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Post by psychecc on Sept 5, 2008 15:29:53 GMT -6
CNBC reports that the announcement could come this weekend. Stocks of both are dropping on fears that a bailout would hurt investors. Too bad that taxpayers can't opt out of this plan as easily as investors can dump their stock. I don't think it's a coincidence that Bill Gross, the Pimco bond king, said on CNBC yesterday that he wouldn't buy any more Fannie or Freddie debt under current, poor conditions. Link to full article follows. Treasury Is Finalizing Plans To Back Up Fannie, Freddie By CNBC.com | 05 Sep 2008 | 05:00 PM ET The Treasury is finalizing plans to backstop Fannie Mae and Freddie Mac, the mortgage financing giants that have been struggling with billions of dollars of losses from soured loans, the Wall Street Journal reported Friday.
The plan, which could include some form of capital injection as well as changes to senior management, could be announced as early as this weekend, the Journal said.
Meetings were scheduled Friday with Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, executives of both companies and their chief regulator, the paper said.
The Treasury and Fannie Mae declined to comment on the report, which came after the market closed on Friday.
Shortly after the Journal report, Pimco's Bill Gross told CNBC that he welcomed the potential for government intervention.
"To the extent that it does happen, it's a needed step," said Gross.
News of a possible government move on Fannie and Freddie come despite recent sentiment on Wall Street that the two government-sponsored entities have enough capital and reserves to stay in business and may not need a government bailout....www.cnbc.com/id/26564844/
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Post by judes on Sept 5, 2008 21:06:16 GMT -6
Well it looks like it is official, the bailout has begun.... www.nytimes.com/2008/09/06/business/06fannie.html?_r=2&hp&oref=slogin&oref=slogin....... The plan, which would place the companies into a conservatorship, was outlined in separate meetings with the chief executives at the office of the companies’ new regulator. The executives were told that, under the plan, they and their boards would be replaced and shareholders would be virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.
It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation’s history.
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Post by unlawflcombatnt on Sept 6, 2008 2:55:51 GMT -6
Excellent article. The bailout will put taxpayers on the hook for $5 trillion in mortgage debt and securities held by Fannie & Freddie. US taxpayers will be footing the bill to bailout out foreign central banks and investors -- all the fools that invested in the 2 GSE's--and who helped keep home prices too high for many people to afford.
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Post by unlawflcombatnt on Sept 7, 2008 1:22:27 GMT -6
Here's an earlier article by Mort Zuckerman, that helps put the actual numbers in perspective. www.usnews.com/articles/opinion/mzuckerman/2008/07/25/fannie-mae-and-freddie-mac-too-fat-to-fail.htmlFannie Mae & Freddie Mac: Too Bit to FailThe bailout legislation provides for more oversight, but it must be through a regulator with real teeth By Mortimer Zuckerman July 25, 2008 " Fannie Mae and Freddie Mac sound like an aging aunt and uncle, but the news that they've run into trouble is rather more daunting than any family problem. In fact, the behavior of this errant pair will have consequences for pretty nearly every family in the country.
They are of course two gigantic government-sponsored enterprises that rank among our 10 largest financial institutions. These days, they provide over ¾ of all home mortgages and cumulatively hold about $5.5 trillion in mortgages and mortgage guarantees. They were set up to expand homeownership by buying mortgages from private lenders, allowing more mortgages to be made.
Subsequently, they became public companies, and their management ran them as such. But because they were created by Congress, bond investors came to believe that Congress would always honor the debt they'd issued. This implicit government guarantee means they've been able to borrow money for less even than AAA rates—despite the fact that their balance sheets would justify a much lower credit rating and thus higher interest charges. The relatively lower cost of their debt is passed through to borrowers in the form of lower interest rates. But about one third of that credit advantage, or about $10 billion a year, is retained for the benefit of the companies' stockholders.
Fannie and Freddie have an equity cushion of slightly over $80 billion. It sounds like a lot, but not when compared with the roughly $5.5 trillion of mortgages they either own or guarantee. Even a small decline—say, 2 percent—of the value of those assets would be $110 billion and would wipe out the equity.Then a 20% fall would be -$1.1 trillion. So with a government takeover, that $1.1 trillion loss would be how much taxpayers lose. Excess leverage. Yet that is the risk today. Their loans are better than the subprimes that have triggered the crisis; the F&F guidelines require substantial down payments and carefully documented borrower income statements. It's their balance sheet that's the problem. The belief that the government would implicitly back their bonds enabled them to get by with too little equity capital to deal with a downturn. Now, a further loss of confidence in either Fannie or Freddie—that is, a belief that the government wouldn't back them—would collapse their creditworthiness. Neither would be able to come up with anything like their current share of U.S. mortgages. Anybody with a room-temperature financial IQ knows these companies would be unable to raise the capital they need, either to cover their losses or to rebuild. Indeed, under all scenarios, there is a risk that they will be unable to roll over even the $463 billion of short-term debt they have on their books.
You need little imagination to see what this would do to house prices, families—and lenders: Many banks have balance sheets stuffed with Fannie and Freddie mortgages, sometimes exceeding their net worth. They wouldn't be able to withstand such losses.
An actual failure of F&F would force the government to nationalize them, making explicit what has long been implicit. But this would add more than $5 trillion of liabilities to America's own balance sheet, which would put our own AAA rating at risk or, as Financial Times guru Martin Wolf described it, "make the U.S. look like Italy."A collapse of Fannie and Freddie is unthinkable because it would provoke a systemic risk to the financial world. Too many firms across America, and the world, are holders of their securities. And since F&F are these days virtually the only consistent buyers and securitizers of U.S. home mortgages, a decline in their lending could bring housing finance to a virtual standstill.
Nobody knows where the vicious downward spiral gripping our housing market will end or how far the assets of F&F will have to be written down. Home foreclosures continue to drive down prices because banks cannot afford to hold on to vacant homes and fear prices will keep falling.
The predicaments have long been predicted. F&F, along with Wall Street and home builders, staved off proper regulations by hiring political elites and lobbyists from both parties. They should have raised more equity but preferred higher profits per share. Their senior officers have made millions of dollars from their shareholdings. They are the winners. Now the losers will be we, the taxpayers, because F&F are too big to fail. The bailout legislation provides for more oversight, but it must be through a regulator with real teeth. It would be unconscionable for Congress to bail them out without making sure that this dangerous aunt and uncle will hereafter be restrained for the public good."
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Post by judes on Sept 7, 2008 9:30:56 GMT -6
Here is another interesting article, explaining another viewpoint of why the bail out now, and the Chinese influence that may have been involved. business.theage.com.au/business/china-goes-the-big-squeeze-20080829-45q8.htmlChina Goes the Big Squeeze
* David Hirst * August 30, 2008 * Page 1 of 2
A high-ranking Chinese economist has put his nation's cards on the table in the global financial poker game by effectively telling the US to fix Freddie and Fannie … or else.
"A failure of US mortgage finance companies Fannie Mae and Freddie Mac could be a catastrophe for the global financial system", Yu Yongding, a former adviser to China's central bank, says.
"If the US government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic," Yu said in e-mailed answers to Bloomberg. "If it is not the end of the world, it is the end of the current international financial system."You may want to read the rest, the whole article is quite interesting.
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Post by judes on Sept 7, 2008 12:32:28 GMT -6
The governments response in press release, read it and weep. www.treasury.gov/press/releases/hp1129.htmOh I like these parts: I appreciate the productive cooperation we have received from the boards and the management of both GSEs. I attribute the need for today's action primarily to the inherent conflict and flawed business model embedded in the GSE structure, and to the ongoing housing correction. GSE managements and their Boards are responsible for neither. New CEOs supported by new non-executive Chairmen have taken over management of the enterprises, and we hope and expect that the vast majority of key professionals will remain in their jobs. I am particularly pleased that the departing CEOs, Dan Mudd and Dick Syron, have agreed to stay on for a period to help with the transition.
Yeah, let's keep the crooks on who helped conjure up this fraud, and I'm sure they will continue to be rewarded well along the way. And this: And let me make clear what today's actions mean for Americans and their families. Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe. This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation. That is why we have taken these actions today.
More BS. I don't give a crap about most of the stuff listed above, and neither do most Americans, when they realize they will be paying out the nose for this bail out of rich bankers and foreign investors. Household wealth is already declining, and has to come down more to be affordable to the majority of citizens in this country. Maybe interest rates on savings would go up for every day people, giving them incentive to save if the government meddling stopped. Maybe we need to stop counting on loans as a way of financing our daily lives, maybe real wages need to rise to end the dependence we have on easy money by way of loans to finance everything. Let the investors take their losses, keep your hands off my tax dollars. I want my tax dollars to go to the needy, not the greedy. Because the GSEs are Congressionally-chartered, only Congress can address the inherent conflict of attempting to serve both shareholders and a public mission. The new Congress and the next Administration must decide what role government in general, and these entities in particular, should play in the housing market. There is a consensus today that these enterprises pose a systemic risk and they cannot continue in their current form. Government support needs to be either explicit or non-existent, and structured to resolve the conflict between public and private purposes. And policymakers must address the issue of systemic risk. I recognize that there are strong differences of opinion over the role of government in supporting housing, but under any course policymakers choose, there are ways to structure these entities in order to address market stability in the transition and limit systemic risk and conflict of purposes for the long-term.Yeah, that's why right up to the lead up of this bailout, our representatives pushed for and got the ability for Fannie and Freddie to load up on even more toxic waste. And continue to put taxpayers on the hook, by allowing the Fed to continue buying more toxic waste from banks and investment firms by way of mortgage backed securities being exchanged for treasuries. Just more shell games, switching the toxic debt to the treasury with the taxpayer at the end of the line, sucking up all the fall out.
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Post by unlawflcombatnt on Sept 8, 2008 1:31:08 GMT -6
More BS. I don't give a crap about most of the stuff listed above, and neither do most Americans, when they realize they will be paying out the nose for this bail out of rich bankers and foreign investors. I'm with you on that, Judes. The part most of us care about his how much taxpayers are going to be on the hook for ultimately, as well as how much taxpayers' money is already earmarked for the GSEs. According to the Treasury Dept's statements today, it looks like taxpayers will likely be unwilling providers of "immediately available funds in an amount of up to but not more than" $100 billion to Fannie Mae, and $100 billion to Freddie Mac. This comes from item 2.1 on page 4 of both the Fannie Mae and Freddie Mac. Adding Freddie and Fannie together comes out to "up to but not more than" $200 billion. Bloomberg News verifies this amount, and states this in purchase of stock in the GSE's. If this comes from purchase of stock, it means that up to $200 billion of Fannie & Freddie will be purchased with taxpayers' money. What happened to the CBO's estimate of only $25 billion to bail out the GSEs?? Was it really only an "estimate", or just an outright lie? Forget about a national health care plan. Paulson and Bernanke have already spent all the money. We'll be lucky if we don't have to cut current Medicare and Medicaid payments, much less add anything new. And we certainly can't afford to cut anyone's taxes. We've just had 5 trillion dollars-worth of private debt thrown on to the taxpayers' balance sheet.
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Post by Grapple on Sept 8, 2008 7:29:54 GMT -6
This is the only outcome possible of having people like Paulson as Treasury Secretary. The guy is a Goldman Sachs crime syndicate Made Man who proudly said he had visited China more then fifty times. So obviously he is going to do what his masters want, bail out the bad investments of the Chinese and big investment banks at the American peoples expense.
And sad to say don’t expect much different if the Democrats get the White House since they have plenty of Paulsons of their own only with a D next to their name standing by to move into the Treasury and FED.
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Post by psychecc on Sept 8, 2008 14:23:29 GMT -6
This is just depressing. Paulsen said on CNBC that they didn't get out their calculators to figure the numbers on this. It was more a matter of restoring faith in the US mortgage market. Well, it's comforting to know that the treasury secretary takes actions the cost of which he has no idea. Link to full article follows. Bailout Bolsters Markets But May Not Solve CrisisBy CNBC.com With Wires | 08 Sep 2008 | 10:21 AM ET The US government takeover of Fannie Mae and Freddie Mac sparked a huge rally in global stock markets but was greeted with skepticism that the move would substantially ease the housing and credit crises.
Equity markets around the world surged on the bailout news as hopes rose that the US Treasury's plan to take control over the companies, which together back about half of the country's $12 trillion in mortgages, might put at least a temporary floor under troubled financial markets.
Fannie and Freddie stocks nosedived when trading opened on Monday, as investors bet the U.S. government's takeover of the mortgage finance firms would wipe out shareholders but fully guarantee their bonds.
Billionaire Warren Buffett told CNBC that Treasury Secretary Hank Paulson, who announced the bailout on Sunday, "did exactly the right thing."
....
"What happened over the weekend was unambiguously necessarily in order for us to turn the tide of this debt inflation," Pimco's Paul McCulley also said on CNBC. "Whether it is sufficient or not is still an open question."
The bailout brought a heavy dose of skepticism, with many on Wall Street saying the takeover of the institutions was merely a symptom of the dismal state of credit markets.
"This euphoria might fade, because Fannie and Freddie are not the problem," said Christopher Low, chief economist at FTN Financial. "Their woes are a symptom of a worldwide contraction in credit that may not be cured by the decision."
Treasury Secretary Henry Paulson, said he could not estimate exactly how much of a burden the bailout would be for taxpayers.
Speaking to CNBC, Paulson said this would be impossible to tally until the extent of declines in the mortgage market were fully known.
The question of taxpayer financing for Fannie and Freddie "ultimately is going to be answered by how long it takes housing prices to stabilize and the economy to come back," Paulson said in a live interview.
"The housing downturn is at the heart of the problems that our economy is facing right now," Paulson added. "Until the bulk of that is behind us we're going to continue to have stress" on the economy and stock market. ....
"This is the biggest event in my 21 years in the business," said Arthur Frank, director and head of mortgage-backed securities research at Deutsche Bank.
Freddie and Fannie, which serve a government mission to support housing, were put in a conservatorship that allows their stock to keep trading but puts common shareholders last in line in any claims.
The government bond market, meanwhile, suffered as investors reasoned the bailout would vastly increase the amount of debt needed to fund the government's obligations over the medium term.
Yields on two-year Treasury notes jumped nearly a half percentage point on the news.
The Treasury took $1 billion in preferred senior stock in each company, but its equity stake could reach as much as $100 billion in each.
Paulson had hatched a plan in early July to shore up the struggling firms with a promise of fresh loans and a government injection of capital if either company was pushed to the brink of collapse.... www.cnbc.com/id/26606896/
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