rip fannie and freddie
 

well...not really.

but the 70 year experiment of two hybrid public/private companies comes to an end this weekend.

i guess a rational decision but scary as hell.

The markets in Europe explode while they laugh at Bush.
Another government bailout funded by taxes.
It really is funny. The free market will take care of itself,
no matter if people lie, steal and cheat.
BS.

We have been harsh critics of Europe for just this type of
government intervention. Calling them socialist and such.
And we do the same thing.

The funniest thing is that the US government is buying in at the perfect time and will end up making a significant profit.

And how about the quote by Palin? She really has a grasp on the situation doesnt she. According to Mrs. Palin, Fannie mae and Freddie Mac had "gotten too big and too expensive to the taxpayers". Ummmm....Fannie and Freddie were privately funded until yesterday.

This begs the question...how do they finance those igloos up in that small town of hers?

Seriously though- shouldnt our would be vice president understand GSE's and have even the faintest clue on how they operate?

And let me add, we have idiots on here that are more concerned about Obama misspeaking than about the vice president not having a clue about key components to policy both foreign and domestic.

Caused quite of heartache in my markets today, that's for sure.

The gindaloons in government don't really understand the markets and corporations, do they?

Tax payers bailing out Wall Street.
Thats the ticket.

There is a point where the government has to
let people who are stupid and take enormous risk
suffer. All the investors in these lenders were getting
ridiculous 45% interest and it bottoms out, the government
steps in and bails them out.

Necessary, but a trend that is not good. Make no mistake,
we all pay for this in the long run. So we are financing
stupid risk taking.

And the Republicans delegates cheer when McCain says
they will take back Washington and give it to the people.
Who in God's name held the presidency for the last 8 years,
and the Congress for the last 5 years?
Bunch of suicidal lemmings.

Make up some bogus boogie man, WASHINGTON, run by
Republicans... and they cheer that they are taking back
what they already owned. I dont get it.

They sure dont Philly and they should just keep their mouths shut instead of trying to grandstand all the time. During Senate testimony this past spring you could just watch Bernanke's face in response to some of the questions. If facial expressions formed actual words, his was saying " you ****ing moron, how is an elected official asking a question as stupid as that."

On another note, interest rates should be going through the floor now that the fed gov has taken over the GSE's. The spreads between mbs and treasuries should close rather dramatically in the coming days.

Interesting that the dollar continued to roll against euro and pound and that commodities continue to slide.

Logically, that would make sense. In truth it didn't happen- Treasury spreads actually went DOWN today despite the US Government theoretically becoming more "risky". ABX (an index which tracks MBS pools) AAA tranches only improved by a half a point, so about 5bps a year, and are still trading in the mid 40's dollar price.

Meanwhile, FRE and FNM stock plunged to 1/8th of their previous value, wiping out the remaining $10 billion of market cap- hitting the fine citizens of the United States directly in their 401k and mutual fund plans (which pretty much every "conservative" fund owned). Additionally, all CDS contracts written on FRE and FNM triggered a credit event with close to 100% recovery, which in simple math means if you bet one way or another and were RIGHT, you lost all the present value of that contract, so all of Wall Street took major hits today.

But they're coming to save us!!!

You dont teach economics do you?

Why do you think this happened?

Bailout was only a matter of time
 

Unfortunately, the bailout was not a matter of if it was going to happen but when. Even though FNM had as of 6/30 more than enough capital on its books to at least get thru the year before another capital infusion may or may not have been necessary it became apparent that something had to be done like the Gov't announced this weekend to attempt to stop the huge markdowns being taken on the books of financial institutions. These financial institutions own billions and billions of $$$ of FNM and FRE bonds and were forced to take huge writedowns which affected their own capital on their books and hence the major equity infusions (many from sovereign wealth countries) to these institutions. The problem lies that many of these financial institutions have to continually mark down their paper as the prices of homes continue to decline and foreclosure rates increase. Everything seems to be connected in this financial world.... The hope and aim of the Gov't takeover is that it will reduce the costs to buyers of homes and that these financial institutions will once again feel confident to start making loans again. Our economy can not recover until these financial institutions get their own books in order and start to make loans. Housing prices have to stabilize in order for that to happen. Yes, it is sad that the equity holders are wiped out in FNM and FRE but unfortunately equity holders are the lowest on the totem pole in protection. We shall see if this action by the Government stabilizes the housing market and also stabilizes the spreads of mortgages and other financial fixed income instruments to Treasuries. One should remain skeptical on how this plays out.

PSH

I think people are still skeptical. The root of the issue is poor lending practices by banks who followed the thought process of "well, even if the homeowner can't pay the mortgage, we'll be able to recover the full loan value because housing prices ALWAYS rise" whereas in some parts of the country homes were already at a saturation point of cost versus income.

Therein lies the problem and why you are wrong. The lenders worked under false assumption that home prices would continue to rise at an unsustainable level, despite warning flags of the cost of housing spiraling out of control. The lenders should have been held accountable for their poor investments, and learned a lesson from it- not allow the government to step in and bail them out. Continued poor lending practices under the assumption that the "implied government backing" will only cause housing prices to further rise, putting additional pressure on the consumer and the American economy. It's a vicious cycle that must be stopped through painful lessons learned and this is NOT the answer.

No.
But I did stay at a Holiday Inn.

Reading all these other posts and reading
the Wall Street Journal. Listening to stuff.
Investing. Planting sugar beets and such.

I hear you Phil. But letting Wall St. take their lumps will only further exasperate an already skittish market. Lack of available lending products and higher rates are now the leading detriments to housing recovery. Ratios of price/income and mortgage payment/rent have come back to sane ,sustainable levels.

So say you let the GSE's fail which appeared fait accompli. What would that do? It would cause the housing market to completey tank as the ONLY source of money would be FHA (which will see huge troubles ahead...another subject) or private banks (which are charging crazy rates for non agency paper).

If the government was going to inject the massive amounts of capital necessary to prop up the GSE's, doesnt it only make sense that they can truly run and regulate them? And for the record, the government is going to make a nice profit when this all shakes out.

lastly, the bolded part needs a little clarification. Do you really think the banks and brokers that originated the loans even CARED about whether the homes would appreciate? Do you think the investment banks did? Or do you think that they thought they could continue to pass the paper off to some other poor sucker?

I will interject.
I can't help it.

imo they(Mortage companies) were pulling people off the street and giving them mortages that looked very attractive to 2ndary and on investors who did not do their homework (the majority of the people would not be able to pay these rising rate pile o crap loans). Basically a pyramid scheme destined to fail. And now we see who ends up holding the cleaning products that wont sell. Stupidity and greed are fantastic partners for the get rich quick.

A little simpler than I would have written, but pretty much correct.

Thanks for that insight
 

I appreciate you telling me that i am wrong.
Obviously, the lenders got into trouble by writing questionable loans. Anyone can see that. My point is where we are today what was going to happen. Yes, the lenders should be accountable for their poor investments but the government made sure that was not going to happen because of the fear of the collapse of the whole financial system. See Bear Stearns and Countrywide - government engineered takeovers by JP Morgan and BofA.
I see Lehman, JP Morgan, and the other financial companies on a regular basis and the writedowns that you see are real with more to come. The takeover of FNM and FRE by the government may not solve this financial crises but it is a step in the right direction. As i said earlier we shall see. To let the whole financial system possibly unravel is what would be wrong.

Just my opinion and although i am wrong in your eyes, i am right in my eyes.

PSH

Yes, fraud was ramapant. But you have to understand the climate of the industry during that period of time 2003-2007. Investment banks were creating products that all but screamed "we dont care if its fraud or not". Are you telling me its the mortgage broker's fault for originating a loan that required no income, no assets and no JOB with an LTV of 100%? These were wall st creations and their appetite was INSATIABLE. And why? Because they knew they could package it up in a CDO and have a ratings company slap triple A on it.

I think the notion that loan officers and consumers can get away with that level of fraud without Wall St. being compliant is totally naive. It was Indeed systemic.

Sorry its passing it down. The loan officers that had been in the game a long time KNEW it was wrong. They questioned the outrageous loans and some got stiffed and fired by their employers, the Mortage companies. It was happening all over the country. So hell yes the people at the top(primary lenders) of the scheme knew it was wrong... imo. Now this might have been made easy by other entities but with loan officers smelling fish early on... the dadgumb loan officers with experience knew. Thats bad.

Very interesting thread

Sorry, I'm not trying to be mean here, apologies if it came off as such.

The whole financial system would not unravel if the government had allowed to FNM & FRE to continue. Both had plenty of capital and access to more. People and corporations have to learn from their mistakes, and if there's no ramafications to poor decision making where is the incentive to "do the right thing" - which in this case would be to recognize the fallacy of the assumptions in which these loans were underwritten?

So do you believe the next big Wall St sinking ship, whom will remain unnamed but with proper research can be deduced, should also be thrown a life raft as well? I don't.

I am going to take a stab at Lehman Brothers. And, no, they should be allowed to fail.

Phil, as far as fannie and freddie goes, dont you think they received the ULTIMATE punishment? In effect both were wiped out in one fell swoop. Management was replaced in both and it is just a matter of time before all the employees become government employees. I know they still have jobs but many will be offered a pittance compared to what they made when the GSE's were private. How was anyone "saved" here? The only thing that might have been saved was the mortgage market.

Not that far apart
 

Phil:

We really are not that far apart. Yes, in theory i agree that corporations that make mistakes and in this case take on too much risk and leverage without thinking about the consequences should be allowed to go under...
However, as evidenced by the engineered takeovers of Bear Stearns and Countrywide Credit by the government there is a maze of connections within the financial system that is scaring many to allow them to go under. As was pointed out in the earlier post the equity holders are pretty much all wiped out as if the company went bankrupt. However, in the case of Bear Stearns and Lehman or Merrill Lynch or whomever there is too much counter-party risk to allow these investment banks/brokers to go under without someone coming in and swooping them up. Yes, i agree FNM had enough capital today to get to the end of the year and FRE was questionable. The ability to access additional capital in the markets has become questinable given their share price and risks. The government almost had to do what they did just to keep the financial system from taking a huge hit given the large amounts of paper outstanding. That is just my take and opinion. I understand your position....

PSH

Senator Bunning Says Paulson Acts Like Socialist, Should Resign
2008-09-09 17:44:34.60 GMT


By Matthew Benjamin
Sept. 9 (Bloomberg) -- Senator Jim Bunning said Treasury
Secretary Henry Paulson, by rescuing Fannie Mae and Freddie Mac,
is acting like China's finance minister and both Paulson and
Federal Reserve Chairman Ben S. Bernanke should step down.
``I sincerely believe that Henry Paulson and Ben Bernanke
should resign,'' said Bunning, a Republican from Kentucky on the
Senate Banking Committee. ``They have taken the free market out
of the free market.''
Paulson and the federal regulator for Fannie and Freddie
placed the two largest U.S. mortgage-finance companies in a
government-operated conservatorship on Sept. 7, ousting their
chief executives and eliminating their dividends. Treasury also
may purchase up to $200 billion of stock in the firms to keep
them solvent.
``We no longer have a free market in the United States, we
have a government controlled free market,'' Bunning said in an
interview. Paulson, a former chief executive officer of Goldman
Sachs Group Inc., ``is acting like the minister of finance in
China.''
Bunning, 76, criticized Paulson's successful effort in July
to obtain congressional authority to pump unlimited amounts of
money into Fannie and Freddie to keep them afloat.
``When I picked up my newspaper yesterday, I thought I woke
up in France. But no, it turned out it was socialism here in the
United States,'' he told Paulson at a July 15 Senate Banking
Committee hearing.
Following Paulson's Sept. 7 announcement of the takeover of
Fannie and Freddie, Bunning said he now feels like a citizen of
China.

Former Phillies Pitcher

``No company fails in communist China, because they're all
partly owned by the government,'' said the former pitcher for the
Philadelphia Phillies.
Bunning accused Paulson of deception when he told Congress
in July that the Treasury's plan would instill such confidence
among investors that it would never have to be used.
Paulson ``saw and knew what was happening, and didn't tell
the truth to the banking committee,'' Bunning said yesterday.
Treasury spokeswoman Michele Davis didn't respond to
requests for comment.
Bunning, a critic of former Fed Chairman Alan Greenspan,
faults Bernanke for lax supervision of the mortgage market.
The Fed chief waited too long to require lenders to change
how they write mortgages, Bunning said. ``I mean he just did it
two months ago. Come on.''
When asked if he expects more multibillion dollar rescues by
Treasury, Bunning said, ``You bet I do.''
He said Paulson on Sept. 7 should have detailed an overhaul
in the business model of Fannie and Freddie.
Bunning predicted in July that, contrary to statements by
the Treasury, Paulson would provide capital to Fannie and
Freddie.
``Every time we propose and do something, it always gets
used,'' he told Paulson at the July banking committee hearing.

For Related News:
U.S. economy stories: TNI USECO ECO BN <GO>
Bloomberg's top government news: GTOP <GO>

--With reporting by Rebecca Christie in Washington. Editors:
James Tyson, Carlos Torres

To contact the reporters on this story:
Matthew Benjamin in Washington at +1-202-624-1971 or
mbenjamin2@bloomberg.net.

To contact the editor responsible for this story:
Chris Anstey at +1-202-624-1972 or canstey@bloomberg.net.

Darn it Philly! Why didnt you send me a PM telling me to call my broker to short this TODAY?

Cr

Idiot savant on my part...

and to be honest I can't. All my email and internet whatnot is monitored on here and I'd get fired if I did. Tough to watch that tank today, though.

I was talking to a guy at the bank last december and i told him back then lehman was going down because of their Alt-A book. He said that they had sold out of all of those bad loans. I told him that they would be buying them back.

Two months later, they close Aurora. Now this.

Which has to lead you next to...Merrill?

On the bank side, Wachovia is dead and stinkin.

Rumored to be insolvent ... wonder if that is true?

i know in freddie and fannies cases the govt also said they have always assured people that bankers in general are insured by the govt-the whole full faith deal.
whether lehman qualifies is another story. guess it depends on whether the feds think lehman would affect more than just the national economy, as they mentioned global investing/economy regarding mac and mae.

I read today that WaMu might be the next big bank to close!

Wamu went on a major bank buying spree earlier in the decade and now they are disintegrating under the weight of all of the option arms they put out there.

The option arm kings were Countrywide, Wamu and Golden West (bought by Wachovia).

Alt A negatively amortizing paper on collateral that is decreasing in value.

Just a matter of time.

Lehman
 

With Lehman it definitely does not qualify affecting the national economy but the worry is all of the counter-party risk involved with Lehman on various financial instruments. I hear that the Feds aren't involved as of yet with Lehman and that there are 3 suitors: Barclays, B of A and HSBC. Expect the equity will go down to basically nothing (it is almost there) and then a firm or more than one firm will start to divvy up Lehman ......

WaMU, National City, Wachovia, Merrill, and hundreds of smaller financial institutions remain very questionable on their future outlook...

Its a mess.

i saw they're pursuing a buyer. pennies on the dollar no doubt.

More like "buyers". It would be interesting if anyone bought this monster whole. For what? Their contingent liabilities exceed their market cap by infinity.

This is a case where The Fed is going to have to exert some..."influence". The public is not going to stand for anything publicly funded in this case so they will have to go back to squeezing some other firms to make a deal work.

http://www.msnbc.msn.com/id/26672904/

bankruptcy in the offing for lehman, no buyer. bank of america seems more interested in merrill lynch at this point, also in deep trouble.

WSJ just reported bank of america is buying ML for $29 a share. wow.

barclays also out regarding buying lehman, but 'talks' are continuing.

B of A
 

I think B of A overpaid by a huge huge amount (IMHO)....
That is quite a premium over the $17 share price that MER closed at...

Will provide a reason for a nice rally by the financials on Monday....

PSH

this fed is absolutely amazing.

Futures are getting hammered right now and treasuries are way up. Ten year is yielding 3.55.

My question is when are they going to start calling B of A and Chase quasi government entities?

just saw that lehman will in fact file, they haven't got any other choice. i guess BofA announced their buy at the same time, or slightly ahead of the bankruptcy news, to help cushion the lehman blow?

I think you are right. It makes you wonder though. If futures are down 369, how bad would they have been if the Merrill deal wasnt announced? Or maybe the merill deal just didnt have its intended effect.

In other news AIG is taking a beating (close at 12 friday and bid/ask around 6).

Also oil down to 94.