Ed Huntress wrote:
"John R. Carroll" wrote in
message ...
Ed Huntress wrote:
"cavelamb himself" wrote in message
m...
azotic wrote:
It appears the american taxpayer will subsidize the risks taken by
sophisticated investors.



http://www.reuters.com/article/press...008+BW20080711

Since we have a free market Freddie Mac and Fannie Mae should be
allowed to go broke.
New entities will arrise to fill the vacume left by Freddie Mac
and Fannie Mae in the mortgage
market.


Best Regards
Tom.




That's because _you_ have no money invested there...

Everybody has money invested there, directly or not. They hold half

70 percent now Ed.
70 percent and climbing.

of the country's 12 trillion dollars in mortgage debt. They truly
are too big to fail. If they did, we wouldn't be talking about
recession. We'd be in a hell-bending depression that would knock
down the world's economies like dominoes.

The idea that we could let them fail and that some other "entity"
would pop up to take their place is a blissful pipe dream.

We could always "pop" a replacement up.
There isn't a single reason not to wipe out every dollar of
shareholder equity as a quid pro quo and I can think of several
reasons to do exactly that.

And then what do you do when a court tells F and F to liquidate some
assets to pay off the shareholders?

Never happen Ed. Show me any judge or Justice that will issue that order and
I'll show you a dead man, either figuratively or literally.

Put them (F and F) into recievership and kick out the equity - as rudely and
forcefully as possible- while simultaneously anouncing the "restructured"
company.
You only need look back a couple of months to see the pattern agreement.
One alternative is currently being tried on at IndyMac and the result is
going to be that there won't be anyone willing to buy the carcass that
results. Every dime of brokered money will be out in two weeks and that will
be that.

The object lesson, while painful, will serve a good purpose.
Washington Mutual won't try the same dullards approach when they take the
pipe in a couple of weeks.
All of there mortgages will end up at the 2bigs you know.

And how about those people who
are holding the debt?

Equity doesn't survive bankruptcy Ed but debt does and since there really is
underlying value, all of that debt will be just fine. In fact, some might be
converted to equity as part of the restructuring. Maybe bond holders would
get a coupon with their debt instrument as an incentive to sit down and shut
up.

--

John R. Carroll
www.machiningsolution.com