A VC - Latest Comments in Friday Afternoon Is Bad News Time

Re: Friday Afternoon Is Bad News Time

daddysteve — Sun, 05 Jul 2009 21:42:18 -0000

It's a good thing people are beginning to realize that both parties are to blame for most of our problems.

Re: Friday Afternoon Is Bad News Time

MassMan — Thu, 11 Sep 2008 20:42:50 -0000

It's all over for Lehman. They will be sold or merge with another institution with the Fed underiting the risk on the transaction. Lehman, like Bear, is too important to the CDS market to fail.

Unfortunately, what we really have is corporatism. And the essential characteristic of this system is that while profits are private, losses are socialized, i.e., ultimately covered by the mass of people without political clout.

Re: Friday Afternoon Is Bad News Time

fredwilson — Thu, 11 Sep 2008 06:47:11 -0000

Not suggesting protecting them

Just suggesting not incenting them to do it

Margins on stock investing

No money down loans

Teaser interest rates

Etc

Re: Friday Afternoon Is Bad News Time

Steve Kane — Wed, 10 Sep 2008 09:35:17 -0000

Ah.

But that simple statement is an incredibly difficult maybe impossible
ideal to live up to.

And worse, it is anti-innovation.

What is a ³stupid risk²?

I feel bad for people who overextended and predatory lenders and their
enablers should be jailed but my grandfather and my father and myself
have prospered by taking what many people most -- admonished us were
³stupid risks².

Trying to protect people from themselves is impossible and antithetical to
an innovation and entrepreneurship society

Re: Friday Afternoon Is Bad News Time

fredwilson — Wed, 10 Sep 2008 09:05:10 -0000

The alternative is real capitalism where we don't incent people to take stupid risks

Re: Friday Afternoon Is Bad News Time

fredwilson — Wed, 10 Sep 2008 09:05:09 -0000

So now we move on to lehman. The markets are testing to see where the govt will stop bailing out bad portfolios

Re: Friday Afternoon Is Bad News Time

MassMan — Wed, 10 Sep 2008 07:12:52 -0000

With $5.2 trillion in mortgage securities at risk, the Bushies bailed them out because they had to. They simply had no other choice. The lending markets have responded and it seems to be working. The yield of Fannie Mae perfect coupons has drop in the last few days (5.16% current yield versus the approximately 6%
last week).

As far as punishing the investors goes, you'll have to look at each class.
The equity investors have been crushed. The pref shareholders ($36 Billion) will get diluted which was a Hobson's choice. Crush the preferreds or wipe out the shareholders of a lot of banks and have the FDIC pick up the costs. By the way, Congress and bank regulators encouraged banks to buy preferred shares by giving them special status and tax breaks. Expect the FDIC to foot some of the bill on this one.

The debt was essentially off limits. If that defaulted then it would ignite a fire the Credit Default Swap market that would make the current crisis look like a picnic.

It's ugly. It was foretold and everyone (bushies, clintons, congress, etc.) stood around and did nothing to stop it.

Re: Friday Afternoon Is Bad News Time

Steve Kane — Wed, 10 Sep 2008 06:24:06 -0000

Yes, that seems to be the strategy of the times. I can't say I've ever seen
it explained. Btw, I know its a bit unfashionable to say but I still think
the glass is half full. Or 3/4 full. Mortage default rates are upsetting as
absolute numbers of course but are not out of whack, historically. Ditto the
federal deficit. Ditto the unemployment rate. And while its clear we went
too far flooding the money supply, for me, having an ³ownership society² as
our goal still seems like a noble pursuit. What's the alternative. I think
its called fuedalism? ;)

Re: Friday Afternoon Is Bad News Time

fredwilson — Tue, 09 Sep 2008 20:54:33 -0000

My cronyism comment was not implying that the Bush Administration is at
fault for the demise, I think we can lay that at the hands of our government
broadly. But the decision to make the bond holders whole leaves me shaking
my head. Why do they get spared when the taxpayers are paying the bills?

Re: Friday Afternoon Is Bad News Time

Brian — Tue, 09 Sep 2008 08:38:08 -0000

More details of the real corruption that contributed to the Fan and Fred mess:

http://online.wsj.com/artic...

Who is going to hold the likes of Barney Frank to account? Where is the outrage?

Re: Friday Afternoon Is Bad News Time

Steve Kane — Mon, 08 Sep 2008 15:15:33 -0000

hi fred. in what way do you see the bush administration as being at fault in the demise of fannie and freddie?

as many of the other comments have pointed out, the two GSEs have been much more the creation and ward of the democrat leadership, in congress.

which is not to say that the cheap money policies and ecosystem of the last 6-7 years haven't had a negative impact. gas on the fire, of course.

but jeez louise, i don't see how we go about doing things better next time if we create a scapegoat called "the bush administration" and will ourselves to believe we can simply smash idols and be rid of demons

Re: Friday Afternoon Is Bad News Time

Brian — Mon, 08 Sep 2008 12:38:01 -0000

In this case the markets have ALWAYS been full of moral hazard since Fannie and Freddie got into the securitization business over 20 years ago.

This is treasury cleaning up the mess Congress created. There is one small type of GSE debt that is considered a bailout, but the rest is just Fan and Fred servicing MBS. I have heard that after treasuries, GSE debt is the next largest holding of central banks.

I wish all equity and non-MBS debt was wiped out, but that would not fly by Congress. I think Paulson (for once) did the best he could under the circumstances. Hopefully, after the election plans will be put in place to completely eliminate the GSEs.

http://online.wsj.com/artic...

Re: Friday Afternoon Is Bad News Time

fredwilson — Mon, 08 Sep 2008 10:56:36 -0000

Its called moral hazard and the markets are full of it now

Re: Friday Afternoon Is Bad News Time

fredwilson — Mon, 08 Sep 2008 10:56:34 -0000

Bush's 'ownership' mantra has come back to haunt us

Re: Friday Afternoon Is Bad News Time

fredwilson — Mon, 08 Sep 2008 10:56:31 -0000

Bondholders are made whole

Re: Friday Afternoon Is Bad News Time

Brian — Mon, 08 Sep 2008 10:51:25 -0000

All of their derivative activity started in the 90s. The problem started when they went beyond just issuing securities to actually purchasing securities.

OPHEO raised a stink, but Congress shouted them down.

Fannie and Freddie have been bad news for the past 15 years. They were just finally put in a situation that they could not lobby their way out of.

What mortgage rules have been eased over the last 7 years? No doc, interest only, and sub prime have been around for years.

The only change is congress coercing banks to lend to people who have no means to repay loans in the name of affordable housing goals.

Re: Friday Afternoon Is Bad News Time

Guest — Mon, 08 Sep 2008 09:05:40 -0000

Yes and no. Deregulation of the industry led to Fannie Mae and Fred Mac losing market share to less regulated players. To stay competetive they tried to do a whole bunch of things to keep their earning growth (according to Buffet), which ultimately led to their demise.

Re: Friday Afternoon Is Bad News Time

Brian — Mon, 08 Sep 2008 08:34:07 -0000

What does any of that have to do with Fannie Mae and Freddie Mac?

The subprime debacle has nothing to do with financial deregulation. Regulations on the GSEs actually increased under the Bush administration.

Mortgages are the most regulated part of the financial industry. The problem were banks were encouraged by Congress to increase home ownership by giving loans to people who cannot pay their bills.

Fan and Fred's time bomb started n the 90s when they were allowed to buy MBS (Mortgage Back Securities) to put on their books.

Last time I checked ACORN, Jim Johnson, and Frank Raines were not Bush cronies.

Re: Friday Afternoon Is Bad News Time

Guest — Mon, 08 Sep 2008 02:59:23 -0000

Brian,
by deregulating the financial sector Bush created environment which allowed Wall Street to book imaginary paper profits, thus leading to the distribution of obscene bonuses among Bush's cronies. Now that the tide is receding, the resulting deficiencies are being socialized by taxpayers, foreign investors, and pension funds.

Paul Krugman has written extensively on this, however, in this case his opinion is shared by the likes of Warren Buffet and Kevin Philips: not exactly Krugman-like liberals.

Re: Friday Afternoon Is Bad News Time

Brian — Sun, 07 Sep 2008 20:54:08 -0000

The firm is not being bailed out. Most likely equity holders will be wiped out.

This is about taking over the GSEs so they stop buying mortgages to buy for their portfolios (which is the cause of this mess in the first place).

The feds have always been on the hook for the GSEs debt. This is just making the implicit explicit.

Re: Friday Afternoon Is Bad News Time

Brian — Sun, 07 Sep 2008 20:32:58 -0000

How exactly is this Bush "Crony Capitalism"?

Bush is the only person in government that has challenged Fannie Mae and Freddie Mac.

Shareholders are wiped out? Where is the cronyism?

Re: Friday Afternoon Is Bad News Time

jer979 — Sun, 07 Sep 2008 20:32:33 -0000

Just finished Foold by Randomness, so we're on the same page. Thing I am having a hard time understanding/coming to terms with (Fannie/Freddie and Bear Stearns) is: why is the gov't (i.e. taxpayer) on the hook for when execs make bets that don't pay off?

When you guys invest in a start-up that goes bust, no one bails you out. It's the market. Why didn't we just let Bear, et al. fail? What am I missing?

And, if these firms know they will be bailed out if they do make bad decisions, won't that lead to more unwise decisions?

Re: Friday Afternoon Is Bad News Time

Francis Hwang — Sun, 07 Sep 2008 19:48:44 -0000

As somebody who almost always votes Democratic it pains me to admit it, but MassMan's synopsis of the problem seems to jibe with what I've been reading too ... GSEs are basically a horrible idea, because it's so easy for them to accumulate enough power to influence their own regulators, and we as a country turned a blind eye to it because it was all supposedly for the purpose of making it easier for working people to buy homes.

If you still want the federal government to make it easier to buy homes, we shouldn't be doing it with GSEs at all, which look like a free lunch for a few decades until Freddie & Fannie default and the U.S. taxpayer ends up with a giant fiscal bomb in his hands. We should be setting aside a fund of X dollars per year, and saying that any private company that wants to give mortgages to first-time homeowners can draw on that fund to guarantee against default or whatever. That way you'd have a bunch of private companies doing the work of making it easier to buy a house, but the government would know its liabilities up-front, and no one lender would be too big to fail.

That's, of course, assuming you think the government should be focusing so much on homeownership. Personally, I'd rather that money be spent on education and health care instead. In the long term you'll get farther by making your people smarter and healthier--once they've got decent job training and reduced chronic illnesses, they'll be able to buy their homes on their own ...

Re: Friday Afternoon Is Bad News Time

markslater — Sun, 07 Sep 2008 16:35:27 -0000

you absolutely have to be kidding me. thats exactly what i was thinking...spooky.

Re: Friday Afternoon Is Bad News Time

markslater — Sun, 07 Sep 2008 16:24:23 -0000

good response massman - it continues to amaze me that this scandal is ignored.