80% warrants, 180 billion plus bail outs. Both insured mortgages. Both Pay banks for defaults or take the default loans off the banks books. Both DO NOT deal with the public directly.
This is key to why these three entities were placed with the most punitive of loans from the treasury.
They are as follows:
1. 80% warrants made it impossible for anyone to takeover these companies on the cheap by buying a majority of the stock in the company on the cheap and taking over the boards and possible selling off pieces of the company or going bankrupt in a restructure deal. why? If these companies went bankrupt they would not have to pay the Banks the money on these lost mortgages. THATS IT. why? If the banks did not get 100% funding from these losses they would ALL be bankrupt themselves. This would cause a run on the banks where the depositors would lose faith in the banks and withdraw all their money from their deposit account. This is how a depression occurs.
2. This was a bailout of the banks. These 3 had to be taken over to stop the banks from collapse. These 3 would be required to pay 100% out to the banks. That 100% would come from treasury money.
3. The banks also had problems of their own. Horrible loans on their own books. This needed to be fixed. How can we rid the banks of bad loans? Take over F&F and make them take the banks crap loans off the banks books. This would cause F&F to lose billions in the month of the takeover of F&F just before the 3rd quarter of 2008 were to be made public. If you look at that quarter you will find it to be the worst of all the quarters because the Banks unloaded on F&F immediately after the FHFA took over and told the banks to unload on F&F. This was all done to save THE USA. I do think it was needed. There can be no run on fannie or freddie or Aig, but chase or citibank or every bank in america there would be.
Now that those times are over and the banks have coughed up all the money they defrauded. Well 10% of the money they defrauded anyway, The FHFA decided to let them all off with a slap on the hand and 10 cents on the dollar for their crimes.
Aig is free and govt is out. Crapo and Johnson is going nowhere and will be a dead bill at the end of this year. Johnson is retired as of end of this year. A new Banking chairman will head the senate banking committee. So will FMIC be dead, or will the govt go out and hire a crew of workman and change the names of fannie mae and freddie mac on their buildings?
The truth is reforming mortgage finance is really just that. Change the names and do the same business.
FMIC is no different than Ginnie mae. Ginnie mae is no different from F&F. F&F are no different from AIG.
The point is there is no FMIC. They are all the same. There can be no change to an unchangeable system.
Sure you can tweek it, thats regulation. But a Real change is not going to happen by eliminating F&F, unless real change to you the loss of the 30 year mortgage and interest rates that are 2 to 3 points higher for the risk that is being given by everyone involved in the 10% haircut bond and bank market?
AIG insured the majority of the PLS loans. AIG insured the Banks who kept loans on their own books from default.
F&F bought the loans from the banks that the banks did not want to keep on their own books. When a bank passes the loan to F&F they are not liable for the loans as long as they were written within the guidelines of what F&F accept. If on the other hand they are full of fraud and should not have been passed to fannie the banks have to buy back the defaulted mortgage.
Ginnie Mae does same as Fannie and Freddie but they are under full backing of the US govt. FHA loans go though ginnie. The headlines read:
Ginnie was only a $600 billion portfolio of mortgage-backed securities, where as Fannie and Freddie are
5 Trillion. Roughly 10 times larger than Ginnie.
Ginnie Mae never needed a bailout as it was govt run. The govt bailed out FHA instead and showed Ginnie to not need a bailout by transferring the losses of ginnie back to the FHA.
This is familiar because it is the same thing the govt is doing with Fannie and Freddie by suing the Banks to take back their bad mortgages. The main difference is the Govt controls both FHA and Ginnie completely and can hide and change anything at anytime. The banks are private and so is F&F. So they have to do it the old fashioned way with the courts and a conservatorship. The new Crapo-Johnson bill would set up a very large Ginnie mae that would be 100% on the govt backed by tax dollars to the tune of 6 Trillion dollars and would have the banks on the hook for a conservatorship of their own on the next go round. As you all are fully aware, according to the govt, the shareholders would all be left in the cold on every large bank in america upon the next down turn in the housing market. This occurs about every 10 to 20 years and the Housing market cannot rebound from the tight grip that our govt is putting on the mortgage market.
According to judge Lamberth since banking is highly regulated bank stock holders would no the risk in dealing with the govt and the risk will be all their money. This is straight from a federal judge.
If you want a comparison, ALIBABA the largest IPO ever brought in 25 billion in fresh capital for the corporation, the new FMIC the govt wants to make from Ginnie Mae would need 20 ALIBABA's to fund it and would need people that have already been washed out by our govt to participate.
FMIC would need a Ginnie mae the size of 10 of the current one to do the same exact job Fannie and Freddie already do. It would put the Full 6 trillion on the books of the Us 16 trillion debt and make it a full 22 trillion in debt overnight.
What is to gain? Nothing. There is no gain by doing this. There is only a loss. A loss of participation in the market by people the are too afraid to be wiped out by the regulated industry and should therefor according to Federal Judge Lamberth should have no expectations of their investment that it wont be confiscated with the stroke of a pen.
Ask yourself if THESE stockholders are wiped out why do you think the next wont be when the next downturn in the market comes. The bond holders will never take less money for their investment so a 10% loss will never fly. I will not invest in a bond that gives me a haircut of 10% when I have plenty of other places to put my money where the govt will not in a single moment wipe me out. I will pass and most others would too. Only the foolish would believe their investment is safe when the US regulator is on the prowl.
American International Group, Inc. – also known as AIG – is an American multinational insurance corporation with more than 88 million customers in 130 countries. AIG companies employ over 64,000 people in 90 countries. The company operates through three core businesses: AIG Property Casualty, AIG Life and Retirement and United Guaranty Corporation(UGC). AIG Property Casualty provides insurance products for commercial, institutional and individual customers. AIG Life and Retirement provides life insurance and retirement services in the United States. and UGC focus on mortgage guaranty insurance and mortgage insurance. AIG also focuses on has global capital markets operations, direct investment and retained interests.
Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, was founded in 1938 during the Great Depression as part of the New Deal. It is a government-sponsored enterprise (GSE), though it has been a publicly traded company since 1968. The corporation's purpose is to expand thesecondary mortgage market by securitizing mortgages in the form of mortgage-backed securities (MBS),allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on locally-based savings and loan associations (aka "thrifts".In 1970, the federal government authorized Fannie Mae to purchase private mortgages, i.e. those not insured by the FHA, VA, or FmHA, and created the Federal Home Loan Mortgage Corporation (FHLMC), colloquially known as Freddie Mac, to compete with Fannie Mae and thus facilitate a more robust and efficient secondary mortgage market.
In 1981, Fannie Mae issued its first mortgage passthrough and called it a mortgage-backed security. The Fannie Mae laws did not require the Banks to hand out subprime loans in any way. Ginnie Mae had guaranteed the first mortgage passthrough security of an approved lender in 1968 and in 1971 Freddie Mac issued its first mortgage passthrough, called a participation certificate, composed primarily of private mortgages
Ginnie Mae, which remained a government organization, supports FHA-insured mortgages as well as Veterans Administration (VA) and Farmers Home Administration(FmHA) insured mortgages. As such Ginnie Mae is the only home-loan agency explicitly backed by the full faith and credit of the United States government.