Regulating Fannie and Freddie

[drone]

I recommend that you all withdraw your savings from whatever bank you have them in, I know I already have.

Spoiler Alert, click show to read: 

Under the mattress is the safest place!

Bank of America got Merrill Lynch for a good price. I suppose at some point they will stick a capital 'T' "The" in front of their name after this. BoA looked at Lehman, but decided they were a lost cause without government backing and jumped on Merrill who was healthier. At the end of this mess BoA is going to be a juggernaut. I think I need to start complaining about the interest rate I'm getting on my checking account...

AIG does not look to be in a good position. Don't know who is willing to take on that risk.


I've been wondering when Ford/GM will ask for a bailout. They are both bleeding cash, and will eventually go through their reserves. Then I saw this on over the weekend:
http://www.washingtonpost.com/wp-dyn...091203341.html
Sounds to me like a "we bet everything on gas-guzzlers, can you please loan us money cheap while we retool our factories for small fuel-efficient vehicles that the Japanese have a 20 year head start on" whine.

[Ironside]

I'm curious, exactly who did really benfit on this bubble?

Obviously getting caught with the poor loans , making you bankrupt or getting the state to bail you out isn't profitable.

[Papewaio]

Ah the sweet sweet smell of corporate welfare wafting through the economy from baked books and over leveraged assets. When will the fun stop?

Oh look the private sector does it so much better then government, why burden the private sector with rules and regulations. But if anything goes wrong to the private investments, lets bail it out with public sector money.

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I think the underlying structural issues need to be addressed. The US economy is looking suspicously too much like the 90's Japanese economy were the big banks and insurers weren't structured for the modern economy.

Has there been no learning from the likes of Arthur Anderson, the Energy Trading and WorldCom?

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At the end of the day transparency and accountability have to rise up. And if the private sector expects handouts, it should expect substantial strings attached. Not just to those who get it, but the entire sector so that the mistakes are not repeated.

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PS How is Warren Buffet and Co. doing? If it is a bear market, he must be in getting some bargins.

[Adrian II]

At the end of the day transparency and accountability have to rise up. And if the private sector expects handouts, it should expect substantial strings attached. Not just to those who get it, but the entire sector so that the mistakes are not repeated.

Alright, alright. But what sort of accountability? That's the issue I've been trying to raise.

Fannie and Freddie were accountable. So were Enron or WOL. It didn't work because

1. they got preferential treatment, and
2. the oversight was lax/incompetent/corrupt

It is obvious that markets do not sufficiently regulate themselves voluntarily and that the State is usually a bad supervisor. So, how do we make the State a better supervisor without killing the benefits of private business?

[Mangudai]

It is obvious that markets do not sufficiently regulate themselves voluntarily and that the State is usually a bad supervisor. So, how do we make the State a better supervisor without killing the benefits of private business?

Anti-trust laws should be enforced. There is no way companies like Fannie and Freddie should be permitted to hold 70% of US mortgages. Forcing overblown companies to split into many pieces is a viable solution.

[Mangudai]

I'm going to try to express a very big idea. I hope I can do it justice.

Nassim Taleb coined the term "ludic fallacy". Ludic is the latin word for games. Probability theory and game theory are sufficiently advanced to predict economic returns for gambling casinos. However, the economy as a whole is a different animal.

Probability theory and game theory are fashionable on Wal-Street. Quants (analysts) force their data to fit the Gaussian models, and express their uncertainty in standard deviations. Based on these models many people thought they understood how much risk they were taking. We all know outcome when they are wrong. The real world, and subsets like the financial markets, are not like games. The rules are not well defined, and rare events can turn the whole systems upside down.

We don't have any logically sound way of making decisions under uncertainty. Gaussian models are helpful most of the time, but sometimes they are woefully wrong. There are other mathematical models, but they are not logically sound either. We need to acknowledge deep uncertainty. In the words of Donald Rumsfeld, "there are unknown unknowns".




This idea also informs my view of regulation going forward. Many people are calling for the government to regulate the procedures used by credit rating agencies. This is a horrible idea because the regulators have no logically sound procedure. If the government did oversee credit rating procedures, this would lead to an even more dangerous level of misplaced trust in flawed models.

[Adrian II]

This idea also informs my view of regulation going forward. Many people are calling for the government to regulate the procedures used by credit rating agencies. This is a horrible idea because the regulators have no logically sound procedure. If the government did oversee credit rating procedures, this would lead to an even more dangerous level of misplaced trust in flawed models.

Besides Banquo's Ghost proposition that we abolish incorporation, this is another highly original contribution to the thread. It is an approach (or rather, an issue) which never even occurred to me.

Question for you. Gaussian prediction is mostly used when we don't know the mechanism underlying a distribution, right? If we would know the mechanism, we might take better samples and reach more sound conclusions with regard to markets. This points to inadequacies in economic theory rather than statistical analysis.

Or am I being blond here?

[seireikhaan]

Under the mattress is the safest place!

Bank of America got Merrill Lynch for a good price. I suppose at some point they will stick a capital 'T' "The" in front of their name after this. BoA looked at Lehman, but decided they were a lost cause without government backing and jumped on Merrill who was healthier. At the end of this mess BoA is going to be a juggernaut. I think I need to start complaining about the interest rate I'm getting on my checking account...

AIG does not look to be in a good position. Don't know who is willing to take on that risk.


I've been wondering when Ford/GM will ask for a bailout. They are both bleeding cash, and will eventually go through their reserves. Then I saw this on over the weekend:
http://www.washingtonpost.com/wp-dyn...091203341.html
Sounds to me like a "we bet everything on gas-guzzlers, can you please loan us money cheap while we retool our factories for small fuel-efficient vehicles that the Japanese have a 20 year head start on" whine.

So what happens when Bank of America pulls the same that all these other numnutzes have done?

[drone]

So what happens when Bank of America pulls the same that all these other numnutzes have done?

I haven't seen the balance sheets, but I believe Bank of America is fairly isolated from the mortgage crisis. They avoided sub-prime lending and investing, and they have a huge amount of capital. They had tried earlier to start an investment banking arm, but it never really took off, so taking over Merrill Lynch gets their foot in the door and shores up Merrill's investments. What sank Lehman is not debt, but the inability (or the appearance of) to raise capital to cover that debt. Banks like Wachovia, Washington Mutual, etc, are in trouble, best to avoid those, once the blood is in the water it's only a matter of time. There are a few big banks that kept away from the mortgage wheeling and dealing, those will be the best bets for survival. As far as where your money goes, look up the rules of FDIC insurance. If you have more than $100K with any one bank under one name, start up an account elsewhere and transfer.

[seireikhaan]

I haven't seen the balance sheets, but I believe Bank of America is fairly isolated from the mortgage crisis. They avoided sub-prime lending and investing, and they have a huge amount of capital. They had tried earlier to start an investment banking arm, but it never really took off, so taking over Merrill Lynch gets their foot in the door and shores up Merrill's investments. What sank Lehman is not debt, but the inability (or the appearance of) to raise capital to cover that debt. Banks like Wachovia, Washington Mutual, etc, are in trouble, best to avoid those, once the blood is in the water it's only a matter of time. There are a few big banks that kept away from the mortgage wheeling and dealing, those will be the best bets for survival. As far as where your money goes, look up the rules of FDIC insurance. If you have more than $100K with any one bank under one name, start up an account elsewhere and transfer.

Drone, I'm not talking about in the next year or two. I'm talking about 15 or 20 years down the line, when they inevitably succumb to the same sort of stuff that Fannie, Freddy, and Lehman have. What then, when we've got an even bigger crisis our hands? BoA will be so gigantic that the government will inevitably have to bail them out too. Honestly, I can't believe I'm saying this, but with so much of the world economy at stake, the heads of these super banks should be getting the death penalty for this. SOMETHING to get it through their heads that they can't just do whatever they want and get an 8 million dollar buyout offer so they can go retire in comfort to Miami or Panama City.

[Big_John]

I'm talking about 15 or 20 years down the line

wut lol? get your head out of the clouds, brotha. anything further ahead than 5 years from now ain't worth worrying about. bush 08!