Good thing we had Barney Frank in congress riding herd over these evil corporate debils *cough cough*.

Tell me again why it isn't legal to just hang these asshats.
make it a good reason, too, this time.

Diogenes: You need new material.

I dunno.

Seems to be working just fine to me.

Meh. YMMV

And the Ric Romero Memorial Award for Most Obvious Statement of 2012 goes to...

These investments, while legal, raise concerns about a conflict of interest within Freddie Mac.

THE HELL YOU SAY?!

GAT_00: Republicans, it's up to you to stop this, and I know exactly how. It's something called Glass-Stegal and you killed it 15 years ago. So, if you want this to stop, put it back. Otherwise STFU, you're the ones who let them do it.

So the democrats until recently controlled both houses and the executive and now control one house and the executive, but it's the Republicans fault that Glass-Stegal hasn't been reinstated?

i was waiting for this to show up here.

i am disappointed in NPR, they clearly don't understand how the MBS market works. (i used to work in debt markets for a bank)

so here wo go:

the GSEs, Fannie Mae and Freddie Mac, are practically the only buyers of mortgages in the secondary market these days. the GSEs then package up the bonds into MBS and sell them in tranches with various risks. the GSEs are responsible for 97% of all MBS issuance in the US.

it is common practice for the riskiest tranches, aka the ones most likely to show losses from refinancings, to remain with the issuer. Often (especially since the credit crunch), the issuer cannot get rid of these things even if it wants to, as the discount it would have to offer would not be economically viable. As a result, Fannie and Freddie have lots of these risky tranches of MBS on their books.

therefore there are two choices here: leave the tranches where they are or the GSEs sell these things at a loss (therefore needing more cash from taxpayers) to hedge funds and PIMCO.

pick your poision: either we live with this "conflict of interest" (if there is proper separation between the trading desk and the issuance, it really is not a conflict) or taxpayers subsidize huge windfalls for asset managers.

sorry, I do realize that I left out the third choice, which is end taxpayer support of GSEs.

watson.t.hamster: GAT_00: Republicans, it's up to you to stop this, and I know exactly how. It's something called Glass-Stegal and you killed it 15 years ago. So, if you want this to stop, put it back. Otherwise STFU, you're the ones who let them do it.

So the democrats until recently controlled both houses and the executive and now control one house and the executive, but it's the Republicans fault that Glass-Stegal hasn't been reinstated?

Plus, how does Glass-Stegal apply to a GOVERNMENT SPONSORED ENTERPRISE?

/Fannie and Freddie are the Dims monsters

NewportBarGuy: If it were a government agency, this kind of hedging would be illegal.

I did not know this. Got any information you can share with the class?

uhh...when are we gonna get this shiat fixed???

/someone let a whole bunch of stinkbugs in...

dumbobruni: the GSEs, Fannie Mae and Freddie Mac, are practically the only buyers of mortgages in the secondary market these days. the GSEs then package up the bonds into MBS and sell them in tranches with various risks. the GSEs are responsible for 97% of all MBS issuance in the US.

Was this also the case before the financial crisis?

Bad_Seed: dumbobruni: the GSEs, Fannie Mae and Freddie Mac, are practically the only buyers of mortgages in the secondary market these days. the GSEs then package up the bonds into MBS and sell them in tranches with various risks. the GSEs are responsible for 97% of all MBS issuance in the US.

Was this also the case before the financial crisis?

not to the same degree. before the financial crisis the GSEs only made up, at most, half of MBS issuance.

thanks to new, stricter capital requirements (put in place to make banks less risky), banks want nothing to do with holding on to mortgages or issuing MBS. it makes more sense for them to sell their mortgages in the secondary market, and let someone else carry the risks.

ITT - Right wingers advocate nationalizing major private businesses

dumbobruni: i was waiting for this to show up here.

i am disappointed in NPR, they clearly don't understand how the MBS market works. (i used to work in debt markets for a bank)

so here wo go:

the GSEs, Fannie Mae and Freddie Mac, are practically the only buyers of mortgages in the secondary market these days. the GSEs then package up the bonds into MBS and sell them in tranches with various risks. the GSEs are responsible for 97% of all MBS issuance in the US.

it is common practice for the riskiest tranches, aka the ones most likely to show losses from refinancings, to remain with the issuer. Often (especially since the credit crunch), the issuer cannot get rid of these things even if it wants to, as the discount it would have to offer would not be economically viable. As a result, Fannie and Freddie have lots of these risky tranches of MBS on their books.

therefore there are two choices here: leave the tranches where they are or the GSEs sell these things at a loss (therefore needing more cash from taxpayers) to hedge funds and PIMCO.

pick your poision: either we live with this "conflict of interest" (if there is proper separation between the trading desk and the issuance, it really is not a conflict) or taxpayers subsidize huge windfalls for asset managers.

Yeah, this is shoddy journalism. I think it's even more intuitive if you think about the underlying nature of mortgages wiithout complicating it with the structured mortgage securities.

If you own a pool of mortgages yielding 5%, you are going to be disinclined to refinance at 4%. There's an inherent 'conflict of interest' anytime a bank is asked to refinance. Of course, the incentive for them to do the refinance is that the borrower would otherwise go to someone else and the original loan would be paid down anyway. This applies here as well, no? Sure, Freddie might lose on the inverse floater due to a refinance, but if they don't refinance someone else will, hurting them on the inverse floater anyway.

CitizenTed: When goverment-run agencies start behaving exactly like privately held ones, you know there's gonna be trouble.

Funny, I was told this is what we wanted. After all, businesses are much less corrupt or wasteful, right?

NewportBarGuy: Of course, some will argue that if their bets pay off, the hit to the taxpayer will be lessened by their hedges.

To be honest, if I was head of Freddie Mac I'd probably play the same hand at this point. Fulfill the stated mission but bet that it won't work, because people are morons.

Bad_Seed: dumbobruni: the GSEs, Fannie Mae and Freddie Mac, are practically the only buyers of mortgages in the secondary market these days. the GSEs then package up the bonds into MBS and sell them in tranches with various risks. the GSEs are responsible for 97% of all MBS issuance in the US.

Was this also the case before the financial crisis?

Apparently not...

dumbobruni: thanks to new, stricter capital requirements (put in place to make banks less risky), banks want nothing to do with holding on to mortgages or issuing MBS. it makes more sense for them to sell their mortgages in the secondary market, and let someone else carry the risks.

And the GSEs are still buying the mortgages on the secondary market? Are they obliged to do so regardless of the costs? Haven't lending standards been improved to the extent that there aren't any more low quality mortgages being issued?

GAT_00: Republicans, it's up to you to stop this, and I know exactly how. It's something called Glass-Stegal and you killed it 15 years ago. So, if you want this to stop, put it back. Otherwise STFU, you're the ones who let them do it.

Glass-Steagall (you should probably learn to spell it correctly) would not have applied to Freddie Mac's actions.

mattharvest: dumbobruni: pick your poision: either we live with this "conflict of interest" (if there is proper separation between the trading desk and the issuance, it really is not a conflict) or taxpayers subsidize huge windfalls for asset managers.

Listening to this story in the car this AM, I thought they explained this...I haven't read TFA, but did they leave it out, or is this just the Fark crowd not understanding a complicated subject?

somewhat, but the headline of TFA is "Freddie Mac Betting Against Struggling Homeowners". the header for the paragraph explaining this is "When Homeowners Lose, Freddie Mac Wins"

the author is clearly fishing for wharrbargl here

Bad_Seed: dumbobruni: thanks to new, stricter capital requirements (put in place to make banks less risky), banks want nothing to do with holding on to mortgages or issuing MBS. it makes more sense for them to sell their mortgages in the secondary market, and let someone else carry the risks.

And the GSEs are still buying the mortgages on the secondary market? Are they obliged to do so regardless of the costs? Haven't lending standards been improved to the extent that there aren't any more low quality mortgages being issued?

the GSEs are obliged to. it is the sole reason they exist. if they were not buying, getting a mortgage would be much harder and/or much more costly.

and its not the lending standards. the capital requirements make it expensive for banks to hold anything riskier than Treasuries. and its expensive because credit markets are still not functioning properly.

under the old capital requirements banks could count the GSE issued MBS as safe as Treasuries, but they can't anymore (and with good reason!)

Would it be asinine if they bet wrong? Because, I'm pretty sure it's an even bet most won't.

cig-mkr: Why is the government in the home loan business anyway? So more people can move into homes they didn't have the 20% to put on a down payment? Was a time you had to prove to the banks you could actually afford to live there, your mortgage payment couldn't exceed a certain percentage of you income. But with the government doing the low down payment thing, people bought bigger then they needed or could afford.
Uncle Sam should regulate the mortgage market, but not have a dime invested in it.

Yeah, well the horse is out of the barn now. Your advice would have been great to have followed 10 or 15 years ago (and to be fair I would have argued against you then), but cutting Uncle Sam out of the business right now would result in a mortgage crisis and recession that would make the last one seem modest.

cig-mkr: Why is the government in the home loan business anyway? So more people can move into homes they didn't have the 20% to put on a down payment? Was a time you had to prove to the banks you could actually afford to live there, your mortgage payment couldn't exceed a certain percentage of you income. But with the government doing the low down payment thing, people bought bigger then they needed or could afford.
Uncle Sam should regulate the mortgage market, but not have a dime invested in it.

The number of loans issued by Freddie and Fannie in the entire course of their existence is exactly 0.

Freddie is a government backed hedge fund, this is more insider information then conflict of interest.

GAT_00: Republicans, it's up to you to stop this, and I know exactly how. It's something called Glass-Stegal and you killed it 15 years ago. So, if you want this to stop, put it back. Otherwise STFU, you're the ones who let them do it.

Signed in to law by that noted Republican bastard Bill Clinton

cman: Holy fark.

This is farked up on so many levels.

Really, I cant say much at all.

Wow

There's something about "making homeownership affordable" in their charter. The've been failing spectacularly at this for almost 20 years.

Kazan: You're the jerk... jerk: Glass-Steagall (you should probably learn to spell it correctly) would not have applied to Freddie Mac's actions.

it would have largely prevented the crash though. and "The Macs" accounted for less than 6% of subprimes.

No, it would not have. Independent investment banks (Bears and Lehman) were big factors in the collapse. The banks that weathered the storm were mainly those diversified through deregulation. Many economists (including very liberal keynsians) state the repeal actually softened the blow. But lets continue to blame the repeal of Glass-Steagall for this whole mess and not the ridiculous availability of credit or a variety of other factors.