Hey there, Brandon! I was hoping you might weigh in on this, and sure enough, you didn't disappoint. Talk about yer "I told you so," eh? So is is accurate to say Fannie and Freddie are the levees of this financial Katrina?

Yes, Russell, good points! Those mortgage brokers worked on commission, and often didn't work for the banks whose loans they sold. What did they care if a loan failed? It wouldn't affect them. It was almost like an incentive to commit fraud.

Here is a 2006 series about mortgage loan fraud sweeping the country:

http://www.mortgagefraudblog.c...

"Residential real estate loan fraud is a national epidemic, costing communities nationwide an
estimated $1 billion in 2005, compared to $429 million in 2004, according to the Federal Bureau
of Investigation."

And now, of course, that cost has zoomed stratospherically higher.

What gets me relative to the media exposure of the problem is that the fraud committed against the banks is receiving so little attention. Everyone blames the banks or other financial institutions but no speaks of the fraudaulent loan applications that were filed. A lot of these borrowers were "helped" by 3rd party mortgage brokers. If we are to find the culprits I think we can look at fraudaulent loan applicatants and their agents.

Sure the banks made mistakes, but when there is extensive fruad people including businesses fall victim.

It seems Congress likes to take populace views and blame the big entities on WallStreet, and not main street. I am not sure that we are not overlooking the small mortgage brokers as well as some big ones, and the borrowers are who may be the most responsible for this mess.

If we want to avoid a major recession or possibly a depression then we have to pump liquidity into the market...Just like the NEW DEAL we may have to live with a lot of negative precedent.

I think David hit all the right talking points so I won't reiterate what he said.

The unfortunate part of this entire situation is that a number of politicians/economists/people with half a brain figured this would happen and were entirely dismissed!

Here's the proof:
http://www.house.gov/paul/cong...

I'm not trying to endorse any politician or party here (I don't affiliate with any myself), but this was just too rich not to share.

We already own Fannie/Freddie. If more banks fail, Congress will mandate (as they already have) that Frannie takes on more loans.

It's more a problem for jobs etc. If more banks blow up, are you going to get a car loan? More importantly perhaps, is your company going to get that 30, 60, 90 day loan to fund ops while other orders come in? If not, well, say bye-bye to your job. That's the underpinning of a depression.

Home prices are going to continue falling no matter what the gov't does here; it's just supply and demand. We should be focused on isolating the problem of falling home prices' effects on the rest of the markets as best we can.

Ohhhhh, I am so on board with #3. I can't wait to see which executives sacrifice their own bank for their golden parachute and then go home and barbecue their children on the Weber for fun. (okay, I'm getting a bit too bitter)

Well, perhaps this will affect pricing dynamics in the housing market because if Congress does not pass the bailout, more financial institutions will go belly up and it will get even harder to obtain credit? This is a weak guess, I realize.

Few comments:
1) not like we didn't all see this coming. I'd recommend continuing to shelter as much money as you can from taxes.

2) I'm probably whistling past the graveyard, but again, I don't think it HAS to cost as much as people say (given the likely hold to maturity values of the securities), but given the incompetence of the gov't, I suppose it's possible it will.

3) I don't like bailing out the banks more than bailing out foreclosed people. I also think it'll be interesting if they get some limits on executive pay for banks who take the deal, to see how many executives would rather kill their own banks than take a paycut.

4) I still don't understand how this will alter the pricing dynamics in the housing market. We still have oversupply and lack of demand. If we really want to prop up prices we need to either reduce supply (bulldoze houses) or stimulate demand (increase income, household formation). The latter won't happen without inflation or massive increases in immigration (which won't happen without jobs) so, well, why not the former?

so in sum, we'll probably spend money we don't have to in order to save the banking system so that we can all keep as many jobs and credit as we can. The unsatisfactory results of this effort will be 1) higher taxes/debt, 2) banking execs and others still making $$$, 3) serial refi-ers and subprimers keeping their Lexuses (Lexi?) and whatever else they bought with "equity" and 4) still-dropping house prices. Which are probably all the reasons people don't like it. But a Great Depression II, which would come with a seizure of credit would probably be less desirable to more people. Unfortunately, it seems those are the likely outcomes.