I guess I’m just trying to say that the equity should not get bailed out, given all the advantages that they had for years. But you are right, management walks off with a very good deal, even if the companies go into conservation.

The private profits from the subsidies have mainly gone to pay huge bonuses to management and generous salaries to other employees over the years. Any profits earned from dividends by long term shareholders have already been more than wiped out. The only shareholders that have benefitted are those that sold out several years ago or the short sellers.

If the US congress used a regular credit card company they’d already have had their limit
lowered and be on 30%+ penalty rates.

Without Fed support of their debt the US treasury
is toast… With it the dollar is toast.

All this Fannie and Freddie stuff is just noise.

I might quibble with some or your arguments but the last paragraph was brilliant. We’re living in a mark to market fantasy land with no analysis of intrinsic value. Congratulations on pointing out the fallacy of most of the current wisdom.

the GSE’s have funded $4T of mortgages, that’s roughly 40% of all debt outstanding, at very attractive long-term interest rates (e.g., 6% wtd average coupon across the entire MBS stack). the liquidity they bring to the market results in demonstrably lower rates for a large number of households across the country.

right now, a lot of their capital needs are due to the fact that policy makers want them to grow their MBS business to support the housing market, and grow their retained portfolios in order to relieve some of the liquidity pressures facing the banking sector. these new business activities, i should point out, are to some extent, discretionary. after all, it wasn’t too long ago that the bush admin wanted the companies to shrink and become a smaller part of the market.

if the companies were to reduce volumes and/or de-lever their balance sheet, there would only be one way to ration access to credit: price. some would argue that this is the right thing to do during this volatile period. it’s what every single bank out there – all of whom have explicit guarantees through the FHLB and the FDIC – is doing right now. but, it would have a steep cost for marginal borrwers, who would see their mortgage rate rise to 9%, given the liquidity challenges facing the global financial system.

then there’s the question of those “private sector profits” that you talk about the companies earning. did you ever think for a minute who earns those profits? it’s primarily the excess spread earned by the bondholders of agency debt & MBS. the residual dividends & capital appreciation earned by the shareholders is a much smaller amount relative to what the bond community siphons off.

and who exactly holds agency debt and MBS? diversified bond & money market mutual funds owned by middle america. it’s not privateers, looking to make a buck of the government. it’s pensioners and savers from around the country looking for a decent investment return in an area of excess financial liquidity.

so let me get this straight. in the name of ideological purity, you’re arguing that the government should first screw US savers by forcing a big haircut on agency debt & MBS holders. you’re also implying that the govt should then screw US home buyers through the higher mortgage rates that would result if the US govt treated fannie mae the same way the russians treated yukos?

that seems like very silly public policy to me. it only makes sense if you think prime, conforming delinquencies are headed to the stratosphere.

i’d be willing to bet a substantial amount of coin that very few folks on this blog could provide a detailed, analytical estimate of the level of 90 day delinquencies the companies would have to report before solvency became an legitimate issue.

Roger