Matt Yglesias

28 Responses to “Remember Those Companies We Bought”

1. r€nato Says:
   September 24th, 2008 at 11:02 am

   what an elitist you are. Here in ‘Murka, we have faith-based bailouts. Just throw someone else’s money at the problem and pray that Jeebus will make it all right.

2. Thomas Says:
   September 24th, 2008 at 11:06 am

   AIG is not owned by the government; the Fed has a warrant for 79.9 of the company, which isn’t the same thing as owning that percentage.

   And the Feds took over Fannie Mae and Freddie Mac a couple of weeks ago. I imagine that they’re still trying to figure out exactly how much fraud wasn’t previously disclosed.

3. max Says:
   September 24th, 2008 at 11:12 am

   AIG? Ah, those were the days.

   We didn’t buy AIG. We made them fire the CEO and we took warrants (just like Warren Buffett!) to buy that we haven’t exercised.

   It probably would’ve been better if we HAD bought AIG or, rather, the investment bank part. Then we would hold a great deal of toxic paper we could then dispose of safely. Actually, I think Frannie and Freddie are in conservatorship, which I take to mean we don’t own them either.

   This whole buying-but-not-buying banks thing is creating a lot of problems. I mean, if we had a trillion or so to just toss around we could buy up all the troubled (or ostensibly untroubled) banks and sort out this whole derivatives mess, and fire some guys and we could even sue people for return of their bonuses, not to mention renegotiating a bunch of the more slap-happy mortgages.

   max
   ['Sadly, Bush is too fiscally conservative to want to do anything like that. I guess the markets will just have to suffer.']

4. clb72 Says:
   September 24th, 2008 at 11:20 am

   Fannie has a sweet mansion on a huge piece of property on Wisconsin Avenue. Right across from Sidwell Friends School. Now that we own it, can we rent it out for kids’ parties?

5. Grand Moff Texan Says:
   September 24th, 2008 at 11:56 am

   Remember when Fannie Mae was a private company?

   Yes, that’s when they were paying McCain’s campaign advisor $15,000 a month for future access.

   Good times!
   .

6. Chris Dickson Says:
   September 24th, 2008 at 11:58 am

   Here’s a two sentence proposal for solving this crisis, which I’ve been trying to get to someone with an audible voice. It works by spending a small amount of money to remove uncertainty at the front end.

   1. The federal gov’t takes over the mortgage _payments_ of anyone that isn’t paying them. (cost ~$2B/month*)
   2. The federal gov’t extracts ~$2B/month worth of pain from the people that got us into this mess (Revenue: ~$2B/month**)

   er…That’s it. No $1T bailout required. Anyone that says otherwise is trying to rob you (and me).

   *Given that there are ~1M mortgages likely to go into default over the next year,and that the average monthly payment to keep them current is ~$2000, we can see that all the problem mortgages could be kept current for ~$2B/month.

   Note that if the mortgages are guaranteed to be kept current by the gov’t, then all the $45T worth of wall street gambling on them becomes moot.

   **The details of who this is and how to recoup the money can be argued about ad nauseam. The main thing is, it won’t happen in the context of a trumped-up crisis. Everything from taxing financial execs who earn >$1M/year to taking equity in houses in exchange for tenancy, rent and/or community service could be on the table.

   I’ve talked to people from across the spectrum, including staffers from Keith Ellison and Michelle Bachman’s office about it, and I’ve yet to hear anyone argue against or even disagree with it.

   Is the core of this problem really any more complicated than this? This isn’t my field and I really want to know.

7. Dave K Says:
   September 24th, 2008 at 12:13 pm

   Prudent action to help forestall as many foreclosures as possible, thus preventing the housing market for getting into a situation where we undershoot the floor, would be really nice.

   But … who gets to pick where the floor is? It wasn’t that long ago that house prices were in a bubble, and someone just as well informed as the Fed chairman (ok: it was the Fed chairman) said there wasn’t a house price bubble.

8. ed Says:
   September 24th, 2008 at 12:31 pm

   Why is everybody so eager to bail out people who can’t pay their mortgages? Where is the “bail out” for the RENTERS who prudently decided not to buy an overpriced house they couldn’t afford?

   People who didn’t put any money down and paid a teaser rate for a couple of years don’t deserve a bailout. They deserve to go back to being renters.

9. WF Says:
   September 24th, 2008 at 12:35 pm

   Matt, here is my question. What happened to the $29b that the government offered to backstop Bear Stearns’ debt so that JP Morgan would buy it? Did that money leave the treasury and go to JP Morgan? If so, do we get it back? Do we get an interest in JP Morgan, or in the Bear assets that the $29b are backing? Do we get interest? Or was that a $29b handout to Jamie Dimon and crew? Talk about a story that nobody is covering.

10. tim Says:
    September 24th, 2008 at 12:58 pm

    “Direct control over Fannie and Freddie, in particular, would seem to give the government substantial leverage over the fate of the housing market. Prudent action to help forestall as many foreclosures as possible, thus preventing the housing market for getting into a situation where we undershoot the floor, would be really nice.”

    You say this like it’s a given. You are right, this SEEMS to give the government leverage. It doesn’t ACTUALLY give the government any leverage at all. All it does is allow the government to push the mess further down the road if it wishes too. But the further you push it the bigger it grows, and sooner or later it either must be dealt with or you’ve decided to allow it to swallow the government whole over the next 200 years.

    We created this monster by keeping mortgage rates artificially low through the Fed, tax deductions, the GSEs and dramatically increasing the pool of eligible home buyers through slapping AAA ratings on packages of sub prime mortgages. These causes and plenty more contributed to a massive increase in home prices. But that increase was all artificial.

    You are suggesting we continue to fund this illusion at massive expense and you are also suggesting it is possible to maintain the illusion. If it were possible, Fannie and Freddie would not have been taken over and we would not be in this mess. Any rational lender will not lend to someone right now without very good credit and at least 20% down. Just look at the chart So the only way to prop things up is to insert an IRRATIONAL lender. If you don’t, home prices have to come down. That’s just how it works.

    I agree we need to figure out a way to get through this, but getting through does not include propping up home prices.

    Instead, we should be making lenders solvent again, winding down Frannie and Freddie completely over something like the next 10 years, and reforming mortgage securitization/forcing the ratings agencies to come up with new formulas for rating these things. Any and all reforms that will actually help unfortunately will result in decreased home prices, but that’s what we need. The market is still irrationally high and it needs to come back to a level that matches our incomes. Lenders need to be confident we’ve hit the bottom before they will lend freely. That’s exactly what you would do if you were a lender after all.

11. tao9 Says:
    September 24th, 2008 at 1:50 pm

    Remember when St. Elizabeth’s was a private hospital? St. Elizabeth’s? The Faulkner? Ah, those were the days. But more to the point, remember when the federal government took them over? Wouldn’t it be nice to know what we’re doing with them?

    MY: Cafeteria Hayekist or Krypto-Keynsian?.

12. ed Says:
    September 24th, 2008 at 3:08 pm

    WF, the Bear Stearns assets that the $29billion bought are listed on the Fed’s balance sheet as a holding company called “Maiden Lane.” As of the last report, they are valued a bit higher than what the Fed paid for them, but I don’t know how accurate this valuation is.

13. WF Says:
    September 24th, 2008 at 3:17 pm

    ed, thanks for that. So, just to be clear, the Fed actually paid $29b cash to Bear or JP Morgan (no difference now) and in exchange received some unknown amount of CDOs/SIVs/other paper in exchange? Now, how was it valued then? Bear’s most recent mark-to-market? And how (and by who) would it be valued now? And is nobody, not even MY, interested in covering this story? I’m not ready to say that $29b is the least of our worries, subsequent events not withstanding. Thanks again, ed.

14. Yvon O. Heckscher Says:
    September 24th, 2008 at 9:03 pm

    I should very much like to see published in the major media what the specific consequences of a refusal to bail out would be. We are being assured, perhaps with justification, that we would have a doomsday scenario. Alright, perhaps it is, but before I personally shell out money for a good or for a service, I like to see, in writing, underwritten by as impartial a critic as can be found, what is likely to happen if I buy and to whom will it happen, if we just let those who are now twisting in the wind continue to twist. After all, if I were in dire financial circumstances, twisting in the wind, I have this hunch that people would just continue to watch me twist, Schadenfreude so to speak. No one that I know would come to the rescue of a hopeless bankrupt, unless I still had assets to be plundered. If the rich must be taxed to finance the bailout, so be it, for they can afford it and the taxpayer’s affordability is the ultimate reason for taxation. Hence, I should like to have, broadly published, with full transparency, the detailed specifics of the doomsday scenario, who gets hurt and by how much, who should come to the rescue, why and for how much, and why does it have to be me, or my descendants, as taxpayer, to be the guarantor, how is the rescuer compensated for his trouble and how secure will his compensation be. Enough of generalities, last minute Dante-esque pressure tactics and the somber-faced billionnaires who, once more, are out to hoodwink The People by doing what conservatives always do best, conserve for themselves. Whoever got us into this mess must get us out of it, including, if it so appears, the Government officials and People’s representatives and all of the “revered” entrepreneurs who allowed or abetted in the creation of the mess.

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