Fannie Mae And Freddy Mac Failures

The world’s financial system was almost brought down in 2008 by the collapse of Lehman Brothers that was a major international investment bank at that time. The government sponsored these banks’ bailouts that were funded by tax money in order to restore the industry. Before the crisis, banks were lending irresponsible mortgages to subprime borrowers who had poor credit histories. These mortgages were purchased by banks and packaged into low-risk securities known as collateralized debt obligations (CDOs). CDOs were divided into tranches by its default risk. The ratings of those risks were determined by rating agencies such as Moody’s and Standard & Poor’s. However, those agencies were paid by banks and created an environment in which agencies were being generous to ratings since banks were their major clients.

These losses necessitated governmental action in the financial markets. Companies such as Lehman Brothers and Bear Stearns lost all of their stock’s value and were forced into bankruptcy. This risk spread throughout the American banks, forcing the American government to step in and buy all of the securitized, troubled assets from the balance sheets of

Was Fannie and Freddie’s implied government backing working in the best interest of the companies, their management and their investors or the U.S. homeowners, as was the intention according to their mission? It was their government-sponsored monopoly on a large part of the U.S. secondary mortgage market and the government’s implicit guarantee to prevent these firms from filing for bankruptcy that contributed to the collapse of the mortgage market. Although, Fannie Mae and Freddie Mac had positive influences on the mortgage market, the consequences of being able to function as an ‘implied government-backed monopoly’ outweighed the benefits that these organizations provided. Although, there were critics, consisting of their rivals and as well as some public authorities, who raised concerns about the risks these organizations were taking on, the companies continued to grow and take on risk under their congressional charters and implied federal backing. Why were these companies supported by the U.S.

In recent years, financial organizations have been bailed out to prevent the financial collapse of the economy. The Troubled Asset Relief Program (TARP) provided relief funds to financial institutions. This program is a part of the Emergency Economic Stabilization Act of 2008. While controversial, the Obama administration determined it was necessary to prevent worldwide economic failure. This bail out was necessary to add stability to the financial markets after high-risk investments and fraudulent practices of the largest banking institutions in the US

The agent provided one picture of the exterior and eleven of the interior. The pictures were of good quality.

The Federal Reserve made emergency loans to the big companies in order to prevent large banks from failing when their investors frightened. With the stock market crashing, on October 3, 2008, President George Bush signed the Troubled Asset Relief Program into law. TARP used 250 billion dollars of federal money to “bail out” the banks, and later automakers including General Electric. Government-working accountants reviewed large Wall Street banks’ balance sheets and disclosed to the public which were sound in order to instill more confidence within investors.

The bailout was a slap on the wrist for the major banking companies; they were not punished for their risky investments. The amount they were forced to pay in fines was merely nothing compared to the amount of money their bank makes per year. As said by William Cohan who worked on Wall Street for seventeen years as a mergers and acquisitions

The two -story home had the Incentive offer available stating that Fannie Mae was offering an incentive for selling agents whose buyers purchased and closed on a selected HomePath property. The agent provided images and a text into the listing.

In October of 2008 Congress, passed a $700 billion rescue bill to bail out, and possibly save, the doomed U.S. and global financial systems from collapsing. This decision was only a piece to the $1 trillion government plan to level off the stock market and unfreeze the credit which was needed after the collapses of the financial institutions of Lehman Brothers and Washington Mutual. The government also stepped in and federally took over such institutions as Fannie Mae and Freddie Mac, which together hold about $5.4 trillion in mortgage loans; 45 percent of the national total. The governmental firms were heavily burdened because of bad investments in subprime mortgages and

This was to help good banks from collapsing because lenders were panicking. The government eventually came up with a program called tarp also known as the troubled assets relief program. This program gave 700 billion dollars to help sure up banks. White, L. H. (2009, August 1). Housing Finance and the 2008 Financial Crisis. Retrieved November 3, 2016, from https://www.downsizinggovernment.org/hud/housing-finance-2008-financial-crisis. This helped stop all the panicking in the financial system. Congress later on incorporated a stimulus package which gave the economy over 800 billion dollars from new spending and tax cuts. Amadeo, Kimberly Subprime mortgage crises: Effect and Timeline. (2016, September 8) Retrieved from: https://www.thebalance.com/treasury-yields-3305741)) This helped slow down the fall in the economy. In 2010 congress also passed a law named the DODD Frank law which basically stopped banks from taking big

One of the main problems that Fannie Mae faced during the financial crisis was the dramatic drop of their stock prices. An article published by CNN during the financial crisis said, “Shares of mortgage financing giants Fannie Mae and Freddie Mac both plummeted Monday after an analyst with Lehman Brothers wrote in a report that the two companies may need to raise billions of dollars if accounting rules are changed” (www.money.cnn.com). In 2007, Fannie Mae’s stock prices were at the lowest level they had seen in

Bush on October 3rd, 2008. Some of the recipients of this bail out were and continue to be large financial institutions including Wells Fargo & Co., JP Morgan Chase & Co., Goldman Sachs Group Inc., and Morgan Stanley. In this situation the banks are not only able to continue risky behavior, but take little to no responsibility for their actions in causing such a situation. Fundamentally, if the financial institutions were bailed out once it has set a precedent for other financial institutions to view and believe that taking part in risky behavior will not affect them in the long run.

During Reagan's administration, Continental Illinois, the 8th largest commercial bank at the time, was bailed out because there was a fear that if International bond holders saw a large bank failing, they would pull money out of all American bank. So, after Continental Illinois was bailed out, large banks started to become dependant on the government. They began to act riskier with investments because they knew the government would bail them out. During Bill Clinton’s presidency a similar situation occurred, further clearing the message that if you are a large bank and are about to fail, the government will take tax payer’s money to bail you out. Again, during Bush’s last year as president, because of a fear of a recession, Bush once again bailed out large banks. It is a continuous cycle that unnecessarily and negatively impacts everyday people. Government has now got itself trapped in a bubble where they will constantly bail out large banks due to the fear of a economic collapse, but each time the government bails out the banks, the potential crisis worsens. The government is not responsible for saving the banks, only our

When a person is allowed to fail, they get a chance to learn from their mistakes. The same applies to business. When businesses are allowed to fail, they have an opportunity to study their mistakes. Bailouts prevent businesses from determining what their mistakes are. John Tamny acknowledged this when he said, “...thanks to a government willing to cushion their every mistake (think Citigroup). If the government protects these business from their every mistake they will never learn , and they will continue to make the same mistakes. Tamny declared, “the beauty of failure is that it ensures that poorly managed assets are released at frequently low prices to managers with a stated objective to develop those human, mechanical and financial inputs more effectively on the way to growth” (Tamny). Basically what this statement means is that when business fail their assets are released to other business. The businesses that end up with these assets have a chance to manage them more effectively. In effect, when businesses don't learn from their mistakes it can affected the banks connected to them or vice

The 2008 financial crisis led to numerous mortgage foreclosure rates (Angelides et al, 2011). Many mortgage companies filed for bankruptcy and this because many of them were running under drastic losses. Financial institutions were unable to lend money because they were operating under losses and this slowed down the economic activities. This unease led central banks to take relevant action to provide funds in order to encourage lending and also to reestablish faith in the commercial paper markets ( United States. Financial Crisis Inquiry Commission , 2010). Not only did the central banks help in relieving the crisis, the federal government was involved in helping the financial institutions by assuming major additional financial commitments. Federal government funded financial institutions dealing with mortgage purchasing and repackaging, Fannie Mae and Freddie Mac were declared bankrupt. Alongside the two government funded institutions that were declared bankrupt, several other main investment banks, insurance companies, and commercial banks tied to the real-estate lending were