Thursday, September 18, 2008

Can you splain this?

Calling all smart people, I need some help. As I understand it our government does not make money. Well, they can make money as in print it, but they don't make money as in they are not a business. So, how in the world can a government who is not in the business of making money buy companies? PLEASE explain this...I am not asking rhetorically! Also, explain exactly what is going on. Why are we bailing out Fannie Mae and Freddie Mac and AIG (and what are those companies exactly?) And where exactly is this money coming from? Don't we have a national deficit? Does the government have some sort of nest egg in their sock drawer?

Best I can tell the FM's have been around for a long time but in the '90s Clinton told them they had to approve riskier applicants for housing (via The Community Reinvestment Act). Now, Clinton gets lots of praise for the unprecedented amount of homeowners created during his Presidency but as I see it he created a lot of what is going on now that those riskier people can't pay up. I am NOT trying to be partisan here, I really am trying to understand it. As I see it, if you can't actually afford a house, why are you buying a house? When we bought our first home in 1999 we were approved for around $180,000. I looked at the lender and said "This is how much we can afford for payments, what does that get us?"  We ended up with a $117,000 mortgage. Let me stress that I am in no way responsible with my money. We have way too much credit card debt but it doesn't take a genius to figure out if you can't afford the payments you can't afford the house. Why do I now have to pay for others' mistakes? I can't take my credit card bill to my neighbor and say "Hey, can you be patriotic and pay this for me?" so why is the government doing that for these companies/citizens? And how can our government (us) say that it (we) holds share in these companies? Am I going to get a check at the end of each year when (if) profits are up again. Will I get my very own Mudd Manor soon? 
How can these companies expect their clients to balance their checkbooks when they can't balance their own (as evidenced by them donating nearly $4.3 million to politicians since 2005).
Owning a house isn't a right, it is a privilege. It is a privilege that I currently don't have and might not for a long time, if ever again (Tug is in the construction industry remember).
As for AIG, aren't they an insurance company? What gives? And now there is talk of bailing-out more banks who issued shady loans. Did I go to sleep in America but wake up in some Communist (or Socialist-what's the difference?) country? Isn't this the housing version of Enron and, if so, why were so many people mad then but seem to be accepting of what FM did now?
I am sure I am simplifying this but I really want to understand. Can you explain it, please?

20 people are laughing with me:

The Wades said...

yes, i'll explain it all to you over the phone. it's hard for me to type out my sophisticated, logical, and thorough answer to your questions.

i'm so glad i can finally give back to you.

Paula in MN said...

There is no easy way to explain it. Oh, wait.

Democratic congress.

Christie@tisbutaseason said...

when you get the answers, let me know.

PLD Consulting said...

This is not intended to sound partisan, but the prevailing attitude of all these business leaders doing whatever suits their interests started back in the 90’s. Remember a very honorable man named Ken Star? Well after about 4 years of personally trashing this man in the press (yes the press was a very happy accomplice with this), you may no longer consider him honorable. The fact remains; he was a very honorable man who was tasked with prosecuting the President of the United States on felony charges. Know I know that a lot of people will say that “whatever a man does in his own bedroom is his business”, but that was not what the prosecution was for. Do you homework and read what the actual charges were, Obstruction of Justice and Perjury! We are a nation of the rule of law (well at least we used to be) and Ken Star did honestly believe that, he also understood (as did the process that put him in that position) that if the president was able to publicly thumb his nose at the system and get away with it, it would be a domino effect down the line. Now it becomes a situation that if you rich and powerful and are able to manipulate public opinion (i.e. the press), you can get away with anything.
Well fast forward about ten years, now we are in a political environment that is heavily tied to Big business (both Republicans and Democrats). It is also very interesting that we only really hear about the failures and bailouts until they actually happen. (You know long after the perpetrators received there multi-million dollar severance packages and congressmen, Senators and lobbyist receive their ongoing financial reelection support). Everybody’s angry now. WE WANT ANSWERS!!!!!
Do we honestly believe that there were not people screaming foul years ago? What did they learn? They learned what Ken Star learned; go after the politically connected in this country and you will be destroyed. It doesn’t matter if the law and what is right is on your side.
I remember vividly being on a treadmill in Austin TX years ago watching a “Market Analyst” on one of the big news show basically screaming there is no way that WorldCom and Bernie Ebbers was making the profits they were reporting especially after acquiring so many companies. I saw him one other time make the same claim a couple days later. Then he was gone. The news show decided he was not credible and let him go. Very interesting, the management of a news station making decisions on financial credibility. I guess he learned the Ken Star Lesson.
There is lot of technical reasons that the bail-out is happening, Analyst’s could give 5 day reports of just one market segment. The underlying cause is that we have lost the ability to hold business leaders and politicians accountable in this country. And it really all started with the phrase “I did not have sexual relations with. That woman”!

Regina said...

pld...what is your real name anyway? mr. shelly?
anyhoo...i dont understand the implications of what is happening. it seems everyone is somewhat ok with this (media anway) but it just doesnt sound right to me. isnt this basically just socialized housing? and what sort of problems is this going to cause in thr future. was the downfall of fannie mae from homeowners not paying up and, if so, wont that down fall continue regardless of the bailout? a bandaid type of situation. or was the problem created from fannie mae having poor accounting skills (in house) so removing those people will correct the problem. an actual fix. i am sure it is a little of both but what it the prevailing problem? and why was everyone up in arms over enron but no one seems to really care about this? arent they the same thing...except the govt let enron crash and burn? i just dont get it.

PLD Consulting said...

I'll answer a little at a time the best I can, and yes you can call me Mr. Shelly if you like. Or maybe Paul the sad Buckeye fan:(

There are distinct differences in the reason for the bails of each company. Take AIG for example.

AIG is somewhat in the situation they are in based upon the bad home-loan situation, down markets and somewhat because of a law that was past after Enron (Sarbane_Oxley) that basically states whatever you can sell your assets for at any given time is the value of those assets. We'll the market is stagnate due to all the uncertainty and that makes the assets basically $0 because everyone is too afraid to move in this market. Does that mean that all their assets will remain $0? No, that is not the case. Now the sum of the companies broken up and sold off would be worth more than the bailout, and the value would then be the true intrinsic value. If the Government does this, it will go back into private hands and the taxpayers will not lose out on this deal. If the US GOv'mnt (as my Grandmother called it) decides they like the Communist route better and keep’s control of the financial markets. This bailout will only temporary stave off the major market failure that is coming.
So if handled right, the AIG bailout makes sense, where the Lehman Brothers was not quite the same situation.
Now one of my fears is a very political one in this situation. The sell-off of these companies could create a political buyout of our government. Who is every in charge will be basically able to allow foreign entities to buy our financial markets (possible for control over trade and political policies).

Quiz Time:

Now what recent party took money from a foreign entity in a Buddhist temple in California, and later allowed the sail of technology to said foreign entity. (Said foreign entity now has the capability to deliver missiles to our mainland where they could not before)

Regina said...

oh yeah, paul...duh i knew that.

um, taking a guess i would say the demoncats and China?

so the aig thing is good? is the FM thing good too?

r

PLD Consulting said...

Now the Fannie Mae/Freddie MAC bail-out is a little more complicated (and scary) than AIG. Mostly because they weren’t as much as publicly help companies as they were a Gov’mnt sponsored vote buying machines for the democratic congress. The Republican Party, Congress and Senate, (I know this sound partisan, but it is still true) have been screaming for regulation over site for years of these two companies. The democrats would never let this come to the floor. The question you may ask yourself is why did I never hear of this before? Remember the complicit Press I mentioned on the previous post.

Well, regulation oversight would have forced more conservative lending practices which would have in turn dried up the home loan possibilities for the people who really weren’t financially capable of buying a home in the first place. This sound real logical, why wouldn’t the Demo’s think this would be a good idea? See the previous statement about “vote buying machine” for the answer.

Here is the bad news on this bail-out.

1) It is necessary because if they fail, so will the majority if the banking industry and the American people will still pay for it (FDIC).

2) We are paying for this one, or at least our kids are. No break-up and sell off here. The billions are still unknown.

3) Because the Democrats still won’t allow oversight regulation on their pet toy, there is no guarantee this won’t happen again, again, and again. (Little related note, Obama’s association with former Fannie Mae CEO James Johnson doesn’t bode well for change if he’s elected).

Sorry, no good answers for this one.

PLD Consulting said...

Demoncats! I like that.

I would not say the AIG bailout was good, but if Sarbane_Oxley had been written with a little more common sense, it may not have been necessary at all.

But here's the catch 22, If the business leaders and politians weren't so corupt and greedy (yes I am adding politicans via Lobbyists), Sarbane_Oxley would not have been necessary.

PLD Consulting said...

btw,

Boekman still stinks!

Christina Martin said...

One of the factors in this whole deal was that many buyers were defrauded by companies like Countrywide. They encouraged their sales people to sign up people who qualified for A mortgages for subprime instead, with a bunch of double talk. Of course, these people could have afforded A mortgages, but the terms of the subprime contracts swamped them. All this was done because they get better commission for the subprime.

Then, to add to it, this same company and others like it began a calling campaign of calling people weekly or even more often to cajole them into taking home equity lines of credit (second mortgages) with far worse terms than their original mortgages, over the phone. These customers were literally bamboozled into this without even being able to read contracts until they were signing, and not being told that they were getting second mortgages.

So please don't be too hard on the buyers who defaulted; a great many of them did have the means to buy houses, but were tricked into contracts that did not meet standard terms.

Regina said...

Christina, i am not trying to be hard on the homeowners. i am trying to understand why the govt is doing this. and, while i can sympathize with said homeowners, doesnt personal responsibility come into play? i mean i get offers all the time in the mail for this, that and the other. but no one is forcing me to sign up for anything. sure predatory lenders were out there and perhaps they should be sued by said homeowners if those lenders were at fault for the homeowners being bamboozled but why should i (as the govt) have to pay for others mistakes? i am having enough trouble getting my family by on the income we have. we dont own a house because we can not afford to do so (high cost of living in our area). i sure am not about to go out and buy a house (because we would be approved, though we cant actually afford it) hoping for others to step up to the plate when i realize my mistake.

paul-i have heard that people (mostly repubs but a few dems) tried to do somethign but the huge FM lobby machine applied a lot of pressure (and money) so they could continue pilfering from the top. i just dont understand how it will work. where is this govt money going to come from? and yes, obama has johnson ties, and rheins ones from what i hear too. big changes people, hope for them.
demoncats isnt my term, i think it is michael savage's.
and no, boeckman doesnt stink...HE SUCKS. i hear pryor got 65% of snaps this week with 1st team offense. might not say much since boeckman has been around so long he can take letting pryor get so much practice but i hope we make a move. though boeckman had some good throws against ohio, but hartline and robiski seem to be mia.

r

PLD Consulting said...

I agree Boekman Sucks!, I was trying to keep it clean:)
remember a earlier post I said if they can't teach Boekman to look off the defender it was going to be a long season. I really didn't want be right on that:(

Pryor is a timid freshman and needs to stop running all the time. I just want to scream throw the dang ball already! That being said he will improve but running through the Big Ten will take both of them.

And the personal responsibilty response I agree with. When we bought our home, I "Qualified" for 200K higher than what I bought". I did the math, used common sense and bought the home that I was able to truly afford. I know to many people who just bought everthing they could qualify for and now they want the Gov'mnt to lower their loan amount (funny how it lowers to what they should have financed in the first place).

Shelly said...

i think he'll through now, for now - He's driving to N.C.! :o)

Laura The Crazy Mama said...

I don't know much about all that financial stuff. Once I see the words "billion" or "trillion" I start to stare off into space and drool a little. Speaking of being spacey...why do you have pot leaves all over your blog? Oh, it must represent "hemp", right? Because you are trying to get back to nature and go green or something, right?

Shelly said...

Oh, those leavers are much more addicting (and detrimental) than Pot or Hemp will ever be. "Them there" are buckeye leaves. The cause of much euphoria (and pain). I guess it could be considered a drug.

This is Paul, Not shell b the way "I'mmmm Back :)"

Regina said...

paul,
dont mind laura...she is one of those crazy MN people-you know the ones building a new OUTDOOR stadium, for MN, for football, that is played partially in winter, in MN.

did you get to see pryor's big debut?

PLD Consulting said...

Just saw the highlights. Really glad to see him throw the ball. When Beanie gets back, It will really be interesting.

btw, years 2025-2028 will be really good years for the Buckeyes with Charlie at QB :)

Indoor football? I thought that was only for powderpuff or the SEC, intersting :o

PLD Consulting said...

Oh,

just re-read that. OUTDOOR football. I guess that is why they are in the BIG TEN. You know, not so good, but still very tough!

Laura The Crazy Mama said...

SUUUUUUUURE, they're "buckeye leaves". Ummmhmmmm.