WIN: Freddie Mac, Fannie Mae Bailed Out

300 Billion Cost of Freddie Mac Fannie Mae BailoutThe estimated cost of the bailout of Freddie Mac and Fannie Mae is $300 billion, that’s if their loan books only suffer 5% loss. For some, that 5% guess is a little low, for others it’s on target.

Freddie Mac & Fannie Mae 52-Week Stock Price RangeWhen Freddie Mac (FRE) and Fannie Mae (FNM) were taken into conservatorship, their common stock was essentially rendered valueless. The numbers you see are their 52-week stock price ranges as of Wednesday (9/10/08) and it’s a pretty grisly sight isn’t it? Why are people buying the stock? You never know what can happen. Bear Stearns was sold for $2 a share yet people kept buying it, a week later the price was revised to $10 a share. You never know!

$24M Freddie Mac & Fannie Mae CEO Executive CompensationWant to get fired up about something? How much do you think you can get to run Freddie Mac into the ground? What about Fannie Mae? Exiting CEO Syron of Freddie Mac may get between $12m and $14m. Exiting CEO Mudd of Fannie Mae could get anywhere from $7m to $9m. [Newsday] It’s hard work getting the “sponsored” out of “government sponsored entities.” (apparently it was harder at Freddie Mac!)

$12 trillion housing marketAnd, to put all these numbers in this perspective, the mortgage market is about $12 trillion a year.

 Personal Finance 

Storage Facility Auctions

Storage auctions made the news a few weeks back in a New York Times article highlighting the growing number of storage auctions amid our housing crisis. A storage auction is similar to a foreclosure in that the leaseholder loses the rights to use the storage unit. What’s unlike a foreclosure is that the storage facility’s recourse is that they are permitted to sell the contents of the unit to the highest bidder. What’s been happening, according to NYT, is that there is a growing number of individuals unable to make lease payments on the units and thus find their belongings being auctioned off, oftentimes for only a few hundred dollars.

Enterprising bidders are hoping to score something big when they bid on these units because you can’t closely examine the contents of the storage unit. Most places will only let you take a cursory look from the outside and then the bidding commences. Since this is a pretty standard practice across the board, it seems like the storage facilities know that forcing bidders to bid sight unseen will yield them higher returns. This also tells me that unless you’re willing to work hard at selling off stuff, chances are you won’t be hitting a gold mine with 99% of auctions (though you always hear of miraculous finds at garage sales).

To find out more, rather than just read off the internet, I attended a storage auction being held locally. I called up the three storage facilities near my home and learned that the latest one was being held at the end of May, so I marked it on my calendar. The easiest way, if you don’t know where your local storage places are, is to look in your local newspaper because storage locations will usually publish auction dates there. They want as many people attending as possible, so they generally will give that information freely.

My Auction Experience

So at 2:00 PM on May 27th, I appeared at the Fort Knox Storage Facility located in Columbia, MD to revel in the sights and smell of American capitalism (I brought my camera but it was out of juice!). Joining me were five other capitalists, all of which were easily in their forties or fifties. Not many young capitalists are trying to find their fortune at a storage facility on a Tuesday afternoon – just means more fortune for me! I noticed that they all drove minivans or trucks, though one person drove their Jaguar to the affair, and carried locks and flashlights. I later learned that after the auction is over, the facility gives you a limited amount of time (it’s negotiable, it’s always negotiable) so sometimes you put your own lock on it to come back later.

Auction 1: The walk over to the first unit was pretty long, easily the length of the facility, and there was an air of eager anticipation in the air. The facility owner snipped the existing lock, lifted up the door and behold… an office chair, some old clothes, and the saddest looking subwoofer you’ve ever seen. Oh, and there was some trash in there too. The bidding was fierce but the winner walked away with the chair and the sub for $20.

Auction 2: This one actually held some good stuff but most of the attendees were turned off by the beat up pool table. There were four couches, some mattresses, a desk, that pool table, and who knows what else inside. The winner paid out $10 for the haul and it was uncontested, though everyone was immediately turned off by the prospect of dealing with the pool table.

In both instances, the facility operator was really obliging, letting everyone look inside and poke around. There aren’t really any “rules” to this auction thing, the facility just wants to be rid of it and the capitalists are looking to profit a little from getting the stuff in the first place. The operator offered the services of a moving company associate of his, to the winner of the pool table, but she said she’d just give it away online (probably through Craigslist) to anyone willing to haul it.

Parting Thoughts

Like tax lien auctions, this one has a significant personal element involved and I think my fortune can be made without tempting karma. I know the content owners have fallen behind on their leasing obligations, I know they are rightfully losing their property, but I think that there’s a measure of karma involved in buying someone else’s possessions on the cheap and trying to turn a profit from them.

What stops the facility from cherry picking the good stuff for themselves? They often know the contents beforehand because they can watch someone move in (the locks are not the facility locks, hence the cutting) but I suppose there’s a sense of trust involved.

Ultimately, I think this would make an entertaining hobby or help someone get some furniture on the cheap, but it’s likely not going to make you a fortune. Every once and a while you’ll hit a jackpot but it’s like the lottery, you play a lot and hope you get the big score… good for entertainment, bad for paying the bills.

 Personal Finance 

Mortgage Heatmaps, Roth 401(k)s & Repetition

I discovered this detailed real estate blog called Matrix and this incredible set of mortgage-related heatmaps used by Bernanke in his last speech. Heatmaps are the quickest way to get a “snapshot” of a situation and these go through so many permutations that you can get a really good sense of what’s going on (and there are so many maps!). I had no idea unemployment concentrations were dispersed the way they are and how badly hit the Michigan area has been lately given the major auto manufacturer’s financial woes.

My last employer recently offered a Roth 401(k), which is essentially a tax-free version of the tax-deferred 401(k), though employer contributions are tax-deferred. It’s an interesting concept that has been around for a few years but hasn’t been adopted too widely, probably because of the paperwork. If I had a choice, I’d split my contributions evenly between the two and give myself some diversification.

Trent has received numerous complaints that he writes about the same stuff over and over again and that it’s getting old. Unfortunately for all you excitement hounds, personal finance is repetitive, it is conceptually easy, and “slow and steady” does win the race. It’s the chase of excitement, having that fancy car so you can drive it fast, throwing some money at a high flying potential stock, or that huge flat panel television -I that’s the stuff that derails your trek to your personal finance goal. Spend less than you earn, contribute to your 401(k) and save for retirement, ensure you have proper and adequate insurance, blah blah blah – it’s repetitive but it works. Michael Jordan once said he shot a thousand free throws a day. How’s that for repetitive?

Nickel wrote a bit about his asset allocation this week and it’s something I am hoping to review sometime next week. I’ve input all the data I have into Vanguard’s Portfolio Watch and now I just have to figure out what my goals are so I can set things up correctly once and for all.

Housing doesn’t always go up. Sometimes it comes down. Hard. (scroll down to the story of the house that sold for $505k in 2006 and is now on the market for $177,495 – ouch)

Lastly, if you like heatmaps and those first dozen weren’t enough, here’s a cool one about all the pieces of inflation on the New York Times, my new BFF, courtesy of Consumerist (who got it from Nathan). Not surprisingly, that big red area is gas.

Have a great weekend!

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