# Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch... **URL:** \ **Category:** Great Debates\ **Created:** [September 15, 2008, 2:29am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650 "2008-09-15T02:29:45Z")\ **Posts on this page:** 20\ **Page:** 5
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [September 16, 2008, 9:13pm UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/81 "2008-09-16T21:13:25Z")
> [@gonzomax](#): > > Just think what a mess it would have been if the Repubs had been able to privatize Social Security. You do realize that one of Obama’s top economic advisors, Jeffrey Liebman, is a proponent of partial social security privatization. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [September 16, 2008, 9:21pm UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/82 "2008-09-16T21:21:30Z")
> [@erislover](#): > > I’m sorry, I think the train of thought was lost in these details. The specific quote is: “[The CEO] can leave the place a smoking crater and still get his big bucks.” This is true. The method of choosing a CEO is meant to avoid this disaster. Nothing factually presented in this thread has supported any other conclusion. The system as implemented may be corruptable, may be overly political, and it may not represent a startlingly awesome system for choosing a CEO, but that is different from suggesting that CEOs somehow aim to cut a company to shreds and run with the bucks, or that the board of directors would somehow find this in their interest, which was all I was aiming at. Well, I agree that no one chooses a CEO to destroy a company. However the way CEOs get compensated these days tends to encourage excessive short term risk taking for short term stock price increases. Deferring bonuses until the long term implications of a strategy were known might help. Not getting millions when they screw up badly enough to get booted might help also. ---
**Author:** ![MOIDALIZE](https://avatars.discourse-cdn.com/v4/letter/m/e274bd/32.png) [@MOIDALIZE](https://boards.straightdope.com/u/MOIDALIZE)\ **Post date:** [September 17, 2008, 12:38am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/83 "2008-09-17T00:38:00Z")
I posted this in another thread, but it’s disheartening enough to post here as well. From a Financial Times article (discussing why the US govt was unwilling to guarantee any bailout of Lehman): “Since the August rescue of Freddie Mac and Fannie Mae, credit markets have begun to price in the possibility of a default by the US government – the implied probability remains a fraction of 1 per cent but it is an unprecedented development.” ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [September 17, 2008, 1:16am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/84 "2008-09-17T01:16:07Z")
I heard Barcleys bought a big chunk of Lehman. The story said they would not buy the part with mortgages but would still save about 7000 jobs. ---
**Author:** ![DSeid](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dseid/32/20194_2.png) [@DSeid](https://boards.straightdope.com/u/DSeid)\ **Post date:** [September 17, 2008, 1:28am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/85 "2008-09-17T01:28:41Z")
Well Lehman isn’t big enough. But [AIG is.](http://money.cnn.com/2008/09/16/news/companies/AIG/index.htm?cnn=yes) So where exactly _is_ the line drawn in the sand? ---
**Author:** ![MOIDALIZE](https://avatars.discourse-cdn.com/v4/letter/m/e274bd/32.png) [@MOIDALIZE](https://boards.straightdope.com/u/MOIDALIZE)\ **Post date:** [September 17, 2008, 1:42am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/86 "2008-09-17T01:42:16Z")
I just found about about AIG. That is really shocking. ---
**Author:** ![Kiros](https://avatars.discourse-cdn.com/v4/letter/k/439d5e/32.png) [@Kiros](https://boards.straightdope.com/u/Kiros)\ **Post date:** [September 17, 2008, 2:17am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/87 "2008-09-17T02:17:54Z")
Not only that it’s happening, but… 80 percent Fed control? 3-month LIBOR plus 8.5? Wow. ---
**Author:** ![Huerta88](https://avatars.discourse-cdn.com/v4/letter/h/82dd89/32.png) [@Huerta88](https://boards.straightdope.com/u/Huerta88)\ **Post date:** [September 17, 2008, 2:20am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/88 "2008-09-17T02:20:14Z")
> [@MOIDALIZE](#): > > I just found about about AIG. That is really shocking. Mind you, all these bailouts amount to socialism – not just in the sense of government spending, but in the sense that the United States is now playing (potentially) mortgage banker to half the homes in the country, and is running 80% of a giant insurance company. Since I have no reason to believe the United States government knows the first thing about running businesses, this seems very troubling. Is the plan to unload them back into the private markets when things “stabilize?” Or will the gov’t end up owning insurance companies, mortgage banks, car companies . . . ad infinitum? Bolshevism, finally accomplished. ---
**Author:** ![erislover](https://avatars.discourse-cdn.com/v4/letter/e/71e660/32.png) [@erislover](https://boards.straightdope.com/u/erislover)\ **Post date:** [September 17, 2008, 2:23am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/89 "2008-09-17T02:23:41Z")
> [@Voyager](#): > > However the way CEOs get compensated these days tends to encourage excessive short term risk taking for short term stock price increases. I thought this practice was dying out since the 90’s. It’s not something I’m keeping track of, though! > [@](#): > > Deferring bonuses until the long term implications of a strategy were known might help. Maybe. It would definitely depend on the company and the strategy in question. > [@](#): > > Not getting millions when they screw up badly enough to get booted might help also. I disagree here, for reasons I already mentioned (discourages risk-taking when that might be the behavior one wants to encourage). ---
**Author:** ![Squink](https://avatars.discourse-cdn.com/v4/letter/s/b5e925/32.png) [@Squink](https://boards.straightdope.com/u/Squink)\ **Post date:** [September 17, 2008, 2:23am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/90 "2008-09-17T02:23:42Z")
> [@MOIDALIZE](#): > > I just found about about AIG. That is really shocking. People should hang for this. ---
**Author:** ![DSeid](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dseid/32/20194_2.png) [@DSeid](https://boards.straightdope.com/u/DSeid)\ **Post date:** [September 17, 2008, 2:25am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/91 "2008-09-17T02:25:30Z")
> [@Huerta88](#): > > Mind you, all these bailouts amount to socialism – not just in the sense of government spending, but in the sense that the United States is now playing (potentially) mortgage banker to half the homes in the country, and is running 80% of a giant insurance company. Since I have no reason to believe the United States government knows the first thing about running businesses, this seems very troubling. Is the plan to unload them back into the private markets when things “stabilize?” Or will the gov’t end up owning insurance companies, mortgage banks, car companies . . . ad infinitum? Bolshevism, finally accomplished. Well assuming these companies survive to come out the other side, which one assumes they will with the Feds backing them up, then they may very well be able to be sold back into the private market, either in wholes or in smaller pieces, for a tidy profit before all is said and done. ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [September 17, 2008, 2:29am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/92 "2008-09-17T02:29:31Z")
> [@Squink](#): > > People should hang for this. Let’s wait a few weeks and see. I haven’t digested the full story yet, but from what I can tell this may be more of a liquidity crisis for AIG and less of a classic bankruptcy. My understanding is that AIG has plenty of valuable assets but couldn’t unload them in time, in an orderly fashion, to meet its creditors demands for cash. In that case, a bridge loan can make a lot of sense. Especially if the US demands reasonably stringent terms as much as any other lender. It’s possible there could even be some upside. But let’s wait. There will be plenty of time to hang those who deserve it, if need be. ---
**Author:** ![DSeid](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dseid/32/20194_2.png) [@DSeid](https://boards.straightdope.com/u/DSeid)\ **Post date:** [September 17, 2008, 2:33am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/93 "2008-09-17T02:33:28Z")
Am I reading right? $1.1 trillion in assets. 80% stake bought for a loan of $85 billion. A loan at a pretty steep interest rate and backed by those assets. Plan is to sell its parts in an orderly fashion. I’m surprised a Buffet wouldn’t offer those terms or better. I am understanding that correctly, aren’t I? ---
**Author:** ![Rysto](https://avatars.discourse-cdn.com/v4/letter/r/ecccb3/32.png) [@Rysto](https://boards.straightdope.com/u/Rysto)\ **Post date:** [September 17, 2008, 2:37am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/94 "2008-09-17T02:37:06Z")
Warren Buffet probably doesn’t have the _cash_ necessary to pull off such a deal. No doubt his money is just as tied up in illiquid assets as AIG ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [September 17, 2008, 2:39am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/95 "2008-09-17T02:39:01Z")
> [@DSeid](#): > > Am I reading right? $1.1 trillion in assets. 80% stake bought for a loan of $85 billion. A loan at a pretty steep interest rate and backed by those assets. Plan is to sell its parts in an orderly fashion. I’m surprised a Buffet wouldn’t offer those terms or better. > > I am understanding that correctly, aren’t I? I don’t have the balance sheet in front of me, but equity is assets minus liabilities. I have no idea what their liabilities are off the top of my head, but IIRC AIG’s market cap was in the $200 billion range before the market started to head south. That’s not the same as book equity, of course, but it’s probably the same order of magnitude. 80% for $85 billion implies a market cap of a bit north of $100 billion. That sounds about right for a going concern of AIG’s size. Let’s hope the concern is actually going. Forward, that is. ---
**Author:** ![MOIDALIZE](https://avatars.discourse-cdn.com/v4/letter/m/e274bd/32.png) [@MOIDALIZE](https://boards.straightdope.com/u/MOIDALIZE)\ **Post date:** [September 17, 2008, 2:41am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/96 "2008-09-17T02:41:18Z")
What’s even creepier is that a Time magazine article has speculated that a lot of the pressure for the U.S. government to take these sorts of actions has come from foreign nations who have large investments in these companies (particularly Freddie and Fannie). That doesn’t sit right with me, but being the biggest debtor nation in the world certainly has its drawbacks. ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [September 17, 2008, 2:46am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/97 "2008-09-17T02:46:49Z")
> [@MOIDALIZE](#): > > What’s even creepier is that a Time magazine article has speculated that a lot of the pressure for the U.S. government to take these sorts of actions has come from foreign nations who have large investments in these companies (particularly Freddie and Fannie). That doesn’t sit right with me, but being the biggest debtor nation in the world certainly has its drawbacks. Ding-ding-ding-ding-ding! Yes! That is the real red flag here. For years we’ve been debating to-and-for about the US current account deficit, the foreign financing of same, and speculated about when and how our line of credit would ever dry up. I think it’s happening. Right now. I have no doubt that Lehman and Merrill hit the phones looking to raise more capital from overseas, and got a big ‘No’. That’s not exactly the same as China refusing to buy T-Bills, but it’s getting in the ballpark. Supposedly Paulson finally acted on FNMA because foreigners own a trainload of their bonds and wanted to know what the hell is going on. Ah, yes. The day of reckoning. Margin call on Mortimer and Randolph Duke, for those of us who are ‘Trading Places’ afficianadoes. Let’s hope we’re at the bottom. ---
**Author:** ![Cat\_Whisperer](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cat_whisperer/32/4839_2.png) [@Cat\_Whisperer](https://boards.straightdope.com/u/Cat_Whisperer)\ **Post date:** [September 17, 2008, 3:08am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/98 "2008-09-17T03:08:55Z")
What would be making me laugh if the whole situation wasn’t so patently shitty is that in Canada we have some government regulation to protect us from our own stupid selves, and US Americans pointed and laughed at us and called us socialists; the US had very little regulation, so now you’re going to get a lot of regulation. After you all lose your jobs and your homes. ---
**Author:** ![anu-la1979](https://avatars.discourse-cdn.com/v4/letter/a/47e85d/32.png) [@anu-la1979](https://boards.straightdope.com/u/anu-la1979)\ **Post date:** [September 17, 2008, 3:28am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/99 "2008-09-17T03:28:23Z")
How do you figure every one of “us” is going to lose our jobs and homes? ---
**Author:** ![Koxinga](https://avatars.discourse-cdn.com/v4/letter/k/4af34b/32.png) [@Koxinga](https://boards.straightdope.com/u/Koxinga)\ **Post date:** [September 17, 2008, 4:01am UTC](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650/100 "2008-09-17T04:01:16Z")
> [@IdahoMauleMan](#): > > Ding-ding-ding-ding-ding! Yes! That is the real red flag here. For years we’ve been debating to-and-for about the US current account deficit, the foreign financing of same, and speculated about when and how our line of credit would ever dry up. > > I think it’s happening. Right now. I have no doubt that Lehman and Merrill hit the phones looking to raise more capital from overseas, and got a big ‘No’. That’s not exactly the same as China refusing to buy T-Bills, but it’s getting in the ballpark. Supposedly Paulson finally acted on FNMA because foreigners own a trainload of their bonds and wanted to know what the hell is going on. > > Ah, yes. The day of reckoning. Margin call on Mortimer and Randolph Duke, for those of us who are ‘Trading Places’ afficianadoes. Let’s hope we’re at the bottom. Not to dredge up not-so-ancient board history, but I think this [earlier SDMB thread](http://boardstest.straightdope.com/sdmb/showthread.php?t=478966) provides an interesting comparison of attitudes. A few choice Doper quotes: > [@"I.O.U.S.A.": $53 trillion debt to destroy us all?](https://boards.straightdope.com/t/i-o-u-s-a-53-trillion-debt-to-destroy-us-all/459556/3): > > Nobody will ever collect. I’ve said it before and I’ll say it here: countries loan us money, and they will never see any of it again. If they call in their markers they destroy their largest market, thus ensuring that not only will they not get their money back but they won’t make any more, either. Do you think that China will stop giving us money no matter how high the deficit gets? I think not. When they turn off the tap they get no return on investment, they have nobody to sell to, and they have no source of food to feed their people. > > The game is fixed. We set the rules, and everybody has to play or everybody suffers. Who is beholden to who? > > Yes, it’s cynical, yes, it’s elitist, but it’s also true. > [@"I.O.U.S.A.": $53 trillion debt to destroy us all?](https://boards.straightdope.com/t/i-o-u-s-a-53-trillion-debt-to-destroy-us-all/459556/5): > > If I owe my creditors $1000, I have a problem. If the US government owes its creditors $53 trillion, the creditors have a problem. > [@"I.O.U.S.A.": $53 trillion debt to destroy us all?](https://boards.straightdope.com/t/i-o-u-s-a-53-trillion-debt-to-destroy-us-all/459556/30): > > Wow. And how exactly are these creditors going to collect? Yes we probably need to negotiate somewhat on certain terms of these loans but what are these counties going to do? > Foreclose? > Good luck with that. > Oh wait. China can fly a few fighters over here and intimidate us. > Go ahead and foreclose on those T-bills and loans. Watch which country it hurts the most. > [@"I.O.U.S.A.": $53 trillion debt to destroy us all?](https://boards.straightdope.com/t/i-o-u-s-a-53-trillion-debt-to-destroy-us-all/459556/25): > > No, but you get to declare bankruptcy. I just found out that one of my friends did that exactly, but it wasn’t like she purposely spent money. Though, on the other hand, she is now in a better position and will have her debt wiped away in two years, and she still owns her house. China on the other hand will be left holding the bag. Though, they much rather not have the US default, but they will be suffering from the rise in their currency and the shrinking of their markets, not to mention some heavy inflation and ultimately large unemployment. They will probably look back through a weepy tear and see their half-ass attempt to modernize their economy and their society stagnate. > > They made their own bed, they should sleep in it. None of these folks have appeared in this thread so far. Wonder what they’ll have to say now? [Previous page](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650.md?page=4) [Next page](https://boards.straightdope.com/t/fannie-mae-freddie-mac-lehman-brothers-merrill-lynch/463650.md?page=6)