"I don’t know where these guys get the audacity to take our money, taxpayer money, and buy stock in Fannie Mae,” Rogers, 65, said in an interview from Singapore. “So we’re going to bail out everybody else in the world. And it ruins the Federal Reserve’s balance sheet and it makes the dollar more vulnerable and it increases inflation.”
The chairman of Rogers Holdings, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, also said the commodities bull market has a "long way to go” and advised buying agricultural commodities.
wow!
click for video
The U.S. Treasury Department’s plan to shore up Fannie Mae and Freddie Mac is an "unmitigated disaster” and the largest U.S. mortgage lenders are "basically insolvent,” according to investor Jim Rogers.
Taxpayers will be saddled with debt if Congress approves U.S. Treasury Secretary Henry Paulson’s request for the authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac, Rogers said in a Bloomberg Television interview. Rogers is betting that Fannie Mae shares will keep tumbling…
"These companies were going to go bankrupt if they hadn’t stepped in to do something, and they should’ve gone bankrupt with all of the mistakes they’ve made,” Rogers said. “What’s going to happen when you Band-Aid and put some Band-Aids on it for another year or two or three? What’s going to happen three years from now when the situation’s much, much, much worse?” . . .
The U.S. economy is in a recession, possibly the worst since World War II, Rogers said.
"They’re ruining what has been one of the greatest economies in the world,” Rogers said. Bernanke and Paulson "are bailing out their friends on Wall Street but there are 300 million Americans that are going to have to pay for this.”
Source:
Fannie Plan a `Disaster’ to Rogers; Goldman Says Sell
Carol Massar and Eric Martin
Bloomberg, July 14 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=a7hS5BuYqeR8&
Don’t Bail Out Fannie, Freddie: Jim Rogers
CNBC.com | 15 Jul 2008 | 05:02 AM ET
http://www.cnbc.com//id/25684069
FWIW, Rogers is short Fanny Mae. Do you actually think he’s not going to talk them down?
While I think our government has more fleas than a dog, it would hurt the “taxpayers” a lot more if Fanny and Freddy went out of business. Think how hard it would be to get a mortgage without those guys. On the other hand, BSC should have been left to the wolves…
The following is a partial quote from Kentucky Senator Jim Bunning in his statement to the Banking Committee on Tuesday morning. He seems to have similar reservations on the GSE bailout.
Complete text at:
(http://bunning.senate.gov/public/)
“Third and finally, since I expect we will try to get right to questions in the next hearing, let me say a few words about the G.S.E. bailout plan. When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turns out socialism is alive and well in America. The Treasury Secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed’s purchase of Bear Stearns’ assets was amateur socialism compared to this.
“And for this unprecedented intervention in the markets what assurances do we get that it will not happen again? None. We are in the process of passing a stronger regulator for the G.S.E.s, and that is important, but it allows them to continue in the current form. If they really do fail, should we let them go back to what they were doing before?
“I will close with this question Mr. Chairman. Given what the Fed and Treasury did with Bear Stearns, and given what we are talking about here today, I have to wonder what the next government intervention in private enterprise will be. More importantly, where does it stop?”
Hopefully, more of our Senators and Representatives will also think about just what Bernanke & Co are about to reap.
Senator Jim Bunning’s comment comparing the U.S. to France was hilarious, in an excruciating way. It’s true that the government seems to be bailing out favored corporations, but in this case, Bunnings and Rogers have it wrong. Bernanke isn’t bailing out his friends on Wall Street–he’s bailing out American homeowners and future homeowners who need mortgages by shoring up Fannie Mae and confidence. Without assurances that some entity will buy re-packaged mortgages from the banks, banks won’t lend money. The subprime problem wasn’t a Fannie Mae problem, but a problem of loan agents and others failing to verify income properly and allowing zero down payment. At the end of the day, I’d much rather have a bailout of Fannie Mae and Freddie Mac than Bear Stearns–and at this time, I have no objections to either one.
The main point in Bunning’s statement is being missed.
“We are in the process of passing a stronger regulator for the G.S.E.s, and that is important, but it allows them to continue in the current form.”
Any bailout should restrict Fannie and Freddie to backstopping the mortgage market. In the CURRENT FORM, they could continue to develop their own portfolios of toxic paper, which is where the major problem lies.
Let them flop. Why not. Use the money that is gonna bail them out and let people line up at the govt. building and had it out. They can go buy themselves a house. Not everyone will get some, but the strong will survive.
Government should never promise to subsidize the housing market. In the name of equity Fannie Mae and Freddie Mac only serves to drive up the market to its current monstrous state, by granting everyone his/her MacMansion dream who should never buy a house. If enough people can’t afford to buy homes price would simply come down/dive to a better, a more reasonable level.
On the other hand, even if Paulson’s rescue plan succeeds it will not stop the housing market from sliding further, until most Americans are debt-free and able to afford something within their mean again. It will not stop the investment banks from more write-downs and it will not stop the lending zombification. Many banks simply will not lend because they’re just desperately shoring up capitals.
So what’s next? Should JP Morgan fail in the future do we bail her out also or risk the fearful domino effect that drove us to bail out BSC in the first place? And Washington Mutual? And Merril Lynch?
Maybe by this time next year when I open my faucet I’ll get to wash my hands with $US, and maybe when I flush my toilet too.
When rich people tell me they care if I will survive the winter and tell me our interests magically coincide, I tend to call bullshit.
>> it would hurt the “taxpayers” a lot more if Fanny and Freddy went out of business. Think how hard it would be to get a mortgage without those guys.
About 50 basis points higher, according to one study. But, I don’t even believe that. Here’s why.
Idiots buy the homes with the maximum monthly payment they can afford. When financing gets cheaper, monthly payments don’t decrease because sellers know financing just got cheaper and raise their prices instead.
You just witnessed this behavior personally in the past 5 years. Please tell me you learned the right lessons from your own experience.
>> The subprime problem wasn’t a Fannie Mae problem, but a problem of loan agents and others failing to verify income properly and allowing zero down payment.
Each and every market participant was 100% responsible. The problems with these loans was known years ago. Fannie could have at any time instituted their own business processes to ensure quality in the product they were buying.
If I buy mystery meat for years and my patrons contract food poisoning and die, my restaurant deserves to go out of business.
Alternatively, whereas I could buy insurance for my restaurant, Fannie could’ve set aside sufficient reserves or bought insurance in case of defaults. Who’s responsible for buying enough insurance? Wasn’t my job. Why should I become Fannie’s insurer post facto?
Bernanke and Paulson “are bailing out their friends on Wall Street but there are 300 million Americans that are going to have to pay for this.”
This is approximately true, but perhaps it is more precise to say that Bernanke and Paulson (and those around them) are so unable to imagine a world in which the current financial leadership is not in charge, and in charge of a system pretty much like the current one, that is the current system they are trying to protect. Even though the current system is the source of the problem. In order to protect the system, they are willing to throw some of their own to the wolves (Bear Stearns) and to let much of the benefit pass to China Inc. and the Saudi petro-plutocracy.
Question: Do we _really_ need the GSEs? How hard would it be to set up new institutions to handle the functions that we do need performed and leave all the toxic paper with the old institutions?
(Instead of new institutions, new mechanisms in the private sector would be fine too. Just why entrust functions we can’t do without to institutions with a proven track record of destructiveness?
This may seem like quibbling, but it implies that they will act even more blindly and stupidly than simple “taking care of their Wall Street” buddies can explain.
Where does GNMA fit into all of this?
I know it is not a GSE but does play in the same markets and has a similar charter (I think).
Why do we never hear anything out of GNMA? If they are getting the job done, then maybe we should make a shift toward GNMA and start unwinding FNMA and FRMC.
I don’t know the specific function of GNMA; but, I know they are out there and I never hear a word about them. Why is that?
Excellent comments, wunsacon. Especially good of you to point out that easy loans didn’t actually allow anyone to get a house, at least not in much of the country. Easy loans sent housing prices sky high in most places. (The only places housing prices didn’t rise greatly were where easy loans weren’t available or where people were losing their jobs and incomes) People “bought” houses through loose lending practices, but it turns out they only squatted in them briefly.
Anyone who can actually afford a low-rate mortgage on a $600,000 house could have easily afforded a moderate-rate mortgage on a $200,000 house. In fact, way more easily.
So who was this bubble really intended for? It was, just like the dot-com bubble, a massive transfer of wealth from the many to the few.
In the United States, the people who have most of everything are not satisfied with that. The want everything.
Jim Rogers keeps harping on the theme that a bailout of Fan & Fred would “double the national debt.” On a gross basis, yes. But Fannie and Freddie also have assets. It’s their net worth (which may be negative) which represents the hit to the government’s balance sheet, not their total assets.
All this talk about a “new, world-class regulator” baffles me. OFHEO has been there for years. What’s wrong with OFHEO, and why wasn’t it fixed years ago? And aren’t they going to end up hiring most of the existing OFHEO staff, and setting them up under a new name? I’m calling “shell game” on this nonsense.
Finally, what a spectacle when Paulson repeatedly asked for a blank check, with “terms to protect the taxpayer” which he declined to elaborate. “Trust me,” he said. I can’t believe that even our rubber-stamp parliament would hand carte blanche to this slick character, not even knowing who his successor will be.
It’s just amazing to see the Treasury Secretary go before Congress, flanked by the Fed chairman and the SEC chairman, and propose such weak, poorly-thought out bullshit. Paulson might make a good high school football coach. But as TreasSec, he just don’t cut it.
I agree with Andrew Chen’s comments…government should never agree to subsidize the housing market…I understand why the GSE’s were set up, but now the chickens come home to roost. The government NEVER sets up checks and balances in their programs the way they do for private enterprises…and just think a minute…the GSE’s are responsible for over half of the mortgages IN AMERICA…? and 81% of the mortgages originated this year, I believe…yet the stockholders are going to take a bath, the government is going to guarantee the institutions…
Has anyone here read Animal Farm?
Bruce in Tennessee
The government is very experienced at creating new
agencies so let them become LANDLORDS. They
are good at collecting taxes let them collect RENT from the “tenants” that can’t
pay their mortgages with option to buy back when/if they are able. The families would
not be displaced (so any children would be
secure), the neighborhoods would be saved,
the economy would be helped….not to mention all the new government jobs that
would be created. If the government can
organize a war on the other side of the world (not to mention put a man on the moon)why can’t they collect RENT?
“The subprime problem wasn’t a Fannie Mae problem, but a problem of loan agents and others failing to verify income properly and allowing zero down payment.”
I actually blame Congress and the Fed most for failing to provide even the most basic common-sense regulation to these industries. While I am generally anti-regulation, the regulation that showed up after all this mess reads like a basic manual for lending money – statements one would assume people were doing: “you must be able to verify income”.
I’ve been thinking a lot about this issue, and my conclusion is that economic actors did what the system told them to do. While I don’t take anything away from the people that bought too much house (meaning they take the blame as well), I think the fault falls more with the mortgage brokerage companies – after all, someone had to loan them the money. The mortgage brokerage industry being disconnected from having any accountability for the mortgages is a setup for huge fraud.
First off, Fannie and Freddie don’t buy and repackage sub primes or Alt-As. They only bu conforming loans.
In general from mortgage interest deduction, property tax caps, cap gains exclusions, the GSE’s lower-cost mortgages are the fraudulent sources of the apparent house price appreciation. Without it, housing is a bad bet.
You’re seeing that now, the market’s self-correcting even as the powerful interests in Washington try to hang on to their gigs.
If I hear Christopher Dodd say we “need to support the housing market” one more time… why? We need to end ALL the subsidies, shut down the GSE’s and the market will find the right price.
“Think how hard it would be to get a mortgage without those guys”.
Like what, you would have to have 10% down minimum?
In Canada, your neighbours to the north seem to have an excellent level of home ownership, easy to access mortgage lending, and all without having to bail out the financial industry. Hmmm….
I’ve come to the point where I think that every time Jim Rogers opens his mouth, he is only doing it to talk his book and move the market. By offering his attempts at market manipulation as some kind of pundit advice, you are only assisting him. Although, if the US allows markets to remain corrupt and become even more corrupt, then betting for or against Jim Rogers will be the way to invest, as opposed to fundamental or technical analysis. This may be the future of investment markets and methods.
cinefoz-
How is that any different than the I-banks or PIMPCO talking the market up since their books are tied to home price appreciation??
I actually thought you had a balanced look at things this time around. The above post proves you do not.
Ciao
MS
one minor point on the whole Jim Rogers thing… as far as the agri boom, I can tell you anecdotally, that just on my daily commute to work (yes I am one of those suburban shlubs with a 40 mile commute) that I am seeing an unprecedented amount of land being farmed. We all know that high prices cure high prices. In the oil boom the high prices are cured by lower demand and the eventual extractment of crude that was previously cost efficient. Those habits can take years though to fully set in.
For food prices, the turnaround time is one season to ramp supply way the F*** up.
and I am telling you right now that is happening. previously unplanted land is now having stuff grown on it.
maybe the yield per acre isnt ideal, but its happening.
How could Jim Rogers be so critical of these well-run companies. I mean, just because the CEO was cooking the books and earned $52 million in bonuses in addition to $38 million in salary from the government-backed company while driving it into insolvency. I mean, he’s only supposed to get $114k/year as a pension.
Moreover, as a sign of it’s responsible management, Fannie is now even considering cutting or eliminating it’s dividend.
What does Rogers want from these good people, blood?
Great video. Thanks for sharing. Really highlights how bad this gov. plan is.
In Canada, your neighbours to the north seem to have an excellent level of home ownership, easy to access mortgage lending, and all without having to bail out the financial industry. Hmmm….
Posted by: Chris | Jul 16, 2008 8:50:18 AM
What blows me away even more is that in Canada mortgage interest payments are NOT TAX DEDUCTABLE like they are in the USA. Canadian homeownership is completely unsubsidised.
In the United States, the people who have most of everything are not satisfied with that. They want everything. — Jim.
Well said. I believe this is due in part to the passing of people who lived through the Great Depression. That oral tradition of stories and experiences kept the next two generations in line, certainly in my family and neighborhood.
There’s no capital gains tax in Singapore. I’m no tax expert, but I believe
that Jim Rogers doesn’t have to pay capital gains taxes to the U.S. government unless he repatriates his money.
He may have moved to Singapore just to avoid the (Obama) taxes.
“advised buying agricultural commodities.”
Oh joy. Next bubble?
I have to wonder what the next government intervention in private enterprise will be. More importantly, where does it stop?
Will GM and Ford get bailouts when death arrives at their doors?
How many here are for or against government intervention in private enterprise at GM and Ford?
David Davenport @ 2:19:36 PM
“Will GM and Ford get bailouts when death arrives at their doors?
How many here are for or against government intervention in private enterprise at GM and Ford?”.
If Obama wins, it’s likely that he’ll bail out these companies… he’s in the pocket of the labor unions.
I hear a lot of talk about letting the GSEs just go out of business. Let the housing market drop back to 1990 levels and it just too bad for the guy who can’t afford to make his payments.
All this will do is cause a lot of pain. perfectly good businesses will suffer as a result. Anytime a shock propagates through the financial system, all sorts of problems surface that normally wouldn’t. I think the government is doing its job by trying to minimize these shocks. They should have started this much earlier and not let it get so far out of whack but free-markets are anything but free…then again I didn’t vote for this administration.
Rogers is short Fannie and Freddie and is now pissed that they will make it.
Anytime a shock propagates through the financial system, all sorts of problems surface that normally wouldn’t. I think the government is doing its job by trying to minimize these shocks.
So should da gooberment bail out Ford and GM when their time comes?
Yes or NO?
that’s a cute dog ya got there above the disclaimer