World’s biggest bail-out: update

Arnold Kling wonders: what is the exit plan?  Brad DeLong and John Hempton think the Bush Administration showed some courage.  Brad thinks the preferred stock can do OK.  Here’s what forced Paulson’s hand.  All lobbying from the agencies has been eliminated.  WSJ reports: "House Financial Services Committee Chairman Barney Frank (D., Mass.)
said in an interview that the near-term effects of the conservatorship
will be to "strengthen the public mission of what they do" to prop up
the housing market."  Preferred shareholders lose dividends.  CalculatedRisk has the clearest bottom line so far.

Comments

...how much school do you have to have before this seems like anything but a horrible idea? Does that naieve idea return in some grad schools, and not others?

If Frank's and DeLong's statements represent the mainstream Democratic position, then Tyler may well ultimately rue his endorsement of this nationalization. Brad is saying that "the business of guaranteeing and packaging conforming mortgages is properly a public function". Frank is saying that the plan to slowly wind down GSE positions is just a "sop to the right" and won't really happen. Basically, the message is that, while the danger of imminent financial meltdown was a nice excuse, really this is the direction we want to go because mortgage default risk should be borne collectively.

Could someone who agrees with this please explain the logic of this ethics? I can understand how someone might believe that we should collectivize health risk, but mortgage default risk? Please connect the dots for me...

At least Barney Frank is being honest. The losses now become a line item in the federal budget, and that line item will increase as we now try to support home prices by subsidizing the buying.

Simply appalling. We are ruled by morons.

All I can find opinions about are preferred shares. However, I am short common shares. Am I going to make out like a bandit here, or what?

9:47:50 - Yes, you are.

chsw - The only reason the Common Stock is still going to be outstanding is so that the firms can Rape and Pillage, with privatized profits and socialised (i.e., paid by the rest of us) risk. So you're getting what you want. Stop whining.

" Certainly, the US mortgage market in its current form depends on the GSEs, and would temporarily grind to a halt without them. "

David: I agree in the intermediate term that they should disappear. However, this is the exact worst time to transition from a government guaranteed structure. I would like them to wind down over the next year or so. I just think that after F&F have become the primary market, pulling the plug could involve too much collateral damage for my taste.

This weird. The play-money prediction markets are placing a 14% chance on Fannie shares being under a dollar by innauguration day, while the real-money option markets place about a 100% chance on the same event.

Blogged here.

David Wright,

Isn't part of the problem that Fan and Fred began buying non-conforming mortgages, such as Alt-A, in 2006? By far, it is not the biggest problem with either. The deal was that they would be able to buy only the safest conforming mortgages and the regulator would be able to ensure that they did that and didn't cook their books. Ooops. Now, the deal is that they can keep doing what they were doing but by ensuring a market for their MBSs (by buying them), the Treasury has turned the MBSs into treasury securities (i.e. raised taxes to pay for homes that people couldn't afford to buy and which said people have no intention of paying for).

it is terrible

it is so complicated

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