Shocker: U.S. Nears Rescue Plan For Fannie And Freddie
DriftingByTheStorm
Posts: 8,684
From the Washington Post
I thought this article might help contextualize the issue for some of you who seem to think that this is a "normal" business cycle, and that everything is okay, and this is just another day with plenty of precedent. :rolleyes:
U.S. Nears Rescue Plan For Fannie And Freddie
Deal Said to Involve Change of Leadership, Infusions of Capital
By David S. Hilzenrath, Neil Irwin and Zachary A. Goldfarb
Washington Post Staff Writers
Saturday, September 6, 2008; Page A01
The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives and prop them up financially, federal officials told the two companies yesterday, according to three sources familiar with the conversations.
Under the plan, which could prompt one of the most sweeping government interventions in financial markets in U.S. history, federal officials would place the firms under a conservatorship, a legal status giving the government the option and time to restructure and revive the companies, the sources said. The value of the companies' common stock would be diluted but not wiped out, while the holdings of other securities, including company debt and preferred shares might be protected by the government.
Instead of giving each company a big capital infusion upfront, the government could make quarterly injections as the companies' losses warrant, the sources said. This would be an attempt to minimize the initial cost of the rescue.
The timing of government action remained unclear last night, and the final details were still under discussion. But as the pace of discussions accelerated, Treasury officials contacted senior congressional leaders yesterday, telling them they might be briefed on the plan this weekend and asking for telephone numbers where they could be reached.
The action would represent a major escalation of the government's role in private lending. The government would be assuming vast obligations it has historically disavowed, potentially using taxpayer money to make up for private business decisions gone wrong.
In an effort to contain the most profound financial crisis in generations, Treasury Secretary Henry M. Paulson Jr., leaders of the Federal Reserve and other government officials have in recent months upended decades of precedent. A bailout of the two mortgage finance titans would follow a Fed rescue of investment bank Bear Stearns in March and earlier steps to provide implicit government backing to Fannie Mae and Freddie Mac.
Fannie Mae and Freddie Mac have backed 70 percent of new mortgages in recent months, but both have incurred vast losses on their loan portfolios as the housing market has tanked. Paulson, the architect of the plan, and other government leaders view the mortgage firms as vital to preventing an even broader financial crisis and economic downturn.
The chief executives of the two companies were called into afternoon meetings yesterday at the 17th Street NW offices of the Federal Housing Finance Agency, their direct regulator, sources familiar with the events said.
Executives of the two companies were told to show up without being told of an agenda. Daniel H. Mudd, chief executive of Fannie Mae, was accompanied by lawyers from Sullivan and Cromwell, the company's outside counsel. He arrived at 3 p.m. for a two-hour meeting. Richard F. Syron, chief executive of Freddie Mac, began his meeting at about 5 p.m., accompanied by several members of the Freddie Mac board and lawyers from the firm Covington and Burling.
The boards of Fannie Mae and Freddie Mac both plan to convene today.
Paulson, Federal Reserve Chairman Ben S. Bernanke and James Lockhart, the director of the housing finance regulator, told the executives of the plan, which would strip them of their jobs but not include any broader management shake-up.
The plan was described by three sources: an official, a former official who was told of the plans and a mortgage industry executive with direct information. They spoke on condition of anonymity because its specifics had yet to be announced.
If the plan is enacted, it would bring under direct government control two companies that have a long and complicated history as hybrid public and private entities. In July, with the companies reeling from losses and fears growing that they wouldn't be able to raise new cash privately, Paulson gained the power to invest government money in Fannie Mae and Freddie Mac through unlimited loans or stock purchases.
Although the companies' shares initially soared on that news, their financial positions have worsened in recent weeks, along with their ability to raise money in the markets. The companies' shares are off about 90 percent from their highs in the past year.
"It's clear the market wants some closure on this. Any sort of plan that would get the market at ease would be preferred to what we have right now," said Mario De Rose, chief fixed-income strategist at Edward Jones, a brokerage firm based in St. Louis.
In recent weeks, investors less willing to take risks on debt issued by Fannie Mae and Freddie Mac have demanded higher payments, which has increased costs for consumers taking out mortgage loans.
Investor uncertainty over the long-term fate of the companies has left a pall over credit markets. It has been unclear which investors, if any, would suffer should the government intervene to prop up the firms.
The answer, in Paulson's plan, is that holders of preferred shares and subordinated debt, a riskier but higher-paying class of debt, might be made whole. Government leaders were reluctant to allow holders of those assets to incur major losses because they are widely held by banks, and major losses could cause a wave of bank failures. [ed: Yeah, bail out the assholes who took the MOST risk !?! WTF WTF WTF]
Placing the companies in conservatorship, rather than receivership, could signal that the government does not intend to nationalize or liquidate Fannie Mae and Freddie Mac. Instead, under the terms of a federal law passed this summer, conservatorship is designed to allow the government to restructure the companies and return them to private control. Treasury officials have previously compared the process to Chapter 11 bankruptcy.
If the government plan succeeds, uncertainty in the markets around Fannie Mae and Freddie Mac could subside, making it easier for the companies to get access to funding at cheaper rates. That, in turn, could have a spillover effect in the overall market for mortgages, lowering interest rates and helping the battered housing market recover. [ed: Bullshit. Uncertainty and risk will escalate, and interest rates will soar]
The move may calm some Asian markets, where central banks and other financial institutions have become among the largest investors in Fannie Mae and Freddie Mac and therefore one of the largest sources of mortgage finance in the United States.
Uncertainty over whether and how Treasury would intervene has caused some major investors to reduce their holdings of the agencies' debt, according to analysts. That threatened to make it more costly for the companies to get financing, increasing mortgage rates and delaying the housing recovery.
Victor Wang, a banking researcher at UBS Securities Asia, said that Chinese banks, the largest foreign holder of agency debt, did not know how to read the possibility of a Treasury intervention. "Very few have full confidence of that," he said. "It's a 'may.' And 'may' means uncertainty. That's something banks don't like."
Staff writers Binyamin Appelbaum, Ariana Eunjung Cha, David Cho, Heather Landy and Lori Montgomery contributed to this article.
I thought this article might help contextualize the issue for some of you who seem to think that this is a "normal" business cycle, and that everything is okay, and this is just another day with plenty of precedent. :rolleyes:
U.S. Nears Rescue Plan For Fannie And Freddie
Deal Said to Involve Change of Leadership, Infusions of Capital
By David S. Hilzenrath, Neil Irwin and Zachary A. Goldfarb
Washington Post Staff Writers
Saturday, September 6, 2008; Page A01
The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives and prop them up financially, federal officials told the two companies yesterday, according to three sources familiar with the conversations.
Under the plan, which could prompt one of the most sweeping government interventions in financial markets in U.S. history, federal officials would place the firms under a conservatorship, a legal status giving the government the option and time to restructure and revive the companies, the sources said. The value of the companies' common stock would be diluted but not wiped out, while the holdings of other securities, including company debt and preferred shares might be protected by the government.
Instead of giving each company a big capital infusion upfront, the government could make quarterly injections as the companies' losses warrant, the sources said. This would be an attempt to minimize the initial cost of the rescue.
The timing of government action remained unclear last night, and the final details were still under discussion. But as the pace of discussions accelerated, Treasury officials contacted senior congressional leaders yesterday, telling them they might be briefed on the plan this weekend and asking for telephone numbers where they could be reached.
The action would represent a major escalation of the government's role in private lending. The government would be assuming vast obligations it has historically disavowed, potentially using taxpayer money to make up for private business decisions gone wrong.
In an effort to contain the most profound financial crisis in generations, Treasury Secretary Henry M. Paulson Jr., leaders of the Federal Reserve and other government officials have in recent months upended decades of precedent. A bailout of the two mortgage finance titans would follow a Fed rescue of investment bank Bear Stearns in March and earlier steps to provide implicit government backing to Fannie Mae and Freddie Mac.
Fannie Mae and Freddie Mac have backed 70 percent of new mortgages in recent months, but both have incurred vast losses on their loan portfolios as the housing market has tanked. Paulson, the architect of the plan, and other government leaders view the mortgage firms as vital to preventing an even broader financial crisis and economic downturn.
The chief executives of the two companies were called into afternoon meetings yesterday at the 17th Street NW offices of the Federal Housing Finance Agency, their direct regulator, sources familiar with the events said.
Executives of the two companies were told to show up without being told of an agenda. Daniel H. Mudd, chief executive of Fannie Mae, was accompanied by lawyers from Sullivan and Cromwell, the company's outside counsel. He arrived at 3 p.m. for a two-hour meeting. Richard F. Syron, chief executive of Freddie Mac, began his meeting at about 5 p.m., accompanied by several members of the Freddie Mac board and lawyers from the firm Covington and Burling.
The boards of Fannie Mae and Freddie Mac both plan to convene today.
Paulson, Federal Reserve Chairman Ben S. Bernanke and James Lockhart, the director of the housing finance regulator, told the executives of the plan, which would strip them of their jobs but not include any broader management shake-up.
The plan was described by three sources: an official, a former official who was told of the plans and a mortgage industry executive with direct information. They spoke on condition of anonymity because its specifics had yet to be announced.
If the plan is enacted, it would bring under direct government control two companies that have a long and complicated history as hybrid public and private entities. In July, with the companies reeling from losses and fears growing that they wouldn't be able to raise new cash privately, Paulson gained the power to invest government money in Fannie Mae and Freddie Mac through unlimited loans or stock purchases.
Although the companies' shares initially soared on that news, their financial positions have worsened in recent weeks, along with their ability to raise money in the markets. The companies' shares are off about 90 percent from their highs in the past year.
"It's clear the market wants some closure on this. Any sort of plan that would get the market at ease would be preferred to what we have right now," said Mario De Rose, chief fixed-income strategist at Edward Jones, a brokerage firm based in St. Louis.
In recent weeks, investors less willing to take risks on debt issued by Fannie Mae and Freddie Mac have demanded higher payments, which has increased costs for consumers taking out mortgage loans.
Investor uncertainty over the long-term fate of the companies has left a pall over credit markets. It has been unclear which investors, if any, would suffer should the government intervene to prop up the firms.
The answer, in Paulson's plan, is that holders of preferred shares and subordinated debt, a riskier but higher-paying class of debt, might be made whole. Government leaders were reluctant to allow holders of those assets to incur major losses because they are widely held by banks, and major losses could cause a wave of bank failures. [ed: Yeah, bail out the assholes who took the MOST risk !?! WTF WTF WTF]
Placing the companies in conservatorship, rather than receivership, could signal that the government does not intend to nationalize or liquidate Fannie Mae and Freddie Mac. Instead, under the terms of a federal law passed this summer, conservatorship is designed to allow the government to restructure the companies and return them to private control. Treasury officials have previously compared the process to Chapter 11 bankruptcy.
If the government plan succeeds, uncertainty in the markets around Fannie Mae and Freddie Mac could subside, making it easier for the companies to get access to funding at cheaper rates. That, in turn, could have a spillover effect in the overall market for mortgages, lowering interest rates and helping the battered housing market recover. [ed: Bullshit. Uncertainty and risk will escalate, and interest rates will soar]
The move may calm some Asian markets, where central banks and other financial institutions have become among the largest investors in Fannie Mae and Freddie Mac and therefore one of the largest sources of mortgage finance in the United States.
Uncertainty over whether and how Treasury would intervene has caused some major investors to reduce their holdings of the agencies' debt, according to analysts. That threatened to make it more costly for the companies to get financing, increasing mortgage rates and delaying the housing recovery.
Victor Wang, a banking researcher at UBS Securities Asia, said that Chinese banks, the largest foreign holder of agency debt, did not know how to read the possibility of a Treasury intervention. "Very few have full confidence of that," he said. "It's a 'may.' And 'may' means uncertainty. That's something banks don't like."
Staff writers Binyamin Appelbaum, Ariana Eunjung Cha, David Cho, Heather Landy and Lori Montgomery contributed to this article.
If I was to smile and I held out my hand
If I opened it now would you not understand?
If I opened it now would you not understand?
Post edited by Unknown User on
0
Comments
If I opened it now would you not understand?
i was told to buy gold because there would be no 7-11's or grocery stores left by this time of year.
And you should buy as much silver as you can afford right now,
because in 3 months it AIN'T going to be $12 an ounce.
And if you think i didn't qualify my remarks endlessly with comments about the governments ability to STALL, manipulate, and cheat its way out of a near term collapse, you are being dishonest.
I have been consistent in repeating that while a near-term systemic collapse is possible (and WOULD have been absolutely probable, baring this Fannie bail out), i have ALWAYS said in some post or another that the US Government is the MASTER of deferring and postponing such catastrophes.
The outside limit of this looks like it could go 2-3 years, maybe 5 with some really crazy games, and a LOT of international collusion (like the ECB continuing to stay in lock step on rates with the Fed, thus ensuring that EVERYONE inflates the same, masking much of the inherent fraud).
But you are also being wholly dishonest if you can't admit that in large part my fears have been realized. Again, 12 months ago you all laughed at me for even suggesting something as "crazy" as a necessary bail out of Fannie and Freddie (which i DID say looked imminent) or that we would be on the hook for trillions, or that we would be headed for a massive recession, or that the stock market would be absolute shit, or that gold would be through the roof.
Hell, even as late as January, February, some boobs around here were telling me i was an idiot, and that there "is no recession".
???
Were my WORST fears 100% realized?
Certainly not yet.
Were my BASIC fears realized?
Absolutely.
Will ANY of you concede this?
Probably not.
I hate to say it,
but i wish JLew were still here,
because at least he was man enough to admit when he was wrong,
and he would CERTAINLY agree that i hit the mark on this one.
If I opened it now would you not understand?
what is your point, Mr. One Liner?
Again, not news to me.
If I opened it now would you not understand?
that these companies were designed and created not to fail. once they did, a government bailout would happen.
its hilarious to me that you claim to be such an all knowing god when it comes to this shit.
there is a reason why you are the laughing stock of this board. apparently for some time now.
i will not concede that you ever said a damn thing about fannie or freddie. all i ever heard you talk about was "buy gold, buy gold" which you never did. have you bought silver yourself? you said there would be a complete collapse and people would not be able to get a pack of smokes at 7-11 because the dollar would not be accepted anywhere and we'd be back to bartering with gold pieces. that hasn't come close to happening. and i don't see it happening in 5 years either.
i can't say you were on the mark or 100% right because i've never understood what they hell your points or fears are. you cloak any potential point in so much bullshit panic-laden rhetoric about illuminati conspiracies and apocalyptic mad max-style futures around the corner that i can never figure out what exactly you're citing as cause or effect. i never heard you mention fannie or freddie until it was public knowledge it was collapsing.
are we in dire straits? sure. is that the concession you're looking for? is this country going to look like it did for snake plisken's 'escape from new york' within 5 years? no.
"This was something the government clearly had to do and it should stabilize the housing market over the next six to nine months by lowering mortgage rates," he said. "But I don't see that this changes the overall environment that dramatically."
good article on what and why what what now. dont let alex jones soldiers fear you into thinking the end of life is near
http://money.cnn.com/2008/09/07/news/companies/fannie_freddie/index.htm?postversion=2008090720
nice
you have been preaching about total system failure since i've been on here, so dont gloat just yet. dont act like because the economy has slowed down you are right.
hell, you may end up being right, but the global economy might need a big reset button anyway.
that's where you're wrong!
http://forums.pearljam.com/showthread.php?t=302488
i'll bet it was the lost heir of george washington and his skull and bones secret society brethren that built this machine and they're all already safely in a controlled habitat that was secretly assembled on mars!
Really,
you don't remember the infamous argument with Jlew (thread now long gone from the pit) where i said it was looking like a bail out will be necessary,
and Jlew said IT WOULD NOT HAPPEN, because IT COULD NOT HAPPEN, because the Federal government DIDN'T HAVE THE MONEY to do that kind of bail out?
And i tried in vein to convince him that it WOULD happen because it HAD TO happen, REGARDLESS of the "affordibility" of it all.
And Spyguy, don't give me this bullshit that it was fucking preordained, because god knows i heard PLENTY of assholes all over CNBC saying things like "there is a LOT of debate over a potential bail out of these two institutions. Can the government afford it? Does it make sense? Should we just let them fail?"
Sure, if you have half of a REAL brain, like admittedly you DO seem to have on this point, it DID seem pretty evident from the standpoint of a basic understanding of what was hinged on fannie and freddie, but from the standpoint of the street it was NOT preordained!
If I opened it now would you not understand?
nope. i must not have been here then. i took a vacation.
Well, i'm sorry i forgot to parrot that assertion daily.
If i did, god knows it would have sunk to the bottom of the pit in a matter of seconds anyhow.
Besides, like Spyguy said, EVERYONE and ANYONE could have predicted this anyhow.
I mean it was as sure as sugar.
Forrest Gump could have told you Fannie would get the bailout.
I'm just a fool.
:rolleyes:
If I opened it now would you not understand?
then obviosly you do not know jack shit about who fannie and freddie even are. they are Government sponsored enterprises
http://en.wikipedia.org/wiki/Government_sponsored_enterprise
secondly, they are not completely "bailing them out" they are providing up to 100 billion in liquidity until they are get back on the feet.
they back 5 Trillion in mortgages.
seriously man, you just dont get it
and im still waiting to hear you say whether you've bought the silver you think all the rest of us should buy, or if that's just more of your histrionic hyperbole.
i'm also waiting for the day when i have to steal my gf's gold earring to buy smokes at 7-11.
I moved most of my retirement holdings to gold ETFs, simply because you can not hold PHYSICAL metal in most bank accounts (though ROTH IRAs do technicaly allow that) ...
after i did that, i also purchased a $250 FACE bag of 90% from NWT Mint.
I have some other things going on that require CASH ON HAND, unfortunately, or i would through everything i have at it.
The good news is my grannie croaked and i get a SERIOUS inheritence soon, and THAT WILL be going towards silver, assuming the price doesn't skyrocket too soon.
:eek:
If I opened it now would you not understand?
Pressure is taken off the banks, rates will fall and and housing prices will rise.
Its drastic and the deal will be paid for by us. but what could've come can be much more costly than this alternative.
thats nice
I know what a fucking GSE is, i'm not an idiot.
And from what the Washington Post is reporting, Congress signed a BLANK CHECK for UNLIMITED infusions to Fannie and Freddie.
It didn't say anything about a cap on it.
What am i not getting, exactly?
If I opened it now would you not understand?
I agree with you.
here is another good article. (sorry goneintoastrom, its not infowars)
http://news.yahoo.com/s/csm/20080908/ts_csm/afanfred
Why is it coming to this?
The short answer is that legislation Congress passed in July failed to reassure financial markets enough to position the two companies to raise needed capital on their own. That law gave the Treasury new authority to funnel credit or capital into Fannie and Freddie, if needed – at taxpayer expense.
Meanwhile, foreclosures continue to pummel the mortgage firms with big losses.
"It's going to get worse if they don't act," says Peter Morici, an economist at the University of Maryland. "We want this dealt with now."
The two companies will now operate, as they open their doors Monday, under the authority of the Federal Housing Finance Agency (FHFA), a new agency that Congress created this summer to regulate Fannie and Freddie.
I hope you bought gold early or have at least taken some money off the table because its down over 25% from its high. Commodity boom is over.
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/07/AR2008090700259.html
There is no guarantee that the takeover will work, and it comes at a potentially massive cost to taxpayers. The government has pledged to inject money in the companies in any quarter in which they would otherwise be insolvent -- up to $100 billion in total for each company.
http://money.cnn.com/2008/09/07/news/companies/fannie_freddie/index.htm?postversion=2008090720
The move, which extends as much as $200 billion in Treasury support to the two companies, marks Washington's most dramatic attempt yet to shore up the nation's housing market, which is suffering from record foreclosures and falling prices.
http://biz.yahoo.com/ap/080908/wall_street.html
The plan to inject up to $100 billion in each of the government-chartered mortgage financiers could not only help lower mortgage rates but, some investors are hoping, buoy the overall economy. The plan could help banks feel more open to write new mortgages and to refinance existing mortgages at lower rates, offering a possible lifeline to consumers struggling with increasing payments.
Treasury can supply upto 200 billion. When you put that next to the 17 trillion that has already been wiped out globally from the crisis, its a drop in the bucket
fannie & freddie 101
wow, $250. you're really putting your money where your mouth is. if money is so worthless, why are you doing anything that requires cash on hand? i thought all of this is inevitably doomed to failure? take that cash and buy silver, nothing else. it's the only thing that will be worth a damn, right?
and of course banks don't hold metal. neither will 7-11. surprise surprise.
i'm glad your grannie croaked. that sounds like a big win for you.
Its not about people not being able to pay their mortgages, its about Fannie&Freddie holding receivables at 5 on properties worth 2. In the end they (F&F) made bad investments becasue they cant foreclose on the properties, sell them and payoff the receivable and recoup their investment. Plan and simple, any other explanation is B/S.
If the borrower cant pay the monthly mortgatge then they can be foreclosed on and they are out in the cold. If the lenders made bad investments (lending money on inflated FMV of property) then they are out in the cold, scratch that, then they run to the govenment with there lobbyist and promise to take care of the incumbents.
Absolutlely nothing has been done for the Shmoe that purchased the house and cant pay for it, and nothing should be. There are limited cases where the mortgages were reworked but it only applied to less than ten percent of the total.
So we have had that property market downer amid a recession, had the government intervene and regulate, and come out on top again. So it might work for the US too.
Peace
Dan
"Every judgment teeters on the brink of error. To claim absolute knowledge is to become monstrous. Knowledge is an unending adventure at the edge of uncertainty." - Frank Herbert, Dune, 1965
I remember that bet.
And I was supposed to be wandering around the mountainous regions of Arizona, looking for food and water because my home in Orange County was supposed to be under 20 feet of Pacific Ocean.
...
Then... he was going to shoot me.
Hail, Hail!!!