Must watch.Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam

[drg]

collateral damage created by a business failing.....a business which practiced bad businees practices by loaning to people which had a high probability of not paying back.

By making a loan to someone who is purchasing a home, you are effectively purchasing the home and lettting the customer pay you back. If you dont believe in the person who is purchasing, or you dont believe it is a good deal on the home; the loaning company has a right to deny the loan.

What I'm getting at is: Unless a company is forced by the government to do something against their will, why should the government be required to bail them out?

and finanally I see the problem of the collateral damage, but also I see a benifit of many smart companies stepping up and purchasing the remnates of what is left and turning massive profits.

edit: feel free to point any problems with my logic, I like thinking/discussing this type of stuff as its beyond my relm of knowledge and I just try to think it through logically without any bias. aka I love discussing stuff and learning other people's point of view

All that is more or less correct, but does not change the fact that the entire economy can suffer because of the size and scope of the failures. That will create hardship for practically all Americans, who are generally speaking blameless in this. So rather than the country plunging into a deep recession and possibly depression, the bailout aims to stabilize the economy and prevent that.

The point of the bailout is keeping the American people from suffering because of the bad decisions of the financial sector.

It's kind of like the house on fire analogy. Your kid set the rug on fire and yes it's his fault, and yes if the house burns down he will learn more of a lesson than if you put it out before it spreads, but you will also be out of a house and it will cost a LOT more if you don't put it out as soon as you can.

[SCpoloRicker]

You pay your nickel, you take the ride. I'm totally against the bailout. And I have a sub-prime mortgage.

/a fixed one

[Lohman446]

You pay your nickel, you take the ride. I'm totally against the bailout. And I have a sub-prime mortgage.

/a fixed one

Agreed - high risk is taken due to high reward. Yes it will cause a credit crunch. That being said MANY people need to learn to live with less credit - all we are doing is pushing hte problem down the road a bit. Until we quit spending more $$ than we make we are going to be creating a problem.

[Hilltop Customs]

Agreed - high risk is taken due to high reward. Yes it will cause a credit crunch. That being said MANY people need to learn to live with less credit - all we are doing is pushing hte problem down the road a bit. Until we quit spending more $$ than we make we are going to be creating a problem.

I agree, people in general need to learn how to manage their money better. Giving people the oppertunity to recieve loans is only a good situation if they are capable of managing their spending and paying back the loans.

[drg]

Actually the credit contraction isn't so much about consumer credit as commercial credit.

http://seattletimes.nwsource.com/html/nationworld/2008224427_credit03.html

Ultimately that makes this about jobs and the economy at large, but that's why the solution is a "wall street" solution.

[Lohman446]

I don't really buy the commercial credit is different (and yes I run a business).

You cannot loan to someone with no credit and no good business plan. YOu will note most mainstreet banks are not being hurt by this because they did not do that.

Eventually a business has to be profitable to continue to operate, operating on credit (while paying a CEO big $$) is not a good business plan. A sustainable business should only need additional capitial in rare circumstances or expansion, if it is depending on credit for daily operating expenses for more than a short term it is not sustainable. Considering the % of businesses that fail in the first 3 years lending to start-ups must be considered high risk. I do not support bailing out companies dumb enough to take on high risk loans without full consideration of those risks.

[teufelhunden]

Fannie and Freddie have fairly stringent standards for loans and loan guarantees (compared to the standards private lenders used to sell subprimes). Fannie and Freddie made none of these dangerous and exploitive loans; they only purchased them, many through MBSes.

Prove it, and while you're at it, let us know why your opinion is valid or educated.

Here, I'll start it off:

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared. http://www.cnn.com/2008/POLITICS/09/...ef=mpstoryview -- commentary by a Harvard economist. Plenty more around.

[drg]

Prove it, and while you're at it, let us know why your opinion is valid or educated.

Here, I'll start it off:

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared. http://www.cnn.com/2008/POLITICS/09/...ef=mpstoryview -- commentary by a Harvard economist. Plenty more around.

Meh, extremely weak to quote a Conservative opinion piece. I'll throw a few opinion pieces back at you, with statistics and sourced claims, and say you should look into Fannie and Freddie conforming loans. Ultimately the traditional loans they own aren't the problem, it is the securitized loans, products of finance redegulation.

http://www.nytimes.com/2008/07/14/op...prod=permalink

http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis

First, consider timing. CRA was enacted in 1977. The sub-prime lending at the heart of the current crisis exploded a full quarter century later. In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation's Ellen Seidman (and by Harvard's Joint Center), that activity "largely came to an end by 2001." In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law's toughest standards. Yet sub-prime lending continued, and even intensified -- at the very time when activity under CRA had slowed and the law had weakened.

Second, it is hard to blame CRA for the mortgage meltdown when CRA doesn't even apply to most of the loans that are behind it. As the University of Michigan's Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.

Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending. Janet Yellen, president of the San Francisco Federal Reserve, offers the killer statistic: Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts. With this in mind, Yellen specifically rejects the "tendency to conflate the current problems in the sub-prime market with CRA-motivated lending.? CRA, Yellen says, "has increased the volume of responsible lending to low- and moderate-income households."

[drg]

I don't really buy the commercial credit is different (and yes I run a business).

You cannot loan to someone with no credit and no good business plan. YOu will note most mainstreet banks are not being hurt by this because they did not do that.

Eventually a business has to be profitable to continue to operate, operating on credit (while paying a CEO big $$) is not a good business plan. A sustainable business should only need additional capitial in rare circumstances or expansion, if it is depending on credit for daily operating expenses for more than a short term it is not sustainable. Considering the % of businesses that fail in the first 3 years lending to start-ups must be considered high risk. I do not support bailing out companies dumb enough to take on high risk loans without full consideration of those risks.

Commercial paper IS short-term credit, and it is widely used by large businesses nationwide.

[Lohman446]

Commercial paper IS short-term credit, and it is widely used by large businesses nationwide.

That does not make it a good, or sustainable, business practice.

[drg]

That does not make it a good, or sustainable, business practice.

Whether it is or not is a judgment independent of its definition.

[Lohman446]

Actually I took commercial credit to be any commercial loan, not just short term.

[drg]

Actually I took commercial credit to be any commercial loan, not just short term.

Right, well... many business use credit responsibly, but they, too will be impacted by the crisis, should it continue unabated.

EDIT: Here is a very good writeup on the need for stabilization: http://news.goldseek.com/MillenniumW...1222635014.php

[Lohman446]

I agree that many businesses use credit well. However, it is generally only offered (or should only be offered) after they have shown a proven and sustainable core business model.