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Old 09-06-2008, 08:20 PM
 
Location: Northern VA
3,872 posts, read 8,082,016 times
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I don't much at all about the business world. WHY would Fannie & Freddie's stock go down if the government is stepping in? It seems to me that it would go up if only b/c now people know that it'll be backed no matter what. Obviously I'm wrong about that, but I don't understand why.

Thanks.
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Old 09-06-2008, 08:34 PM
 
Location: NW San Antonio
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because there will be no inflated investments, only exact payoffs, also a lot of loss
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Old 09-06-2008, 08:46 PM
 
Location: Northern VA
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sinsativ, I'm sorry, but I have no clue what an inflated investment is. do you mean interest?
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Old 09-06-2008, 08:47 PM
 
69,360 posts, read 58,680,798 times
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Quote:
Originally Posted by NicoleJ View Post
I don't much at all about the business world. WHY would Fannie & Freddie's stock go down if the government is stepping in? It seems to me that it would go up if only b/c now people know that it'll be backed no matter what. Obviously I'm wrong about that, but I don't understand why.

Thanks.
If the reporter I heard talking about it yesterday, (and they might not be) its because the investors get squat... zero.. zip.. the companies are bankrupt, the only thing that will keep them from liquidating is the government stepping in.

This will be now the third time the government overreached their authority to save companies the government has invested in that they never should have this year. I kind of wish they'd just let the companies fall, and we'd ride out the hardship that would occur. If we dont, we're just placing bandaid after bandaid on a much bigger problem.
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Old 09-06-2008, 09:20 PM
 
5,350 posts, read 8,908,128 times
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Quote:
Originally Posted by NicoleJ View Post
I don't much at all about the business world. WHY would Fannie & Freddie's stock go down if the government is stepping in? It seems to me that it would go up if only b/c now people know that it'll be backed no matter what. Obviously I'm wrong about that, but I don't understand why.

Thanks.
Nicole,

The simple answer is it's not a hot stock anymore. There are still buyers at the current price though. If there were no buyers, it would be worthless. The stock market is an auction place and the participants determine prices of stocks, not the government. You probably haven't thought about it, but stocks and fashion are very similar. They both come and go. What makes a particular stock or fashion popular or unpopular is public perception.
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Old 09-06-2008, 09:26 PM
 
Location: Washington State
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It's quite simple. They want more money. They ALWAYS want more money. And if their stock keeps falling, the government will give them more. Kind of like the spoiled rich kid that blows all his money on cocaine... he makes bad choices (like the banks), and then goes back to Daddy and gets more money, no matter how broke "Daddy" is.

Now isn't economics fun?
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Old 09-06-2008, 11:30 PM
 
Location: NW San Antonio
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Ok, lets try this, take one house loan, 250,000, FNMA loans the homeowner that money, with an interest rate of 5% 30 years, expecting 233k in interest. The homeowner gives the house back, doesnt pay the loan off. So, the investment is bad for the investors. The government comes along, says hey, we'll bail you out, give you back your 250k, but no interest on your investment. They dont lose money, but, they dont make money, and the money that they put in a year or so ago, 2007 money, is now, 2008 money, which is worth less, so, actually, they do. But, now, multiply that, times thousands of homes and loans across the USA. Simple enough?
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Old 09-06-2008, 11:34 PM
 
Location: Washington State
389 posts, read 988,533 times
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Originally Posted by sinsativ View Post
Ok, lets try this, take one house loan, 250,000, FNMA loans the homeowner that money, with an interest rate of 5% 30 years, expecting 233k in interest. The homeowner gives the house back, doesnt pay the loan off. So, the investment is bad for the investors. The government comes along, says hey, we'll bail you out, give you back your 250k, but no interest on your investment. They dont lose money, but, they dont make money, and the money that they put in a year or so ago, 2007 money, is now, 2008 money, which is worth less, so, actually, they do. But, now, multiply that, times thousands of homes and loans across the USA. Simple enough?
My explaination was better. :P
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Old 09-07-2008, 01:17 PM
 
Location: Northern VA
3,872 posts, read 8,082,016 times
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LOL, all the explanations were good. Thank you all. I do get it now. So now if you have the money is a good time to buy and hope the stock goes back up in value. Oh well, I'm just as broke as Joe Blow. Fortunately no mortgage to worry about.
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Old 09-07-2008, 08:45 PM
 
1,324 posts, read 2,148,100 times
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Quote:
Originally Posted by NicoleJ View Post
LOL, all the explanations were good. Thank you all. I do get it now. So now if you have the money is a good time to buy and hope the stock goes back up in value. Oh well, I'm just as broke as Joe Blow. Fortunately no mortgage to worry about.
Buying the stock is a risky. Yes, the government is stepping in, but that does not mean the stock price will rise. The lower stock price means that stockholders may not be convinced that this infusion will completely turnaround Freddie and Fannie

You must know there are essentially two types of stock out there 1) Preferred stock 2) Common stock, which is the FNM, FRE symbols you see on tickers on CNBC, Bloomberg, etc

The Government infusing money typically appeases Preferred stock holders, which are basically big banks, foreign countries, etc. Common stockholders (you and me, the general public) are the last in line. So if/when Freddie and Freddie got kaput (think Indymac bank), who do you think gets first dibs on all the assets? Thats right, the preferred shareholders, which means little, if anything will be left to the Common Stockholders after the pillging.

UPDATE: Looks like I spoke too soon. The govt is taking over 80% of the company. That leaves 20% to the shareholders. This helps out the bond holders the most. Stockholders will feel some pain.

Last edited by gichicago; 09-07-2008 at 09:09 PM..
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