Dehydrated Banks: Just Add Water

[*T*]

Re: Dehydrated Banks: Just Add Water

Same debate over at RGE on de facto Nationalisation vs. Socialisation of Losses:
Brad Sester: Those Stabilising Speculators...

[c1ue]

Re: Dehydrated Banks: Just Add Water

Since I'm not the one making the argument for nationalization here, it isn't clear to me how it is my responsibility to make the terminology. In any case, I did. I referred to it as taxpayer subsidization, and I contrasted that with nationalization, which I clearly did define (though perhaps you missed it) as government (taxpayer) ownership. There is a big difference between taxpayers subsidizing and taxpayers being owners. To take just one example: taxpayers subsidize health care for the poor but taxpayers don't own the health care industry.

So let me see - nationalization = official ownership by government.

Government owns and manages said nationalized institution - not necessarily operates.

Taxpayer subsidy = money paid into institution to keep it alive.

Does said institution not get managed by that which keeps it alive? Do the executives of said institution truly retain independence?

More importantly, what difference does it make from the outside perspective?

If these institutions are banks, does it make any difference whatsoever whether it is the government which owns the corp or it is a separate entity which the government tells what to do else funding is cut off?

This is what I allude to - that the semantic difference between the two matters only if you are IN the institution(s) in question.

For everyone else, irrelevant.

[metalman]

Re: Dehydrated Banks: Just Add Water

So let me see - nationalization = official ownership by government.

Government owns and manages said nationalized institution - not necessarily operates.

Taxpayer subsidy = money paid into institution to keep it alive.

Does said institution not get managed by that which keeps it alive? Do the executives of said institution truly retain independence?

More importantly, what difference does it make from the outside perspective?

If these institutions are banks, does it make any difference whatsoever whether it is the government which owns the corp or it is a separate entity which the government tells what to do else funding is cut off?

This is what I allude to - that the semantic difference between the two matters only if you are IN the institution(s) in question.

For everyone else, irrelevant.

this is my view also and the point of the article, imho. should let them go out of business so the credit crisis doesn't keep spreading. but can't... to big. anything short of letting uneconomical businesses fail is nationalization in my book. in terms of risk pollution, it got into everything and there are not enough unpolluted major banks to take up the good assets from the polluted to death banks.

so now bond markets crash one at a time and rates spike. how long until it hits usa treasuries?

[GRG55]

Re: Dehydrated Banks: Just Add Water

Quoting the WSJ: "The huge role Fannie and Freddie play in the mortgage market has grown even bigger since mid-2007, when other investors took fright and virtually stopped buying home loans other than those guaranteed by Fannie and Freddie or insured by the Federal Housing Administration. Meanwhile, another set of government-sponsored institutions -- the 12 regional Federal Home Loan Banks -- have stepped up their lending to mortgage companies cut off from other sources of funds."

http://online.wsj.com/article/SB1203...googlenews_wsj

The news story then goes on to say:
"Fannie and Freddie acquire home loans and hold them as investments or bundle them into securities held by other investors. They collect fees for guaranteeing payments on those so-called securitized loans -- and take a hit when lots of homeowners default. Though Fannie and Freddie are owned by private shareholders, the companies were created by Congress to help ensure a steady flow of money into housing. Investors assume the government would bail them out in a crisis."

I pulled this off Bill Fleckenstein's column - it's an excerpt from Fannie's 10Q (emphasis mine). Looks like the bail out in the making will be bigger than we might imagine if this is any indication. Note the language about "unsecured" and "curing their payment defaults"...

Using "Loss Mitigation" to Mitigate the Bad Stuff

...He wasn't falling for what must have taken several Fannie writers some time to concoct. Quoting directly from the 10Q: "The total number of loans we purchase from MBS trusts is dependent on a number of factors, including management decisions about appropriate loss mitigation efforts, the expected increase in loan delinquencies within our MBS trusts resulting from the current adverse conditions in the housing market and our need to preserve capital to meet our regulatory capital requirements. For example, we recently introduced a new HomeSaver Advance initiative, which is a loss mitigation tool that we began implementing in the first quarter of 2008. HomeSaver Advance provides qualified borrowers with an unsecured personal loan in an amount equal to all past due payments relating to their mortgage loan, allowing borrowers to cure their payment defaults under mortgage loans without requiring modification of their mortgage loans. By permitting qualified borrowers to cure their payment defaults without requiring that we purchase the loans from the MBS trusts in order to modify the loans, this loss mitigation tool may reduce the number of delinquent mortgage loans that we purchase from MBS trusts in the future and the fair value losses we record in connection with those purchases."