That is a guarantee and nothing a taxpayer ever had to pay a cent for. Taxpayers have not been paying for anything on it. Please tell me where in the budget money to Fanny and Freddie have been coming from?
Just because we the tax payers choose to pay in a lump sum doesn't mean we haven't been supporting the GSEs. Kinda like when you own a house, you get home insurance, even though the insurance company may not have to pay until something happens to the house. There is real dollar value for the fact the house is insured. There is not specific budget money set for this doesn't make you less liable, if you owe 100 dollars, you owe 100 dollars, doesn't matter if it comes out the grocery or the gas money.
taking your insurance example, were freddie and fannie paying an insurance premium (or something to have this implicit backing) to the government
Er, wrong. http://seekingalpha.com/article/94560-the-facts-on-fannie-and-freddie Maybe I should have included a quote the first time. What forced the bailout was not the leverage problem. What forced the bailout was that foreign DEBT HOLDERS were bailing and taking their capital with them, or otherwise demanding higher premiums for their holdings. That was when the insolvency "worry" became pretty much certainty. This was almost the equivalent of a bank run. The crash in the stock price in the last couple of weeks was merely a reflection of this.
just fyi seekingalpha is one of the biggest garbage sites out there. too many people on there blogging as if they have a clue about the market and then people link to their crap "articles" and try to pass them off as reality. i am trying to not immediately blank out and respond to your post but when i see seekingalpha my mind just immediately shuts down and i have no urge to read the words people write. the problem was leverage and i don't understand why this is so hard to understand. there was no equivalent to a bank run. the crash in the stock price was the realization that equity and junior debt holders would likely get nothing in a govt takeover. you are just incorrect on almost everything you said.
Leverage IS most definitely THE problem, with the high leverage and some losses, GSEs are having liquidity issues, which in term makes it that much harder to issue new bonds. Without new issuance, they will die, that's why the bail out happened. See, once the bonds are brought by the foreign investors, they are in the Secondary market, traded among investors, which only indirectly affects GSE operations. Its not the equivalent of a bank run, selling bonds on the secondary market doesn't directly reduce the liquidity of GSEs. Also reduced some holding doesn't equal to mass exit, you can't just sell trillions of bonds over a short period of time, it takes the buyers willing buy the bonds. Its not like you are withdrawing cash from an ATM, no matter what someone will be holding those papers. Now go do some actual research before posting anymore crap info you googled.
Actually seekingalpha was not the original source where I got the info about foreign central banks cutting down their debt holdings. It was an article on MarketWatch ... I'm just too occupied with other stuff right now to go digging for it. I'm not dismissing the leverage issue either. As for the issue of common stock being wiped out, we're talking chicken and egg here ... at issue was the inevitability of a bailout. Like I said, the crash in the final couple of weeks was the result of investors realizing that the bailout had all but become a certainty, when the big boys started reducing their GSE debt holdings. The flight of foreign capital was what eventually forced the government's hand. Since you don't like seekingapha, here's a quote from a Forbes article from Friday: http://www.forbes.com/reuters/feeds...275768_RTRIDST_0_FANNIE-FREDDIE-UPDATE-2.html
reducing holdings of debt by certain market participants doesn't mean the company is losing that money. it means they are selling it to other market participants. example being PIMCO made a **** ton of money by buying the senior debt that others were selling. FNM and FRE couldn't sell more preferred subordinated debt because there were no buyers for it. i'm guessing you understand the situation but just aren't doing a good job of explaining it. you are making it seem like people selling their holdings caused FNM and FRE to lose money. it was investors simply not being willing to buy NEW fannie and freddie debt.
