Freemarket Profit and Socialized Loss?

So, President Bush signed the "bailout bill" into law yesterday -- HR3648.

The housing bill

When feds rush in
Jul 31st 2008 | WASHINGTON, DC
From The Economist print edition

How much should government meddle in the market?

FROM afar, the government’s latest rescue package for America’s tottering housing market seems a model of bipartisan accord. As investors dumped the stock of Fannie Mae and Freddie Mac, pushing down the share price of the mortgage giants and increasing worries about their solvency, George Bush advanced a plan to shore up these “government-sponsored enterprises” (GSEs), which own or back around half of all mortgages in the country. Democrats tacked it on to a large housing bill already making its way through Congress, and on July 30th, Mr Bush signed the whole package into law. Even Barack Obama and John McCain favoured it, though they were too busy campaigning to vote.

Hank Paulson, the treasury secretary, will have short-term permission to buy equity in Fannie and Freddie, limited only by the federal debt ceiling, which the Democrats duly raised to $10.6 trillion. That liquidity backstop comes with a new, more powerful regulator for the GSEs. And the Federal Reserve will now “consult” with the enterprises in order to contain the risk to financial markets.

Freemarket Profit and Socialized Loss?

What does everyone think? Should we all as Americans be responsible for the financial foolishness of others? Did we tell them to get that adjustable rate mortgage that popped? Did we tell them to buy homes they couldn't afford and got upside down in? What is this when it comes to Fannie Mae, Freddie Mac, and this bailout signed into law?

Freemarket Profit and Socialized Loss? Swell.

Housing bill
A hair of the dog
Jul 31st 2008
From The Economist print edition
Congress has been too lenient on Fannie Mae and Freddie Mac

IT IS hard to deal with an alcoholic. But most experts would agree that the answer is not to leave your credit card behind the bar, persuade the pub landlord to stay open till dawn and leave the inebriate to get on with it. Sadly that is how the American Congress, in its new housing bill, is treating those troubled mortgage groups, Fannie Mae and Freddie Mac.

A rescue of the pair was inevitable. With some $5.2 trillion of debt owned or guaranteed by the duo, their collapse could have ushered in financial catastrophe. Nor could the government close Fannie and Freddie to new business and wind down their old operations. Without them, the mortgage market in America would shut.

But imagine that Fannie and Freddie had turned for financial support to Hank Paulson not as treasury secretary but in his old incarnation as head of Goldman Sachs. Goldman would have insisted that the companies paid a high price: shareholders would probably have been wiped out. Just look at the deal that Lone Star, a private-equity firm, has struck with Merrill Lynch to buy the latter’s dodgy mortgage-related assets: not only is Lone Star paying a mere 22 cents on the dollar, Merrill is lending it most of the purchase money. By comparison, the federal government’s negotiating skills look more like those of Donald Duck than of Donald Trump.

The housing bill imposes no changes in management or approach on Fannie and Freddie and no penalties on shareholders. The American taxpayer is instead given two flimsy protections. The first is that the treasury secretary will have the right to dictate terms if the government does have to stump up equity capital. In the past Mr Paulson could generally be trusted to do the right thing, but he will be gone in six months.

The second protection is the creation of a new regulator. But the existing regulator has been hamstrung by Congress, thanks to the immense lobbying clout of Fannie and Freddie. Shamefully, a proposal to eliminate their lobbying budgets was not even put to a vote on the Senate floor. Government departments are not allowed to lobby Congress; why are these two firms, whose debts now have an explicit government guarantee, permitted to do so?

I don't think we should do this bailout because to an extent it keeps people in homes that they couldn't afford when the realtor oversold them and the mortgage broker used new math to get them approved. The bailout doesn't solve the problem, it's a band aid. And if the McRichies can't afford that McMansion, why should that be MY problem? Would they be helping me any time soon? Highly unlikely.

Freemarket Profit and Socialized Loss?

Mr. and Mrs. America Ride to Capitalism’s Salvation -Again
Published by Finlay ON Governanceon July 31, 2008in Board of Directors, CEO Compensation, Capital Markets, Corporate Governance, Essay, Hot Issues, Subprime Meltdown and Wall Street and Main Street.

A brief essay on the subprime credit consequences when CEOs fail to lead, directors fail to direct and regulators fail to regulate

It began as a term that few had even heard of barely 18 months ago and most experts dismissed as an insignificant blip in a fundamentally robust economy. But yesterday, George W. Bush signed into law the most extensive -and expensive- free market repair bill since the Great Depression, thanks to what we have come to know as the subprime mortgage meltdown. The legislation marks another ironic milestone for this Republican, MBA-trained apostle of the private enterprise system. In 2002, he put his signature to the Sarbanes-Oxley Act, which, in the wake of Enron and numerous more accounting-related corporate frauds, also brought the power of the federal government closer to the boardroom than at any time since the 1930s.

The Housing and Economic Recovery Act of 2008, which also serves as a bailout for Fannie Mae and Freddie Mac, addresses precisely the flaws and failures which successive business leaders and government officials said would never occur in the modern era. Depression-time failures, runs on banks, and the collapse of huge financial institutions that were typical of the 1930s, they said, were a thing of the past. But just as those events were a product of human shortcomings and unbridled greed, so too is the present day crisis the result of CEOs whose bonus-obsessed lack of vision made them unsuited to lead, directors whose risk-oblivious nature made them incapable of directing and regulators whose focus on the battles of the past made them incapable of regulating. Exhibit One in this regard is the more than $30 million in compensation the CEOs of Fannie Mae and Freddie Mac, the struggling mortgage giants that prompted the recent government bailout, were awarded by the boards of those companies during the past year when the seeds of their horrific losses were being sewn.

I think we need to have better regulations over mortgage brokers and realtors and such. They began the situations that lead these people to financial folly. This act is like those "economic stimulus" checks. What has THAT accomplished, really? What about Bush dealing with big oil to lower fuel prices? Now that will probably happen because it is an election year, and the Republicans hear fate and the future knocking on their doors in DC, don't they?

Freemarket Profit and Socialized Loss?

AP:Bush signs housing bill to provide mortgage relief
By JENNIFER LOVEN – 16 hours ago

WASHINGTON (AP) — President Bush signed a housing bill Wednesday intended to rescue about 15 percent of the cash-strapped homeowners in fear of foreclosure in the next year or so.

Early in the morning and out of public view, the president signed it without fanfare in the Oval Office, adding his signature to a measure he once threatened to veto. The White House said he was accompanied by Treasury Secretary Henry Paulson, Housing and Urban Development Secretary Steve Preston and other administration officials.

"We look forward to put in place new authorities to improve confidence and stability in markets," White House spokesman Tony Fratto said. He said the Federal Housing Administration would begin to put in place new policies "intended to keep more deserving American families in their homes."

The legislation is regarded as the most significant housing bill in decades

ABC NEWS BLOGS:Bush Signs Massive Housing Bill
July 30, 2008 8:00 AM

ABC News' Ann Compton and Julia Hoppock Report: Shortly after 7 am today President Bush signed a massive housing bill that will provide relief for more than 400,000 homeowners and mortgage giants Fannie Mae and Freddie Mac.

The Housing and Economic Recovery Act of 2008 will allow a limited number of homeowners who can’t afford their mortgage payments to refinance with government-backed loans. As many as 400-thousand families become eligible for help refinancing expensive mortgages. This will not help homeowners who have already been hit with foreclosure. The measure will also give the Bush administration new authority to control Fannie Mae and Freddie Mac.

"We look forward to put in place new authorities to improve confidence and stability in markets, and to provide better oversight for Fannie Mae and Freddie Mac," White House spokesman Tony Fratto said. "The Federal Housing Administration will begin to implement new policies intended to keep more deserving American families in their homes."

President Bush signed the bill with no invited Congressional guests despite the fact that Congress has not gone on their summer recess yet and is still in town. The sweeping housing reforms passed with strong Republican and Democratic support.

WSJ:Banks Act to Aid Mortgage Lending
'Covered Bond' Plan Of Four Firms Seeks To Boost Financing
By DEBORAH SOLOMON
July 29, 2008; Page C3

Four of the nation's largest banks will begin issuing a type of debt the Bush administration has been pushing as a way to help reinvigorate the housing market.

On Monday, Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co., said they would begin issuing so-called covered bonds, a popular method of financing in Europe that could make more mortgage financing available in the U.S.

The move came as federal regulators announced a set of voluntary industry guidelines intended to provide clarity to issuers and investors about the types of assets banks must hold if they issue such bonds and how investors would fare in the event of a bank failure.

"As we are all aware, the availability of affordable mortgage financing is essential to turning the corner on the current housing correction...covered bonds have the potential to increase mortgage financing," Treasury Secretary Henry Paulson said at an event to announce the agreement.

The move is the latest step by the Bush administration to aid the beleaguered housing market