Tanta why are you so worked up? What is another 5T added to the national debt when it is all among friends?

Sarcasm off!!!!!!!!!!

I think the key is "own or guarantee". Own = asset, guarantee = risk.

Looks like we are going to add UAL to our Goverment Credit Card...can I haz a bailout too?

There are assets sure, but isn't the risk in the over leveraging of those assets?
Not to mention the CDS triggers reported by Bloomberg this morning??

Does it matter if it is 1 trillion 500 Billion, 20 Billion, 5 Trillion. We as a country are never going to pay it back. We can play all the games we want over the next two generations we are going to default on our debt, the only question is the timing.

It just came out that the two ousted CEO's get 9.3 and 14.1 Million a piece as severance. The hits just keep on coming. That is about $13 per person in the US, good to see really. You stay tough Paulson.

tp://www.businesssheet.com/2008/9/outrageous-severance-deals-for-ceos-who-blew-up-fannie-and-freddie

If the headline read we have assumed the net assets and liabilites of a company this have a negative net worth, on a FMV basis of -$1 trillion, would that sounds better or maybe that is too long?

The problem is that most of FNM near term "assets" are the same as CFC. Come on Tanta the confuse about asset and liability is the LEAST of our problems. Those assets will become liabilities as defaults mount. Add in the massive leverage and you have the potential for disaster.

But keep defending FNM and CFC and bashing NY Times and USA Today. That is helpful.

SR

Barely - if they kept the same regulator then, yes they get their bonus.

The truth of the matter is, no one has any clue what is going on, and no one is accountable. Nonetheless, deprivatization is just another way to repackage synthetic shit and place taxpayers into a potentiall floatable water craft which will now be pushed into the path of a Katrina-like tsunami of illiquidity! Does that make sense?

Does anyone know if United Airlines actually went to $0.01 or if that was just a result of trading being halted?

yahoo finance shows this for UAUA:
Day's Range: 0.01 - 999.99

Hee, hee!

And the press thought that Enron's accounting legerdemain was too hard to see through. As Tanta shows, you don't exactly need X-ray eyes to see through our press.

Tanta, FFDIC is right on this. Liabilities is the correct term in this case, as the taxpayers will get stuck with the losses, and FCB's and various other pigmen playas will walk away with the assets. Think RTC times ten, where the insiders got themselves and their families set up for generations and JSP got the losses.

Also, Lockhart basically implied with his "unlimited growth for the GSE book" statement that the GSE's (ie Treasury) is now open for business as a garbage dumping ground. So all of those banks with L3 mark-to-make believe MBS can "come on down!" and sell them to the GSE's at par. Who thinks this is NOT going to happen?!? Go on record right now as saying that the Treasury won't be the dumping ground for all L3 garbage.

Interesting Times correct.

Equities = garbage.

Sell...

Now...

Tanta, what happens when a company like say, WaMu, or LEH, or Citi, FNM, etc, write down liabilities, how do you adjust that loss of equity associated with earnings yield?

Thus, I reckon this gets to a point of marking to market the value of this ownership transfer, i.e, this deprivatization repackages the balance between assets and liabilities, but as a matter of future value, don't yah think we gonna be screwed as taxpayers?

Future value not looking good with Lehman, down 13%. Maybe they have some of those darn assets that are backed by Paulson? WaMu also seems to own some Paulson goodies, as they are down 15%

Paying out debt with more debt is a no win solution.

A lesson learned with the GD, but obviously lost in time.

We are living the homecoming...right now.

Re: rely on the sum of the squares of the angles of the hypoteneuses.

Now that kinda shit really pisses me off and starts me off in a very crappy frame of mind!

people actually pay for the USA today??

SHOCKING!!!!

Ciao
MS

How does this alter stuff, I mean, as we enter the black hole and use our thrusters to adjust pitch, WTF will happen when debris hits our collective taxpayer engines?

Re: . Liquidation Rights.
(a) Upon any voluntary or involuntary dissolution, liquidation or winding up of Fannie Mae, after payment or provision for the liabilities of Fannie Mae and the expenses of such dissolution, liquidation or winding up, the Holders of outstanding shares of the Series M Preferred Stock will be entitled to receive out of the assets of Fannie Mae or proceeds thereof available for distribution to stockholders, before any payment or distribution of assets is made to holders of Fannie Mae’s common stock (or any other stock of Fannie Mae ranking, as to the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, junior to the Series M Preferred Stock), the amount of $50 per share plus an amount equal to the dividend (whether or not declared) for the then-current quarterly dividend period accrued to but excluding the date of such liquidation payment, but without accumulation of unpaid dividends on the Series M Preferred Stock for prior dividend periods.

FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE - 10-Q - 20080808 - EXHIBIT_4

Fine, their assets not liabilities. But the question is how over-inflated are they? Not counting loans as NPA until they are 2 years late? Give me a break. The government probably needs to pump in a half tril TODAY just to get them back to positive book value.

Right... let's all be very politically correct about this because after all, we wouldn't want American taxpayers to know that they have just agreed to accept some $5 trillion in assets which if marked to market today would be worth some $4 trillion or less -- assuming a buyer could be found for them.

Kind of like saying "restroom" instead of "crapper", right Paul?

Come again? The $5.4 trillion are not assets. Fannie and Freddie hold some loans (about a trillion or so), which are assets. They issue debt and make guarantees, which are all liabilities. They receive a fee income for their guarantees, but a guarantee is NOT AN ASSET of the guarantor, it is purely a liability (which may or may not appear on the balance sheet, there are accounting rules for that). So who is it, that needs the education?

Sorry, but considering how many mortgages are defaulting and will default AND that the stated game of all this is to basically make more risky loans (Oh, sorry - "affordable loans") on unaffordable houses, those "assets" will soon become OUR liabilities when people default on their house that costs 5 to 10 times their income. But "who could have knowed" that this would happen?

Assets do not magically become liabilities. That assets may be worthless, but that does not make them a liability.

Finally, taking on $5 trillion in debt sure seems like a liability to me

As noted above, there is not $5T in debt. There is about 1 to 1.6T. The fact that there is not 5T in debt was the main point of the post.

RDO, YES!!!!!!!!

Hello Tanta,

I'm definitely not an expert in these matters, glad to here that they cannot repackage....

How about getting a F&F guarantee on the eligible mortgages (the 419K to 670K range) underlying their private securities, basically resulting in the the same thing, transferring the bad risks to F&F and the taxpayer?

"You aren't making any sense."
Tanta | Homepage | 09.08.08 - 12:35

""Profit"? I give up. I just give up."
Tanta | Homepage | 09.08.08 - 12:46

Keep up the good fight...

Chris

Assets do not magically become liabilities.

Sure they do. My gun is an asset until it's pointed at my head.

split the difference call the $5T a contingent liability?

"Oh, I have so much skepticism and cynicism about your "game theory" rhetoric I can barely even believe you exist." LOL!

So you actually believe the taxpayers will retain any of the assets on this one in the long run? I don't. Maybe an RTC2 would be about the best that could be hoped for, and even this is wildly optimistic.

Besides, even if the GSE's cannot currently eat L3 CDO's etc. for some technical reason that you state, this is but a small hurdle to overcome. In time, the Treasury will eat most, if not all, of the losses. The rules can simply be changed for "the good of the American people." Certainly it will eat losses from the "do not short list" banks. Other banks may be allowed to fail.

"So my rather uninformed question is: why would the government want to move interest rates back to artificially low levels? "

Because the Government have decided to build socialism, or some extend of it.

Someone, please prove to me that I am wrong and that bailouts should not be just the measure of the last resolve.

Someone, please prove to me that price floors work, because contrary to historic evidence, in the back of my mind I hope that there must be a flow in my logic .

Someone, please give me an example when Populism did work, so I can be pissed off to a much smaller degree.

weepstah: why would the government want to move interest rates back to artificially low levels?

You missed my post on the Paulson press conference thread...

Paulson: Our collective work is not done

1. Privatize profits; socialize losses.
2. Pay any price to keep Russia, China, and Saudi Arabia from repatriating their capital and bankrupting the USA.
3. Manipulate the entire yield curve (from ST Treasuries to LT MBS) to ensure the debt bubble continues to grow.

The Road to Serfdom.

“Nationalization” or “deprivatization”? You say banana, I say tomato – who cares? It’s distinction w/o a difference. Through the Treasury’s direct MBS purchase program and Agency recap mechanism, the Federal Government has assumed the authority of directly setting the price of a broad class of residential mortgages. Who honestly thinks Congress or the President, from whatever Party, is ever going to give up that entitlement for their voting constituencies? Welcome to Medicare Part F.

Assets do not magically become liabilities. That assets may be worthless, but that does not make them a liability.

I am no accountant but every time I have seen a balance sheet, there comes a time down towards the bottom where "assets" = "liabilities".

Being one of those dumb waffle eaters, that notion has become fixed in my mind.

And now, if what the GSEs held were "assets" worth something, why did the government feel compelled to "rescue" them? I am feeling a little bit of cognitive dissonance about the reassuring comments I read that all this problem is fixed now.

Oh and one more thing:

How come no one seems to care that our financial system is so bad that two companies going under can wreck everything?

Bear Stearns bailout prevented collapse.

F & F bailout prevented collapse.

So everything is just ok now that we bailed them out? NO!!! Its still the same rotting structure underneath! We didn't FIX anything

Wow, this thread just makes me want to push a pencil slowly into the soft spot at my left temple. Come on, you people really can't be serious, can you? I mean, I read UST all the time. Most hotels thoughtfully leave it out with my morning coffee. But it's sort of like reading the Metro on the T. It's entertainment.

And I suppose this thread should be read as entertainment. but the fact that you people vote is really beginning to scare me. The fact that I believe in enlightened despotism really gets driven home by these comments...

They're only assets if they have any value.

Now that the Mac's and Mae's have left town, why should people keep paying on their mortgages?

This crap should be put on a ballot, not left to the lined-pockets of Capitol hill.

China and Russia are looking at our country and wondering how we got so corrupt.

FFDIC

"Banking regulators cannot even get their collective heads around it"

That's exactly my point. It was on their watch that the biggest financial institutions in the US went bust. A simple analogy if you have a sailing crew that keeps sinking ships you revoke their ability to sail not give them another oil tanker as we have done with James Lockhart.

And all the more reason why there ought to be a public and transparent investigation into this failure. How did this happen? Who was responsible?

I think intuitively we know. Let's get it out on the table.

Let's run down a couple of facts: this is a conservatorship. Nothing is being "liquidate". No assets or liabilities are changing hands. No BK is happening. The government is not assuming ANYTHING full stop.

What the government has done is said they will act as backstop for funding the entities, while acting as overlords.

Therefore, the government is only on the hook IF or WHEN there is a loss that can't be covered by raising money in the capital markets OR by current cashflows or sales of assets. None of these situations are imminent and, in fact, the Treasury is not putting any money in now.

For the love of all things sane, what is so hard to understand about this, or are you all just determined to shut your ears to anything but your preconcieved ideas?

ipodius

I suspect you still have some faith the government is taking these actions to help the citizens work through a difficult time.

Unfortunately, I lost my faith in the good intentions of government some years ago and now can only suspect those in power are taking these unusual actions for person reasons that will have the uncared for consequence of pushing me further in debt. (See recent eight year history of national debt as example).

I mean your F & F bond would bring less then 100% value if you would sell it last Friday. Today there is guarantee that if you held it to maturity, you will get 100% - which is huge possible liability to tax payers.
How could you call such a move, the government not assuming anything?

No. Assets = Liabilities + Equity. That's not even kinda sorta the same equation.
Malaclypse | 09.08.08 - 1:26 pm | #

And now for the 'hypothetical' situation the GSE's are in

Assets + TAXPAYERMONEY = Liabilities

Remember, the GSE are insolvent, Liabilities > Assets

Well if assets = liabilities plus equity and the equity was based on bubble inflation and fraudulent appraisals, does not the equation become assets = liabilities?

Somewhere down at the bottom of the pile of paper held by the GSEs is a homeowner trying to make the monthly payment, yes? And at the moment, too many homeowners cannot make the payment, hence all the turmoil further up the chain.

must be a typo in the headline, should read "depravitization."

thanks for the free money this a.m. mr. market, just bought the wife her birthday boob-job!

One man's asset is another man's liability.

Seriously, though, if Fannie is the lender for $50 billion of mortgages that never get repaid, couldn't the amateurs among us be excused for thinking about those mortgages as "liabilities".

With assets like these, who needs liabilities?

Seriously, though, if Fannie is the lender for $50 billion of mortgages that never get repaid, couldn't the amateurs among us be excused for thinking about those mortgages as "liabilities".

With assets like these, who needs liabilities?

Exactly, and with the track record of government in handling well all sorts of crisis lately, why should I expect this situation will turn out any better? I know that ipodius is technically correct in that today the treasury will not be writing any credit card checks to pay off bad debts acquired over the weekend, but what about tomorrow? Like I said, I have no faith...

drat, only the word "today" should have been in bold. Sorry.

Seriously, though, if Fannie is the lender for $50 billion of mortgages that never get repaid...

OK I'll try one more time. It isn't the total amount of the mortgages. Every month you do pay, the entity makes money. The property you own isn't worth nothing. Some losses in mortgages are ALWAYS inevitable and that's what the fees and interest are supposed to be calculated to cover. X% of mortgages are always going to go bad. But the remaining Y ones that you're making money from don't.

So there can only be an issue when the money you get from performing loans and fees doesn't cover the money you lose in bad loans. All those performing loans are throwing off cash and will continue to do so.

So what is the difference? No one knows. Not you, me, or ANYONE and that is the issue. So tossing this shit around is just ludicrous and using the top-line number is insane.

Ok.. I understand this move was to save us all here in the U.S. It is only fair the U.S. pay for its mistakes. That being said what recourse do the percentage of us Americans have that did not participate in this ponzi scheme have? Is there anyway we can go back and recoup the overpaid bonus and salaries who benefited from the obvious fraud that took place? Can we make Investment banks take today's losses and go back 5 years on their tax returns and apply those losses against their profits and pay the IRS back?

It's pointless to argue with Ipodius since he thinks the GSE's have had a "sound business model" the entire time they were acting as a hedge fund.

it also helps to know that his argument for stability comes from his own admission (some months ago) that as long as "my mother has access to her 401k" it's all good.

Now that 401k wouldn't be stuffed to the gills with stock from the dollar menu at Mickey D's now would it??

If you're argument had any merit then why are you not advocating massive purchases in FNM and FRE stock????

If the business model is "sound" I would expect a rather expanded argument that supports that.

Nice try though...

Ciao
MS

DrChaos, bondholders are always in the safest position, and defaults on bonds are pretty rare unless someone bellies up. I don't think that any of the current bondholders were in that position, but what the government was afraid of is the risk premium to be paid (resulting in higher mortgage rates) or the event where they threw a bond party and no one came, meaning no more securitization.

So now anyone wishing to buy the agency collateral can rest and buy more, which is what the government wanted. In fact, they are now, if not in name in kind, treasuries because they just took out the "implied" footnote and made it real.

if Fannie is the lender for $50 billion of mortgages that never get repaid, couldn't the amateurs among us be excused for thinking about those mortgages as "liabilities".

Here's how to think about it - every month, some portion of those mortgage assets becomes cash. Maybe not as much as you want, but some. I will hope you realize that "cash" belongs on the asset side of the balance sheet.

Now, there are also liabilities, true. It may even be that the liabilities outweigh the assets. But the liabilities are the problem for taxpayers, not the assets

If you still don't see it, then ask yourself if the taxpayer would be better off if Citibank bought the $5T in mortgage assets for a hundred bucks?

Popeye, you don't have to be a genius, you just have to know how to read a 10k, or any financial statement yourself. What the commentary on here should do to people is make them want to go out and do some analysis to see what the fuss was about. But, obviously, if people on this thread can't get the concept of assets and liabilities straight, they have no hope in analyzing the statement of cashflows, extrapolating the data out over a time series or any other rudimentary financial analysis task.

And that's what leads to the "Government just took on 5.4T in liabilities!" crap. Or the other nonsense spouted here. Don't believe me or anyone else, go read and see for yourself. Then argue with me. But here if you disagree it's the old "shout them down" strategy that the republicans used in the last election.

I don't know schnaps, that elephant looks photoshopped to me...

priceless coming form you Ipod

You know the old saying in Poker....if you can't identify the patsy then you are it...

Too funny.

Ciao
MS

I wonder if a clearer way to think about all of this would be to just say that the government has agreed to an unlimited liability for taxpayers in return for a finite asset.

(Is this incorrect?)

Re: Do you have a checking account?

ROTFLMAO!

"DrChaos, bondholders are always in the safest position, and defaults on bonds are pretty rare unless someone bellies up."

I-podus, you are a smart guy. Unfortunately at this moment you have not mentioned anything to prove my views otherwise.
I guess, I'll have to be pissed off until our government stops building the socialism. Hopefully it will happen sooner than later.

"and defaults on bonds are pretty rare unless someone bellies up"

If default risks go up, the bond prices go down, and bondholders lose money unless they hold bonds to maturity and that particular bond collateral covers the face value.
We tax payers, lose money because
1)we just bought obligations at the face value, while we could pay discount.
2)we might not get full face value @ maturity, if loan related losses will be too high

3) There are other implications because that particular move distorts the market true value... for RE and those securities – the premium for mortgage related bonds should always be higher because they have more risk then treasuries.

MS, you didn't own any of this crap. But Fido and Wellington sure did. But hey, you're smarter than those guys right? Or maybe they'll be first in line for the spin-off party when they're broken up since they didn't get completely wiped out...hmmm....maybe they might be smarter in the end than you think.

Sorry, Yalt, but even the Jehovah's Witnesses make more sense than any of this does.

I don't know Tanta, but they sure have a lot in common with some of the posters here. They keep thinking the world is about to end, and the world just keeps on going on despite their protests. Funny that.

Ipod-

You're the one who has espoused the "sound business model" of both.

MS, you didn't own any of this crap.>

I do now!! and so do you!!!!!....I guess it's just easier to cling to "hope" instead of thinking about reality.

Your argument......THE ENTIRE THING is rendered moot from your original thought ( and calling it a thought is a stretch) about "sound business model"

Get over yourself

Ciao
MS

Tanta,
Why couldn't they
a) Set up a trust that would pay interest on F & F obligations and face value @ maturity date only if the funds linked to the bond would pay full amount, etc.
b) Set up a government corp instead of F & F to buy some of the outstanding F & F loans @ market price to make those liquid and make new loans the way F & F did with much better risk management at place.

Would the above be possible, so the F & F would be bailed out without gov guarantees and at discount, therefore reducing the tax payers’ losses?

p.s. not to mention, it should have been done only after F&F sink to the bottom.

Dr. Chaos-

Too much thinking going on with that;-)
Making bondholders whole (after they spuriously and recklessly kept on buying them) is what this is all about.

But I like the idea.....it makes sense. Not much in the last 72 hours has.

Ciao
MS

apparently McCain's VP pick Sarah Palin - too unprepared to even endure a softball Fox News interview - gets her news from sources even less well-informed than USA Today.

Speaking before voters in Colorado Springs, the Republican vice presidential nominee claimed that lending giants Fannie Mae and Freddie Mac had "gotten too big and too expensive to the taxpayers."

Of course, she was talking about F+F before they were put into conservatorship.

What makes you think the bonds are worth nothing or will result in a loss?>

Very simple really....when the largest domestic buyer of said bonds goes on TV and bitches about a lack of buyer's and that the gov't has to do something or a "financial tsunami" will be the result. ANd that would be what??.....possibly the threat of unloading all those assets that are quickly turning into liabilities before our very eye's....nahhh that would be too easy to figure out Because our markets are so "connected" I'm sure that wouldn't cause the rest of the holder's to actually do it instead of threatening to.

May be that Mr. Gross also has a shitload of "assets" marked to fantasy-land too.

Sorry you can't or won't see that. Enough people have.

Ciao
MS

--I wonder if a clearer way to think about all of this would be to just say that the government has agreed to an unlimited liability for taxpayers in return for a finite asset.

Sorry, Yalt, but even the Jehovah's Witnesses make more sense than any of this does.

Tanta,

I hope you're not taking any of this very seriously. I love your and CR's writing--they're a bright spot in my often boring day. And generally quite educational.

My reasoning above, flawed as it may be, was that the Feds have apparently committed to putting whatever money into F-and-F is needed to keep them at a positive net worth (which sounds like an infinite taxpayer liability to rubes like me) in return for a claim on its (presumably) finite assets. I wish someone would give me a deal like this...

You say banana, I say tomato – who cares? It’s distinction w/o a difference.

Throw in sneering and cat-calling at the one or two posters trying to point out that you're going to get an awful surprise when you bite into that banana bread if you really believe there's no difference and this becomes a brilliant, if unintended summarizing of this entire thread...

Whew! I'm not sure I've ever seen this crowd go quite so far off the deep end.

"Dirk writes:
Dr Chaos, I go back again. ...?
ipodius | 09.08.08 - 1:32 pm |"

What makes me think that the cash flows will be insufficent is that lil thing called a housing bear market....."

I'll assume this is addressed to I-podus.

But a bad loan is a "liability"

No, it is an impaired asset. As Tanta patiently pointed out, the lowest value these impaired loans can have is the cash recovered from foreclosure. That won't be zero. May not be much, but not zero.

suecris writes:
Why all this Tanta-bashing all of a sudden? I'm asking you, El Cliffo and "Stock Regulator." You know she's right. You can differ on its import civilly, no?

BTW, "Stock Regulator" shouldn't you get back to work?
suecris | 09.08.08 - 11:41 am | #

We are not bashing her we just can't understand why she isn't more critial of FNM and the like.

She makes these silly symantic arguments which while correct are not that useful. Maybe we actually risk real capital for a living and it annoys us that that she seems to be arguing the tax payer is not at real risk.

and for those of you that keep saying FNM is different from CFC - I know that the problem is they were buying CFC paper. FNM owns alt-a crap that it shouldn't. It expanded its initial reach out of truly conforming loans and that is why it is under $1 today.

Tanta has been supportive of this company for a while and she has been wrong.

SR

A long time ago, we should have started with the definition of debt vs. deficit.

Shnaps, my friend, when the bank borrows money that it HAS to pay back in order to make bad loans that will never be paid back, yes, absolutely, that causes a negative value to the bank.

When the bank BORROWS money, that is a liability. But loaning that money back out, no matter how frakking stupid the loan may be, does not. The asset is creates may have zero value (it won't, as there is collateral, except in the case of fraud). But the asset can never, ever, become a liability.

Well, ok, so there's 5 trillions in mortgages assets in the books. Afaik such mortgages are traded today at 40% of their book value. Maybe Fannie's and Freddie's contracts are better than average and would bring 60%. This still results in those companies coming short of two trillions, and the taxpayer will have to come up with the difference. Not exactly peanuts.

Tanta writes:

In another 12 hours or so we might be ready to tackle double-entry bookkeeping.

12 hours, or 12 weeks? You seem uncharacteristically optimistic here.

Gray writes:

Well, ok, so there's 5 trillions in mortgages assets in the books. Afaik such mortgages are traded today at 40% of their book value. Maybe Fannie's and Freddie's contracts are better than average and would bring 60%. This still results in those companies coming short of two trillions, and the taxpayer will have to come up with the difference.

Only if you insist on making the assumption that for every dollar of assets, there must exist another dollar of liabilities. Although many in this thread insist on making this assumption, it is simply not true. A=L+E, not A=L. Anybody who thinks A=L has flunked the first 15 minutes of Accounting 101.

"Taking on $5 trillion in risk", the term used by USA Today, seems to me to get it exactly right. If you take on an obligation to pay $5 trillion and an asset that might or might not be worth $5 trillion, you've increased your risk by that amount.

He said, "I've been robbed of everything." I said, "No, you haven't, you still have your pants." He glowered. I said, "Look, you still have your life, you could have been killed." He said, "You are an ignorant, unsympathetic b*****d." He was right, of course.

Let's say you borrow, $10,000 from Vito on the street corner. You now have a liability to pay Vito back. You have no assets except the $10,000 and whatever you buy with it.

If Vito does not get his money back plus %20 interest per day, your liability increases. Your assets stay the same until Vito takes it back and gives you a limp with a Louisville slugger. After this last transaction you no longer have the assets or liability from the transaction. Everybody is square.

Unfortunately what got us in this mess is that a lot of people saw debt on which they were responsible to pay someone else as an asset. So to increase assets meant to increase debt. Vito says ok, but he does not see those debts as your assets, he sees it as your liability.

We are all Vitos now.