Fed claims $13B profit on lending facilities

[CA renter]

[quote=davelj][quote=briansd1][quote=Diego Mamani]Yeah dude, cut back!

Anyways, the $13B pales in comparison to the money that we (taxpayers) will lose with Fannie and Freddie. We’ve already lost close to $150 BILLION, and we stand to lose another $160 billion to $1 trillion, according to conservative estimates:

http://www.bloomberg.com/news/2010-06-13/fannie-freddie-fix-expands-to-160-billion-with-worst-case-at-1-trillion.html%5B/quote%5D

True enough.

FHA will also likely cost taxpayers $100 billion.

Funny thing is that Fan/Fred and FHA sprang into action after the financial crisis to save the market.

But certain uninformed people who just don’t understand the chain of events accuse the GSEs of CAUSING the crisis.[/quote]

How many times I have to explain this I just don’t know (this is may be the fifth time). As I wrote back in December 2009:

[quote=davelj]
I think the Fannie/Freddie (F&F) TARP [in addition to accumulated losses] will also get paid back, but over a much longer time horizon. Spread lenders, almost no matter how bad off they are, can always fill a hole, the only issue being how long it takes. And it’s going to take F&F a long time. To use an example, lets say that F&F charge off 10% of their portfolio (which would be a big number). Further, let’s say the average yield on the remaining 90% of their book is 5.5% and their funding costs (now borrowing at govt rates) are 2.5%. Add in 100 bps of operating expenses and you have a 200 bp spread. Here, it takes F&F 5.5 years to fill its hole (from losses) with spread income from the performing portfolio. If you assume that F&F’s losses are going to be 20% of its book, it takes them 11 years to fill the hole, and so on. So, while we’re hearing about the big “losses” coming out of F&F – which are real losses – we will get that money back… eventually… but it could be many years. We will lose in real (that is, inflation-adjusted) terms for sure.[/quote]

The point here is that F&F’s “losses” are an income statement item and are meaningless absent a discussion of the balance sheet. We, the US Taxpayers, now own a huge pile of mortgage assets (along with corresponding debt that funds them). The losses will stop eventually – likely in a few years – and the spread income will fill the hole (think of it as accumulated negative retained earnings in accounting terms) and eventually yield a net profit. But… this is in nominal dollars and down the road many years. So, again, there will be a loss in real dollars, but that loss will be a small fraction of the “current losses” that are reported in the MSM. To be clear, I don’t give a rat’s ass about F&F – I just want folks to understand the difference between (1) temporary losses and permanent losses of capital, and (2) income statements and balance sheets.[/quote]

Dave,

Please bear with my ignorance here, but doesn’t that assume that losses going forward will be much smaller than past losses (on the existing, “toxic” loans)?

What if the future loans also suffer heavy losses that are greater than the 200 bp spread? What if interest rates go up (their cost of funds) so that they are no longer earning that spread on their existing loans?

[CA renter]

[quote=davelj]That’s an imperfect but reasonably good analogy.

And the Uncle Sam that’s bailing us out is… Us. And the specific “Us” that’s bailing us out is principally comprised of taxpayers in the top 10% of income earners, who collectively pay 70% of all federal income taxes (including SS and Medicare). And federal income taxes + SS + Medicare + corporate taxes comprise over 95% of all federal revenue. Now, I’m not complaining about this, I’m merely pointing out that it’s principally the top income earners who are financing this bail out. Which in many ways makes sense as arguably they – collectively – are the principal beneficiaries.[/quote]

Of course, one could also argue that all the public employees who are being made the scapegoats for our “financial crisis” are the ones who will really end up paying for this bailout.

[CA renter]

[quote=davelj]That’s an imperfect but reasonably good analogy.

And the Uncle Sam that’s bailing us out is… Us. And the specific “Us” that’s bailing us out is principally comprised of taxpayers in the top 10% of income earners, who collectively pay 70% of all federal income taxes (including SS and Medicare). And federal income taxes + SS + Medicare + corporate taxes comprise over 95% of all federal revenue. Now, I’m not complaining about this, I’m merely pointing out that it’s principally the top income earners who are financing this bail out. Which in many ways makes sense as arguably they – collectively – are the principal beneficiaries.[/quote]

Of course, one could also argue that all the public employees who are being made the scapegoats for our “financial crisis” are the ones who will really end up paying for this bailout.

[CA renter]

[quote=davelj]That’s an imperfect but reasonably good analogy.

And the Uncle Sam that’s bailing us out is… Us. And the specific “Us” that’s bailing us out is principally comprised of taxpayers in the top 10% of income earners, who collectively pay 70% of all federal income taxes (including SS and Medicare). And federal income taxes + SS + Medicare + corporate taxes comprise over 95% of all federal revenue. Now, I’m not complaining about this, I’m merely pointing out that it’s principally the top income earners who are financing this bail out. Which in many ways makes sense as arguably they – collectively – are the principal beneficiaries.[/quote]

Of course, one could also argue that all the public employees who are being made the scapegoats for our “financial crisis” are the ones who will really end up paying for this bailout.

[CA renter]

[quote=davelj]That’s an imperfect but reasonably good analogy.

And the Uncle Sam that’s bailing us out is… Us. And the specific “Us” that’s bailing us out is principally comprised of taxpayers in the top 10% of income earners, who collectively pay 70% of all federal income taxes (including SS and Medicare). And federal income taxes + SS + Medicare + corporate taxes comprise over 95% of all federal revenue. Now, I’m not complaining about this, I’m merely pointing out that it’s principally the top income earners who are financing this bail out. Which in many ways makes sense as arguably they – collectively – are the principal beneficiaries.[/quote]

Of course, one could also argue that all the public employees who are being made the scapegoats for our “financial crisis” are the ones who will really end up paying for this bailout.

[CA renter]

[quote=davelj]That’s an imperfect but reasonably good analogy.

And the Uncle Sam that’s bailing us out is… Us. And the specific “Us” that’s bailing us out is principally comprised of taxpayers in the top 10% of income earners, who collectively pay 70% of all federal income taxes (including SS and Medicare). And federal income taxes + SS + Medicare + corporate taxes comprise over 95% of all federal revenue. Now, I’m not complaining about this, I’m merely pointing out that it’s principally the top income earners who are financing this bail out. Which in many ways makes sense as arguably they – collectively – are the principal beneficiaries.[/quote]

Of course, one could also argue that all the public employees who are being made the scapegoats for our “financial crisis” are the ones who will really end up paying for this bailout.

[davelj]

[quote=CA renter]

Dave,

Please bear with my ignorance here, but doesn’t that assume that losses going forward will be much smaller than past losses (on the existing, “toxic” loans)?

What if the future loans also suffer heavy losses that are greater than the 200 bp spread? What if interest rates go up (their cost of funds) so that they are no longer earning that spread on their existing loans?[/quote]

It assumes that EVENTUALLY the future losses will be much smaller than they are currently (probably a reasonable assumption, yes?). Whether that’s next year or in five years only affects the date we get our nominal dollars back, not “if” we get them back. Put another way, how the losses play out will not affect the nominal dollar loss (which will be zero), but rather the real dollar loss (which will be a positive number, no doubt, but a small fraction of the numbers we read about in the media).

I’ve addressed your spread issue before in a prior thread. I must assume that the folks running F&F have a reasonable grip on asset/liability management (their prior sins related to underwriting, as opposed to A/L management) and they are funding the long-term fixed rate portfolio with a combination of relatively long-term fixed-rate funding along with interest rate swaps (one Wall Street innovation that has been relatively helpful in aggregate). The rates on the floating portfolio will adjust as rates increase. So, I’m not implying that rising interest rates are a non-issue, but I’m not overly concerned about rising rates where the portfolio is concerned.

[davelj]

[quote=CA renter]

Dave,

Please bear with my ignorance here, but doesn’t that assume that losses going forward will be much smaller than past losses (on the existing, “toxic” loans)?

What if the future loans also suffer heavy losses that are greater than the 200 bp spread? What if interest rates go up (their cost of funds) so that they are no longer earning that spread on their existing loans?[/quote]

It assumes that EVENTUALLY the future losses will be much smaller than they are currently (probably a reasonable assumption, yes?). Whether that’s next year or in five years only affects the date we get our nominal dollars back, not “if” we get them back. Put another way, how the losses play out will not affect the nominal dollar loss (which will be zero), but rather the real dollar loss (which will be a positive number, no doubt, but a small fraction of the numbers we read about in the media).

I’ve addressed your spread issue before in a prior thread. I must assume that the folks running F&F have a reasonable grip on asset/liability management (their prior sins related to underwriting, as opposed to A/L management) and they are funding the long-term fixed rate portfolio with a combination of relatively long-term fixed-rate funding along with interest rate swaps (one Wall Street innovation that has been relatively helpful in aggregate). The rates on the floating portfolio will adjust as rates increase. So, I’m not implying that rising interest rates are a non-issue, but I’m not overly concerned about rising rates where the portfolio is concerned.

[davelj]

[quote=CA renter]

Dave,

Please bear with my ignorance here, but doesn’t that assume that losses going forward will be much smaller than past losses (on the existing, “toxic” loans)?

What if the future loans also suffer heavy losses that are greater than the 200 bp spread? What if interest rates go up (their cost of funds) so that they are no longer earning that spread on their existing loans?[/quote]

It assumes that EVENTUALLY the future losses will be much smaller than they are currently (probably a reasonable assumption, yes?). Whether that’s next year or in five years only affects the date we get our nominal dollars back, not “if” we get them back. Put another way, how the losses play out will not affect the nominal dollar loss (which will be zero), but rather the real dollar loss (which will be a positive number, no doubt, but a small fraction of the numbers we read about in the media).

I’ve addressed your spread issue before in a prior thread. I must assume that the folks running F&F have a reasonable grip on asset/liability management (their prior sins related to underwriting, as opposed to A/L management) and they are funding the long-term fixed rate portfolio with a combination of relatively long-term fixed-rate funding along with interest rate swaps (one Wall Street innovation that has been relatively helpful in aggregate). The rates on the floating portfolio will adjust as rates increase. So, I’m not implying that rising interest rates are a non-issue, but I’m not overly concerned about rising rates where the portfolio is concerned.

[davelj]

[quote=CA renter]

Dave,

Please bear with my ignorance here, but doesn’t that assume that losses going forward will be much smaller than past losses (on the existing, “toxic” loans)?

What if the future loans also suffer heavy losses that are greater than the 200 bp spread? What if interest rates go up (their cost of funds) so that they are no longer earning that spread on their existing loans?[/quote]

It assumes that EVENTUALLY the future losses will be much smaller than they are currently (probably a reasonable assumption, yes?). Whether that’s next year or in five years only affects the date we get our nominal dollars back, not “if” we get them back. Put another way, how the losses play out will not affect the nominal dollar loss (which will be zero), but rather the real dollar loss (which will be a positive number, no doubt, but a small fraction of the numbers we read about in the media).

I’ve addressed your spread issue before in a prior thread. I must assume that the folks running F&F have a reasonable grip on asset/liability management (their prior sins related to underwriting, as opposed to A/L management) and they are funding the long-term fixed rate portfolio with a combination of relatively long-term fixed-rate funding along with interest rate swaps (one Wall Street innovation that has been relatively helpful in aggregate). The rates on the floating portfolio will adjust as rates increase. So, I’m not implying that rising interest rates are a non-issue, but I’m not overly concerned about rising rates where the portfolio is concerned.

[davelj]

[quote=CA renter]

Dave,

Please bear with my ignorance here, but doesn’t that assume that losses going forward will be much smaller than past losses (on the existing, “toxic” loans)?

What if the future loans also suffer heavy losses that are greater than the 200 bp spread? What if interest rates go up (their cost of funds) so that they are no longer earning that spread on their existing loans?[/quote]

It assumes that EVENTUALLY the future losses will be much smaller than they are currently (probably a reasonable assumption, yes?). Whether that’s next year or in five years only affects the date we get our nominal dollars back, not “if” we get them back. Put another way, how the losses play out will not affect the nominal dollar loss (which will be zero), but rather the real dollar loss (which will be a positive number, no doubt, but a small fraction of the numbers we read about in the media).

I’ve addressed your spread issue before in a prior thread. I must assume that the folks running F&F have a reasonable grip on asset/liability management (their prior sins related to underwriting, as opposed to A/L management) and they are funding the long-term fixed rate portfolio with a combination of relatively long-term fixed-rate funding along with interest rate swaps (one Wall Street innovation that has been relatively helpful in aggregate). The rates on the floating portfolio will adjust as rates increase. So, I’m not implying that rising interest rates are a non-issue, but I’m not overly concerned about rising rates where the portfolio is concerned.

[davelj]

[quote=CA renter][quote=davelj]That’s an imperfect but reasonably good analogy.

And the Uncle Sam that’s bailing us out is… Us. And the specific “Us” that’s bailing us out is principally comprised of taxpayers in the top 10% of income earners, who collectively pay 70% of all federal income taxes (including SS and Medicare). And federal income taxes + SS + Medicare + corporate taxes comprise over 95% of all federal revenue. Now, I’m not complaining about this, I’m merely pointing out that it’s principally the top income earners who are financing this bail out. Which in many ways makes sense as arguably they – collectively – are the principal beneficiaries.[/quote]

Of course, one could also argue that all the public employees who are being made the scapegoats for our “financial crisis” are the ones who will really end up paying for this bailout.[/quote]

The fact is that most public employees don’t earn enough as it is (to have a big enough tax bill) to pay for this bailout. What percentage of public employees earn over $75K/year? It’s probably not a huge number. Now, that doesn’t mean they’re not overpaid (including pension benefits, etc.) in aggregate. I’m sure that in some cases they are and in some cases they aren’t. But that’s an issue that’s going to ultimately be decided by taxpayers (and their representatives). And it seems pretty clear that the taxpayers want to reduce the overall public compensation burden. Now, that will come with reduced services – there’s no free lunch – but I suspect taxpayers will learn to live with that.

[davelj]

[quote=CA renter][quote=davelj]That’s an imperfect but reasonably good analogy.

And the Uncle Sam that’s bailing us out is… Us. And the specific “Us” that’s bailing us out is principally comprised of taxpayers in the top 10% of income earners, who collectively pay 70% of all federal income taxes (including SS and Medicare). And federal income taxes + SS + Medicare + corporate taxes comprise over 95% of all federal revenue. Now, I’m not complaining about this, I’m merely pointing out that it’s principally the top income earners who are financing this bail out. Which in many ways makes sense as arguably they – collectively – are the principal beneficiaries.[/quote]

Of course, one could also argue that all the public employees who are being made the scapegoats for our “financial crisis” are the ones who will really end up paying for this bailout.[/quote]

The fact is that most public employees don’t earn enough as it is (to have a big enough tax bill) to pay for this bailout. What percentage of public employees earn over $75K/year? It’s probably not a huge number. Now, that doesn’t mean they’re not overpaid (including pension benefits, etc.) in aggregate. I’m sure that in some cases they are and in some cases they aren’t. But that’s an issue that’s going to ultimately be decided by taxpayers (and their representatives). And it seems pretty clear that the taxpayers want to reduce the overall public compensation burden. Now, that will come with reduced services – there’s no free lunch – but I suspect taxpayers will learn to live with that.

[davelj]

[quote=CA renter][quote=davelj]That’s an imperfect but reasonably good analogy.

And the Uncle Sam that’s bailing us out is… Us. And the specific “Us” that’s bailing us out is principally comprised of taxpayers in the top 10% of income earners, who collectively pay 70% of all federal income taxes (including SS and Medicare). And federal income taxes + SS + Medicare + corporate taxes comprise over 95% of all federal revenue. Now, I’m not complaining about this, I’m merely pointing out that it’s principally the top income earners who are financing this bail out. Which in many ways makes sense as arguably they – collectively – are the principal beneficiaries.[/quote]

Of course, one could also argue that all the public employees who are being made the scapegoats for our “financial crisis” are the ones who will really end up paying for this bailout.[/quote]

The fact is that most public employees don’t earn enough as it is (to have a big enough tax bill) to pay for this bailout. What percentage of public employees earn over $75K/year? It’s probably not a huge number. Now, that doesn’t mean they’re not overpaid (including pension benefits, etc.) in aggregate. I’m sure that in some cases they are and in some cases they aren’t. But that’s an issue that’s going to ultimately be decided by taxpayers (and their representatives). And it seems pretty clear that the taxpayers want to reduce the overall public compensation burden. Now, that will come with reduced services – there’s no free lunch – but I suspect taxpayers will learn to live with that.

[davelj]

[quote=CA renter][quote=davelj]That’s an imperfect but reasonably good analogy.

And the Uncle Sam that’s bailing us out is… Us. And the specific “Us” that’s bailing us out is principally comprised of taxpayers in the top 10% of income earners, who collectively pay 70% of all federal income taxes (including SS and Medicare). And federal income taxes + SS + Medicare + corporate taxes comprise over 95% of all federal revenue. Now, I’m not complaining about this, I’m merely pointing out that it’s principally the top income earners who are financing this bail out. Which in many ways makes sense as arguably they – collectively – are the principal beneficiaries.[/quote]

Of course, one could also argue that all the public employees who are being made the scapegoats for our “financial crisis” are the ones who will really end up paying for this bailout.[/quote]

The fact is that most public employees don’t earn enough as it is (to have a big enough tax bill) to pay for this bailout. What percentage of public employees earn over $75K/year? It’s probably not a huge number. Now, that doesn’t mean they’re not overpaid (including pension benefits, etc.) in aggregate. I’m sure that in some cases they are and in some cases they aren’t. But that’s an issue that’s going to ultimately be decided by taxpayers (and their representatives). And it seems pretty clear that the taxpayers want to reduce the overall public compensation burden. Now, that will come with reduced services – there’s no free lunch – but I suspect taxpayers will learn to live with that.

[Author]

Posts