In this tumultuous year of 2008 that will undoubtedly go down in history as one of unprecedented government intervention in the private banking and business sector, Sunday September 7th may very well be the day they talk about in economics classes maybe even high school history classes.
September 7, 2008 was the day I predicted would come in a blog post back on July 7, 2008(read it for yourself if you don't believe me). It was on that day even in the midst of Henry Paulson the United States Treasury Secretary stating that Fannie Mae and Freddie Mac were well funded and had adequate liquidity and that the US Government would not need to step in or take action, it was on that day that I predicted that in fact there would be a Big Huge Government bailout as I called it. Well as it turns out I was right on about one thing, that there would be a government bailout, but I have to admit that even I may have underestimated just how Huge this bailout would be.
September 7, 2008 Paulson announced the Governments plan to take over Mortgage Colossal Fannie Mae and Freddie Mac. This is NOT just a plan to lend these Government Sponsored Entities more money at discounted rates which the FED had announced (1 week after my prediction) would be the case if it became necessary. This is a full fledged take over of the companies, the kind where the government walks in to the CEO's offices and says thank you but your services are no longer needed please kindly show yourself to the door we'll take it from here.
Many are outraged that the CEO's are being kindly shown the door when they feel that both have been involved in some of the biggest accounting scams in modern day history. Accounting errors to the tune of around 6 billion dollars. Just to give you an Idea of how massive an error that is I will compare it to a little company we all remember called ENRON. The CEO of that company and accounting overstated earnings to the tune of $550,000,000, compare that with the $6,000,000,000 in earnings restatements that came after a government probe of the Fannie and Freddie. We all know what happened to the Enron executives still in prison and dead. What has happened to the Fannie and Freddie execs that were padding their earnings in a way that would have made the Enron execs proud? From what I have heard so far they took early retirement and are probably sipping on pina coladas somewhere in the Cayman Islands. Oh it was not without punishment, one of the CEO's a former adviser under president Clinton was fined 24 million for his wrong doings. 15 million of that fine came in forfeiting stock options he still held which enabled him to buy stock at $71 per share. When the order was made the stock was at $9 a share, Ooohhh you guys really showed him forcing him to give up $15,000,000 in options that you couldn't have forced him to exercise at gun point. Abetter thing to do would have been to make him exercise those options and buy that stock at $71 per share don't you think?
Sorry about getting off on that tangent, I don't have a lot of patience for the individuals who are ultimately responsible for the whole mess that our industry, our market and our country are in right now that is directly affecting my own family and those of millions more.
The Take Over and What it Will Mean To Us
It was necessary lets just get that out of the way right now, it was necessary to ensure the stability of our lending market going forward. Do I like it? Absolutely not! When was the last time that the government ran any for profit business and did a better job then the private sector? Granted anyone could have done a better job then the scandalous bonus seeking greed filled execs that have been there over the last 8 years, but prior to that Fannie Mae and Freddie Mac and provided an absolutely necessary and vital role in our US Housing Market and thereby in our Economy as a whole, and they have done it pretty well. What I would like to see is for there to be some accountability, some punishment handed down to the preferred share holders of Fannie and Freddie, a literal wake up slap for those that have continued to invest in these companies over the last 4 years that they have been under continued investigation and shown that they were at fault for some serious wrong doing. As it stands right now the stock holders are not going to be wiped out. Which means that they are not helping to offset the amount of money that the US Government and we as the tax payers are going to invest to stabilize and rebuild these firms.
How Much Is This Going To Cost?
I laugh now as I think back to when the credit crisis first began and there were analysts who went out on a limb and said they thought the crisis might cost US Banks upwards of 200 billion. We flew past that number in about 4 months and the limb those analysts went out on must have snapped like a twig under the weight of that mis guided estimate. Oh what the banks would give now to have the bleeding stop at 200 billion. Some of the latest reports are that we are nearing the Big T 1 Trillion for US Bank. Fannie and Freddie alone could exceed that number and could be as high as 1.2 Trillion that the US Gov will need to pump into these deflated and defeated lenders over the next few months and years. I would only hope that the government will turn them back over to the private sector as quickly as possible, it doesn't need to be a complete charity act the Fed's should make a profit on the deal where possible but I would implore them to sell them back to the private sector as quick as they can. Give Mitt Romney a call as well, he would be up to the task of reshaping and reforming these companies and he happens to have 4 years on his hands before he will get the Nod from the GOP for president.
Your comments are welcomed.
Keeping you informed,
The Mortgage Insider - Stetson Lowe - UtahLoanTips.com
I dont agree 100% with all of the views expressed in the video below but I do believe there are some valid points made and therefore have chosen to add it to my blog. Enjoy.
