and a common practice amongst people who understand and work in finance?

agreed. Totally useless. I need flow charts and diagrams man!

Despite the way some people present it, it really is not rocket science that only a select few can ever understand. It would be helpful to society if the subject were treated more like something that everyone should and can know something about rather than some sophist badge of honor.

The current crisis is the result of too many people having taken out loans that they couldn't afford and are now defaulting on.

Fannie buys loans from lenders so that those lenders can have cash. That cash is required for the lenders to give more loans to more customers. Fannie buys loans that conform to a set of requirements and then sells them (in the form of securities) to other, larger investors that have the cash. Their securities are garaunteed, meaning that they are obligated to pay the earnings on the mortgages whether or not the end borrower actually pays or not.

Fannie is commonly called a lender because they shape what are called conforming loans. In fact, they refer to the institutions they buy loans from as "their" lenders. "Their" loans are the ones that meet their requirements. In effect, they are making the loans and the lenders conform similar to how franchises conform their businesses to the larger model.

The problem with Fannie now is that so many people are defaulting that they can't meet their obligation to pay the investors. Hence the takeover, news stories, etc.

So, the bigger question is why did so many people end up with loans that they shouldn't have been in?

Hanratty argues that the culprit was the Fed leaving the rate too low for too long. I disagree.

The interest rate set by the Fed affects more than just mortgages. It shouldn't be raised on the entire financing system for the purpose of scaring potential home buyers out of the market with a higher monthly payment. Instead, lenders should be better positioned to reject applicants based on sensible credit risk criteria. People that are at a high risk of defaulting should not be given risky loans, regardless of where the rate is currently at. If the requirements for getting loans were not artificially loosened by the Clinton administration, in order to "let everyone have a home", applicants who were not credit-worthy would not have been able to get the loans that they are now defaulting on and the rest of the finance market could still have benefitted from lower Fed rates.

[hanratty21]

Do you now see that it was legitimate for me to do so and a common practice amongst people who understand and work in finance?

No. Two wrongs don't make a right. Fannie doesn't lend. Period. They are not a lender. Period. You are wrong. Admit it...or don't...but move on. The press is using this word to basically dumb it down to the American public who simply won't understand when FNM and FRE are referred to as GSEs responsible for making markets of secondary mortgages packaged into a financial instrument called a mortgage backed security of which hedges are made against these bundled debt packages -- these are called credit swap derivatives. A mouthful, no? Again...there are simpletons in the US who buy newspapers and watch TV. In order to sell papers or get viewers, you need to dumb it down. They are wrong...so are you.

Hanratty argues that the culprit was the Fed leaving the rate too low for too long.

It was.

I disagree.

That's because you are wrong.

[FlashLackey]

No. Two wrongs don't make a right. Fannie doesn't lend. Period. They are not a lender. Period. You are wrong. Admit it...or don't...but move on. The press is using this word to basically dumb it down to the American public who simply won't understand when FNM and FRE are referred to as GSEs responsible for making markets of secondary mortgages packaged into a financial instrument called a mortgage backed security of which hedges against these bundled debt packages which are called credit swap derivatives. A mouthful, no? Again...there are simpletons in the US who buy newspapers and watch TV. In order to sell papers or get viewers, you need to dumb it down. They are wrong...so are you.

I already knew that long explanation and what Fannie and Freddie do. I don't see it as being "wrong" but as being a simple term to group institutions that are tied at the hip. People who are educated about finance, as you accused me of not being, use this simplification to try and be more clear in situations where the long technical explanation is irrelevant to the issue at hand. In this case, it was irrelevant to the issue at hand and the argument I was making.

In many ways, Fannie and Freddie are functionally synonymous with the technical lenders since they have more of a say in what form the loans take than the lenders themselves.

It was.

Demonstrate it. Convince me.

That's because you are wrong.

Hah. Back it up. Show me where.

[hanratty21]

Demonstrate it. Convince me.

No.

Hah. Back it up. Show me where.

In the 5 pages of posts in this thread and others related to it. Read...and stop posting links to inane articles you find on the web. Google and Wikipedia mean nothing to this thread.

[FlashLackey]

No.

Ok. I will take that as meaning that you can't.

In the 5 pages of posts in this thread and others related to it. Read...and stop posting links to inane articles you find on the web. Google and Wikipedia mean nothing to this thread.

I already reviewed your posts in those 5 pages. You make assertions but you do not substantiate or argue any claim related to the subject I have brought up. Your "side" of the argument remains an assertion, for which you have provided no further reason to be compelled by other than that it was you that made it.

None of the articles I have posted are inane. One of them explains significant details about the subject. Do you contest any of the details significant to the subject at hand? Are there any misquotes, incorrect facts?

The other quotes I posted in order to demonstrate that my reference to Fannie and Freddie as lenders was typical of people educated about or working in the finance industry. I think they served that purpose well and were not inane.

[hanratty21]

Ok. I will take that as meaning that I am not worth wasting any more of your time on.

You're right.

[FlashLackey]

It's worth following this thread to make wise-cracks about people who disagree with me. But, defending my points is too much to ask.

We'll have to agree to disagree about that.

[creativeinsomnia]

This is entertainment at its best. I'm seriously enjoying this thread.

[FlashLackey]

I am too.

[jAQUAN]

Thanks for the explanation FL. I already understood how careless home loans (on both sides) trickled up to the top, I just want to be able to see the big picture more clearly. I'm having trouble seeing where government stops and capitalism starts. I'm only just now learning about the deregulation that went on but I can't quite see if this wouldn't happened anyway. Doubt I'll ever have enough to invest anyway so it's more of a curiosity than anything. At least I know its no where near the calamity the news is making it out to be.

[Frets]

Apparently the deal isn't done.
http://www.msnbc.msn.com/id/26884523/

[FlashLackey]

Thanks for the explanation FL. I already understood how careless home loans (on both sides) trickled up to the top, I just want to be able to see the big picture more clearly. I'm having trouble seeing where government stops and capitalism starts. I'm only just now learning about the deregulation that went on but I can't quite see if this wouldn't happened anyway. Doubt I'll ever have enough to invest anyway so it's more of a curiosity than anything. At least I know its no where near the calamity the news is making it out to be.

Gotcha. By capitalism, do you mean private? Like where public influences stop and private starts? If so, I believe that was a factor in this problem. Fannie and Freddie had this pseudo government backed status. They were intended to be made private in 1968. But, it was still a "Government Sponsored Enterprise." What that means is definitely hazy and seems to vary depending on which of these "enterprises" it is. It was not in writing. But, it was implied that they were backed by the government. Because of that, investors felt safe buying securities from them since theoretically, if the going got tough, uncle sam would tap the tax payers to bail them out. A lot of people are saying that that led to "moral hazard" where risks were taken with the comfort of thinking that the consequences of failure wouldn't really happen as it would in a purely private company.

As far as investing goes, they would come into play for a mortgage. I assume that you do or will own a home at some point. Chances are, whatever loan you take out for a house will be sold to another company. There really isn't much you can do with that knowledge as a home buyer beyond understanding types of loans, rates, etc. But, it might be comforting to understand the fine print as you get ready to write your life away for a house.

As far as understanding it in terms of how to make other investments, I honestly don't think it matters that much to most individuals unless you intend to make a very dedicated effort or career out of it. A sound investment strategy is going to be dependent on your goals (retirement?, short term savings, etc.). No matter what is going on, the aspects you decide on will likely be the same, looking for low cost diversity. The rest of the fine tuning would typically be handled by a fund group or manager or broker (or computer actually). Some people build their portfolios by hand. But, I think it's risky unless you want it to be a lot more time consuming just as a hobby or something.

It is tough to tell what kind of calamity it is by the news, especially in an election year. Everything is always so charged up with implications on the race. With or without a bail out though, I expect more negative numbers after this weekend. Both are bad news for markets really.

[gerbick]

Why are the Republicans standing in the way? Use Fret's CNN link to refer to what I'm inquiring about.

[FlashLackey]

It sounds like some of them don't like the plan as it is currently drawn up and are floating some alternative ideas.

[gerbick]

It sounds like some of them don't like the plan as it is currently drawn up and are floating some alternative ideas.

Where are the alternatives? I've seen no mention of anything other than rank dissension with no plan to solve anything.

Thanks in advance for the links.

[FlashLackey]

Actually, they describe it in the link you already referred to.

Offering insurance rather than buying out the bad loans...