Paulson mixes things up even more, putting the US govt into the equity market by buying and selling shares of F & F.
This is wrong in so many ways . . . bail-out for shareholders, playing mischief with share prices, making F & F more mixed rather than making it 100% govt or 100% private. . .
Do you trust the people who give no bid contracts to Halliburton to buy and sell F & F shares from the White House???
I thought he would just buy F & F bonds or give a line of credit. Buying equity shares is a disaster that does not even have to wait to happen.
I thought not bailing out shar eholder was about the only thing that there was consensus on from all branches of govt and wall street. . .
OT - SP Futures seem to like the announcement (as well as USD/YEN, which drives the whole shebang).
I would love to see the SPX retrace to perhaps the 1256 level Monday; a rejection of that price on lighter volume than Friday's would set up an A-B-C down inside a giant weekly A-B-C down confirmed this week (the weekly projection is 1120, oddly precisely between the 1175 and 1080 Fib retracement levels of '02-'07 cyclical bull move, which I considered likeliest Intermediate Bottoms).
IOW - short all rallies. This market could crash over the next few months.
All the chatter of "one and done" may hammer all other financial stocks, including LEH, WB, etc. It seems that there is a (possibly erroneous) consensus that the U.S. government can do no more than this.
Sen. Charles Schumer said Sunday the Bush administration is trying to "blame the fire on the person who calls 911" by suggesting he had a role in one of the costliest U.S. bank failures
Federal regulators with the Office of Thrift Supervision were "asleep at the switch" when it came to IndyMac's "reckless" behavior, the New York Democrat complained.
Paulson went from an adamant no to a total 180 turn. We may need to go back to our 6 day trading days that were pre-Great Depression days with the bailout on Friday and this action.
This is only a drop in the bucket. Another IndyMac will push the market down once again.
This is total market massaging. Why not wait until Monday morning? Nope. They have to dish this out on Sunday a few hours before world markets open. Memories of Bear Stearns.
Yes, Schumer is right that the OTS was asleep at the switch when Indymac was engaging in reckless behavior. But so was Schumer. He said jack all until now. The train passed the switch 4 or 5 years ago and then it derailed about 2 years ago. Where is Schumer on F & F and everything f...ing thing else?
I saw three government vans parked outside a hotel tonight. (GOV plates) crew cuts, duffel bags and pelican cases. Thought to myself - I wonder if it's the FDIC? mind flashing to posts from the recent few days of the FDIC as the new MIB, or in this case khakis.
But before I get all FUD (ok, now that I heaped on the FUD), I think of a wise person who told me - 'but if the global pool of money takes their money out of the stock market, just where are they going to put it? in a sock?' there aren't enough places. what, the Chinese market? (hello Cliff, meet Cliff).... so in the market it will stay, (just perhaps other stocks).
Contact your Congressman, they are going to need Congressional approval for some of the socialist things they want to do. Stop the Federal Reserve from usurping more power. They are the problem and giving them more power is the exact opposite of what needs to happen.
It will be interesting to see what position Barack Obama takes on this issue. Will the Democrats insist that the equivalent of bankruptcy be declared for the GSEs, or will they fold and let the Republicans protect the bondholders?
buying of equity shares is nationalization only if all of them are bought and it requires an act of Congress to sell any of them back to the open market.
buying some shares and indicating that you might buy more is the equivalent of making Jim Cramer the Sec of Treasury. No, it isn't even that good an idea. It is more on a par with letting Dick Cheney buy Blackwater and have his own private army of mercenaries . . . oops, we already let that happen.
Its obvious what position Obama will take on this. Complete neutrality. He'll abstain from voting for fear of compromising his position. Pathetic.
This is not a partisan view. McCain will do the same thing.
Sheeple will continue to choose between a giant douche and a turd sandwich, and continue to feel good about participating in the democratic process. Sadly it is a sham. Orwell's predictions in Animal Farm and 1984 have never been more true than today.
This situation is very reminiscent of Ned Beatty running around the north Georgia mountains in his underpants. It's not gonna be pretty but it sure is hard to avert your eyes.
the last help . . . but, at the same time, the Treasury can buy an unlimited amount of equity.... see the confusion? Just like an implicit guarantee, except this allows insiders to make out like bandits with F & F stock.
Allowing people to make killings in govt manipulated stock is beyond moral hazard.
Making sure holders of govt agency issued bonds get paid their interest and principal is (almost always) part of the essence of fiscal responsibility.
When the Bush Admn gets to choose, expect the most f....ed up non-solution no one had even thought of before.
Didn't the gov take a stake in Chrysler? Besides, in most of the ROW governments take equity stake in companies. Often they sell them back at nice profits. Probably won't be the case here, but this is not so unprecedented.
of course what we say here doesn't matter, but out in the world beyond this blog it will be important to distinguish what Paulson proposed from nationalization.
Industries and companies have been nationalized before, but I do not know an example of the govt becoming a stock trader.
But, now that I think about it, we have heard this idea before. The Bushies wanted to invest Social Security funds in the stock market. Remember??? Eeerily familiar.
Our government cannot be allowed to become a Wall Street trading firm. That is not what government is.
If Treasury buys FNM's equity at current prices, would that not massively dilute current shareowners? We all knew a bail out was inevitable, this form actually is pretty reasonable at punishing shareowners. Treasury should also reduce management pay, replace the Board, and claw back bonuses from prior management.
This whole thing stinks. Hard to call it socialism though when the general public is likely to take it in the shorts. Sounds more like crony capitalism as practiced in the US - on a giant scale - but with the usual smoke and mirrors removed. On second thought, it does sound something like the government-business arrangements as practiced in "socialist" Germany prior to 1945.
The Supreme Court rejected Truman's attempt to nationalize the steel industry because the Court felt that it did not fall under the President's vanilla "national security" umbrella.
The general consensus is that Congress can nationalize any industry (e.g. Amtrak) that it wants under the Commerce Clause, provided that it meets the "just compensation" clause of the Fifth Amendment.
Two words that don't belong next to each other "AP" and "thinks".
12th Percentile
Example from the 3:32pm copy of the AP story by Jeannie Aversa:
The official, who spoke on condition of animosity, also sought to send a calming message about Fannie's and Freddie's financial shape, saying: "There's been no deterioration of the situation since Friday."
Issue #1: Is the U.S. Venezuela, Argentina, or Zimbabwe?
None of the above.
Chavéz, whether you hate him or not, has set up all sort of programs for the poor—literacy programs, primary schools, trade schools, and health care facilities. The U.S. would never do that.
As for Argentina, they finally halted their slide when they rejected the prescriptions of the I.M.F. and the World Bank. The U.S. would never do that because the people who run the I.M.F. and the World Bank are the same people who run the U.S.
The U.S. is hardly in Zimbabwe’s class. Our dollar is not going to zero.
No, the U.S. is its own case: A nation run by gangsters inhabited by a people who secretly want nothing more than to be robbed and left impoverished.
They're not saying the Govt will buy traded equities. I'm not sure what they ARE saying...but I don't think that's it. Anyway, FRE and FNM are saying they won't act on it anyway.
right, nationalization is possible and sometimes the right thing to do.
govt become a stock trader is wrong, dangerous, stupid, and I sure hope someone can construct a rock solid legal argument against it as well as a massively effective politcal campaign against it.
A dose of honest socialism would be good for this country, making for an honestly mixed economy. Expanding the Bush Crony capitalism into the stock market is abominable.
Indeed. I feel like almost every post these days could be tagged "Ephemera". It's a little surreal, really fascinating, and in some ways I feel lucky to have a chance to see it all happen.
"Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need. We're the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War's a spiritual war... our Great Depression is our lives. We've all been raised on television to believe that one day we'd all be millionaires, and movie gods, and rock stars. But we won't. And we're slowly learning that fact. And we're very, very pissed off."
Even the hub, who rolls his eyes when I opine on the dreadful things that will happen, said to me, something awful must be about to happen because all these gov't spokespersons are going all reasurring on the tv news. He was NOT reassured.
Roubini has an interesting take on this. If anyone has a chance, read the link on CR for Roubini. He proposes just writing down the debt so investors essentially take the losses.
It looks like you will take a tidy profit on Monday, but I can't see having confidence in this going forward...... I think its going to calm the waters like switching on a giant whirlpool.
No libertarian rant here. I would be a social democrat if there were such a thing in this country.
Nothing happened yet. Congress must approve almost everything. The Fed window borrowing doesn't help FRE or FNM long-term, anyway, which is where they need it, right? And how will "new ownership" of FRE and FNM help? If they stunk before, they'll stink tomorrow.
Meanwhile, any FRE or FNM bailout probably means help is less likely for LEH, WM or WB.
If either company taps this line of credit, it will be a naked and very public admission that one or both of their capital positions is not as "strong" as alleged and the management will be caught in a lie. If they tap the equity line, they are done for with the exception of a 100% taxpayer funded bailout.
"Paulson, speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence." Bloomberg
The collapse in confidence is in Paulson, Bernanke, and the US economy - F&F are incidental.
But Germany today is a well-run mixed economy. No housing bubble there, just solid long term growth, a strong Euro, and more national health care than anyone knows what to do with.
"Paulson's proposal, which the Treasury anticipates will be incorporated into an existing congressional bill and approved this week, signals a shift toward an explicit guarantee of Fannie Mae and Freddie Mac debt. The two shareholder-owned companies are government-sponsored enterprises, giving investors the indication of an implicit federal backing."
Means that if they do get the "explicit" backing, stocks in F&F become US Treasury Bonds. I wonder if they will be AAA.
"Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need. We're the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War's a spiritual war... our Great Depression is our lives. We've all been raised on television to believe that one day we'd all be millionaires, and movie gods, and rock stars. But we won't. And we're slowly learning that fact. And we're very, very pissed off."
Do any of these GSE bail-out plans help the shareholders? I have read many of the proposals to allow borrowing at the Fed, or government funding, but nothing seems to make it clear what would happen to shareholder equity in each of these scenarios. Any schemes based on "borrowing" money likely wouldn't dilute equity, but any actual efforts to raise capital certainly would.
The government needs to make it clear it will bail out the shareholders or we will be in for a world of hurt. It doesn't help that they will just provide a back-stop to prevent defaults on GSE debt. If the share values drop much further private investors will simply abandon the entire financial system altogether.
Tomorrow is going to be very ugly for the markets.
Trust me, you'll see.
This is not what big money longs wanted to see.
They wanted to continue to hear that all was well.
Watching the local news. they showed a few hundred morons in Brett Favre shirts protesting to keep him with the Packers... Meanwhile these iditos have no idea they are about to buy some FNM stock...Keep the sheeple at bay and you win Bush..
What if they provide the backstop and F & F don't tap any money. I don't think they actually need any money right now. Well, I guess that long scheduled 3 bill is needed, but that is a drop in the bucket.
Sorta on the level of they gave a war and nobody came.
They are in medium term trouble, but who knows at what level the house price market will bottom out?
Have we checked with the Chinese? After all somebody somewhere will have to buy this treasury debt. If the Treasury were a Chinese bank (good argument to be made here) then dont you have to check with the owners before you make a loan, especially knowing its a bad loan?
If I see some of those beer bellied hillbillies in the crowd at the Beijing Olympics go into the good old USA USA chant, I am goint to piss myself......
I'd bet that F&F pretty much run a matched book (maturity dates of liabilities match assets). That makes them pretty much immune to the kind of runs that took down Bear Stearns.
The only way they could use the discount window to their advantage would be to dump assets on the Fed and buy back bonds with a higher interest rate on the open market. That would be ugly because the sums involved.
As I see it the most profitable path for current shareholders would be to put F&F into run-off. Most likely the bonds (if held to maturity) will yield more value than they are currently trading on the market. Much better than a massively dilutive equity offering.
Of course, that would be the end-of-the-world as far as the mortgage market is concerned.
Echo's of Bear Stearns where equity holders got a bump because they held the worlds financial system by its tenders.
I'm not sure what you guys are in such an uproar over. These 2 "entities" were never real private companies. They were started by the government and had an "implicit" guarantee. Now it's "explicit". But not much has changed.
Your social security just got privatized after all. The
government will own all the failed enterprises, and you will own the government. You don't even have to pay a broker's commission.
Good news for all the insurers and sovereign funds that own GSE paper.
Bad news for the equity markets.
The equity markets did not want to hear about the equity option - they know that's going nuclear....
Yes, that could be Paulson's gambit. If he and Bush et al all believe F & F is really sound as long as there is not a continued run on their stock price, then he could be putting forward this plan as pure PR (or BS), with the added bonus of opening the door to making the govt a stock trader.
But I think F & F will either be pressed again soon (either need to borrow or its shares will boom and bust) or I think the govt stock trading part of the package will lead to mischief very quickly. Remember, they only have 5 months left to rob and plunder.
I am sure we will all be much happier if your view turns out to be the case, we will see how the credit markets view this turn of events...whither TNX...
"[As a) nation that holds itself up as a citadel of free enterprise, the government has morphed from lender of last resort into effectively the only lender for millions of Americans engaged in the largest transactions (Housing and College Education) of their lives."
One should ask, given the mess made by the Titans of Capitalism, perhaps Housing, Education (and I would add Health Care) have no business as business for profit. Take these three out of the realm of private concerns and we might just have a competitive United States in the facing of extreme capitalist flows of money and globalism. Just a thought.
If I see some of those beer bellied hillbillies in the crowd at the Beijing Olympics go into the good old USA USA chant, I am goint to piss myself......
"Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need. We're the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War's a spiritual war... our Great Depression is our lives. We've all been raised on television to believe that one day we'd all be millionaires, and movie gods, and rock stars. But we won't. And we're slowly learning that fact. And we're very, very pissed off."
Not a bad analysis. But then what?
A new Great Depression, then 1776 all over again. Either that, or endless painflation and general discontent.
I'm not sure what you guys are in such an uproar over. These 2 "entities" were never real private companies.
They are private enough to pay their shareholders dividends and their executives tens of millions of dollars a year.
They were started by the government and had an "implicit" guarantee. Now it's "explicit". But not much has changed.
Everyone knows, and has always known, that there would be a bail-out if necessary. What was not known is what the terms would be. For the bail-out to take the form of an EQUITY INVESTMENT is utterly outrageous.
Of course, there will never be enough people who understand what is happening for any outrage to appear. But "we guys" -- this guy, anyway -- are in an uproar because we do understand.
Health care and education yeah, but really, why housing? You can find someplace to live really cheaply if you are willing not to live with granite, et al.
I have my very nice house in Brevard County, and I rent a room for snicker $369 in Dade. Includes utilities. Landlord has never raised my rent. now that I have written this he will. Now, mind you all I do is sleep there 3-4 nites a week. If I had to I could live in that room and be perfectly happy. I was happy in my nice Miami Dade house and I was happy living in the trailer after Andrew, and I was happy
back in the house after it was totally rebuilt, and I was happy in a little cheap house in Brevard, and very happy in my very nice big paid for house in Brevard.
Or, occasionally I was depressed in all those places. Thing is, you can be happy or unhappy anywhere. And as long as you have some imagination you can find somewhere cheap to live.
I'm not sure what you guys are in such an uproar over. These 2 "entities" were never real private companies. They were started by the government and had an "implicit" guarantee. Now it's "explicit". But not much has changed.
It's all about optics. Nothing more. Nothing less.
Evening news said that you guys may bail out the mortgage giants. Well sir, I'm a mortgage midget and you can bail me out if you have a mind to. In fact, I'll sell you all of my shares and you can nationalize me. Be sorta like AMTRAK. I think I'd like that.
If that doesn't work for you, can I borrow some money at that there discount window everybody keeps talking about? I'm well-capitalized like Fannie and Freddie but I've got some cash flow issues like they do and my stock has been taking a beating lately. In fact, Achmed down at the 7-11 won't trade them even-up anymore for a Virginia Lottery scratch-off - which is my recapitalization plan until I get my disability check at the end of the month.
I've got some stuff down in the basement and out in the garage that I can bring by as collateral. Probably worth more than what Bear Stearns gave you. Some of its kinda bulky and might not fit thru the window. Do you have like a freight elevator or anything that we can use? Oh, and do you have a hand cart or should I bring one?
vr
Dennis
PS I see that your buddy Bob Steel just took over at Wachovia. That's where I do my banking. Should I be worried?
Ahead of the curve - you appear to now be completely behind the curve. You sound like Brad DuhLong for crying out loud. If you don't realize that there is an issue here, I dont know what kind of glue you are sniffin.
markets don't seem terribly impressed, as far as I can tell. Nikkei up a whopping 4 points at last count ... dollar up a bit, but not all that much ... Long Treasuries down about a half point ...and S&P futures up about 12 points. Who the heck knows what things will look like in 12 hours. But this doesn't (so far) look like a rocking good time party ... more like having a few beers at happy hour and then going home for the night.
I think that the Statement was intentionally vague. The White House does not want to deal with this problem and wants to try to trick the markets into thinking that everything is fine. If so, they can postpone the day of reckoning to a later date....
Look at one model, the Continental Illinois bank failure. The US bought equity, a little then a lot, but had a preferred position and eventually wiped out all the other shareholders. It then sold its equity to Bank of America, and was done. I believe something similar will happen to FRE and FNM. As the losses mount (foreclosures, housing prices down), the tiny capital cushion of the two companies will be wiped out. It may take a while for this to happen. Shareholders are f'd, and the debt-holders are protected. That's how it works, folks.
Karl Denninger has an excellent weekend post on the GSE nightmare.
(At MarketTicker)
It is his opinion that F&F need 500 Billion to re-capitalize to reasonable leverages.
Paulson is apparently terrified that wiping out the shareholders (as opposed to bondholders), will send the financial system into cardiac arrest. Even though it is the only sane and sensible thing to do, and upon which everyone except the shareholders themselves seems to agree must happen.
The real question is whether Congress is going to play political games with F/F.
If they adopt the Paulson plan wholesale, then the Dem Congress can pass the puck to BushCo if the plan fails. On the other hand, does anyone think that Congress has the conviction to reject Paulson's plan, and create its own? In that case, the buck stops with Congress.
So far, the Dem. Congress has not been that proactive...
500 Billion to re-capitalize to reasonable leverages.
10%? KD is high. Conforming by defnition was relatively safe beans for this decade. If conforming needs a 10% capital infusion then the other $8T of the debt issue needs what, 50%?
In short, in a nation that holds itself up as a citadel of free enterprise, the government has morphed from lender of last resort into effectively the only lender for millions of Americans engaged in the largest transactions of their lives.
Now make sure and thank the Bush admin. ( the biggest crooks in the history of America ) for pushing you to own a piece of the 'ownership society' sucker !
Conforming by definition was relatively safe beans for this decade.
According to KD, since 2000 F&F have accepted all kinds of crap paper from Countrywide etc. "Conforming" doesn't mean sh*t if it is low-doc with little down.
"Everyone knows, and has always known, that there would be a bail-out if necessary. What was not known is what the terms would be. For the bail-out to take the form of an EQUITY INVESTMENT is utterly outrageous."
This may actually be cheaper than a bailout. Fanny and Freddy need to issue equity to raise cash. That's almost impossible to do at current prices. The government backstop may induce private buyers to jump in. It's entirely possible the government may not have to actually buy shares at all. If they do, in 5 years there's a decent chance they can sell them at a profit. Whereas a bailout would be almost guaranteed to cost the taxpayers.
Health care and education yeah, but really, why housing?
Why housing? Why do democracies tend to have a stable middle class whom own their own houses and the land underneath?
Of course one could just rely on a benevolent corporate oligarchy to rent land and its improvements to the middle class, but then, who needs a middle class at that point. Small farmers are basically extinct so why no just break down that urban rural divide anyway (and I own a small farm and live in the city in a nice middle class neighborhood so I speak from experience).
But at the rate of housing depreciation and foreclosures combined with what will be lower earning power and higher taxes, perhaps we won't have much a middle class in the end anyway and the US will look more like post-Communist Russia or perhaps we will be the NEW CHINA with the US Treasury and FED having a controlling share of most everything.
Just think how well we could revitalize our manufacturing base if the US socialized not just losses from investments but losses from inputs priced against losing outputs (why Walmart would need no longer outsource cheap consumer crap).
It is absurd to place the Fed in a consultant role with respect to capital requirements at the GSEs, given that the Fed has virtually no understanding of how the GSEs manage risk.
Read up on Continental Illinois, from this website:
On May 17, the FDIC, Federal Reserve and OCC announced how much they were willing to pay to remain ignorant of whether Continental really was too big to fail. The package they announced in a joint press statement included:
An additional $2 billion in funding for the bank arranged by the FDIC and the banking industry;
Federal Reserve assurances about providing liquidity;
Twenty-four major banks would provide $5.3 billion in unsecured funds until a more permanent solution could be found; and, controversially,
The FDIC said it would make good all of the banks depositors and creditors, setting aside the $100,000 limit on deposit insurance that should have governed its payouts.
The emergency measures provided a temporary breathing space in which regulators looked for another institution that would agree to take over Continental. The worries about Continentals impaired portfolio and legal entanglements were such that the search proved fruitless.
In July, regulators hammered out a controversial approach to permanently rescuing the institution under which the FDIC would purchase some $4.5 billion book value of impaired loans with an adjusted book value of $3.5 billion in return for assuming $3.5 billion of the banks Federal Reserve debt.
Under the permanent assistance program, the FDIC also acquired preferred stock in Continentals holding company, in return for infusing $1 billion in equity capital into the bank. This transaction effectively left the government agency as the 80% owner of the bank a nationalisation in everything but name.
Shareholders in the bank lost most of the value of their investment immediately after the FDICs stock purchase. They lost the rest of the value of their investment later on, when the FDIC exercised an option to purchase the remaining shares. (The option became exercisable because the losses from the FDIC-assumed impaired loan portfolio reached a pre-agreed level.)
Once again, I am a bit confused. If the GSEs are as well capitalized as they claim recently, why are the Federal Reserve, OFHEO, the SEC, Congressional leaders of both parties, with the two companies developing a three-part plan for immediate action?
"But, some of Wall Streets biggest investors believe there was another message in the governments announcement the rest of the financial sector seems unlikely to get a helping hand. Global banks and brokerages have already written down nearly $300 billion in soured mortgage investments a number projected to ultimately reach $1 trillion.
The credit crisis has obviously entered into a new phase the government"
Paulson is apparently terrified that wiping out the shareholders (as opposed to bondholders), will send the financial system into cardiac arrest. Even though it is the only sane and sensible thing to do, and upon which everyone except the shareholders themselves seems to agree must happen.
I'm convinced Paulson is the driving force behind the PPT. For several years, Paulson has had: 1)a deathly fear against another 2000-01 equity collapse; and 2) a belief that he and the PPT could engineer the U.S. markets out of it, using an orchestrated cadre of black box traders, government-supplied leverage, pre-arranged signals, and a promise not to use any of the leverage short.
I have never believe Paulson could pull it off in a deep enough crisis, because he has no real hold over the black box traders and because propped up U.S. equity indices are bound to get out of whack with other global equities, especially European.
If you want to see real market reaction these days, watch the FTSE, DAX and CAC. They are all at multi-year lows. If they dive over the next 36 hours, it tells you the PPT is about to fold.
the people on this blog are much above average intelligence. I here a lot of discontent but, not a lot on how we are going to affect change in our gov!
the people on this blog are much above average intelligence. I here a lot of discontent but, not a lot on how we are going to affect change in our gov!
(Respectfully) This, coming from a country that elected Bush 2.0.
Note that FRE and FNM have reported losses of about $12 billion in the last year. Their combined capital cushion is $81 millioin. Clearly they are using optimistic models to value their portfolio, so losses should accelerate as they have to mark to market, and the foreclosures and price declines continue to pile up. Folks, they just don't have enough capital to cover these losses, and if they try to raise capital, shareholders will run for the hills--no matter what the money is private or taxpayer!
Just make sure that when you short you have borrowed actual shares. Otherwise the SEC may catch you naked, and the idea of seeing any of you naked fills me with horror.
I hate to admit it, but I am one of the pessimists that went into the weekend short.
I have learned my lesson, though.
The market will go up because F & F will not fail. Rather, they will be bailed out.
The market will go up because Banks will show in their "earnings" reports that they had massive billion dollar writeoffs, but the writeoffs will not be as large as feared.
The market will go because while CPI & PPI will be increasing at frightening levels the Core will still be "tame."
The market will go up because the reatail sales numbers will be impressive due to consumers spending thir stimulus checks on the oil & food--you know, the stuff that went up in price in the CPI that doesn't count.
The market will go up because the bailout of F & F will likely prompt Lawrence Yun to say the worst of the housing crash is behind us.
The market will go up because the dollar will strengthen since the likelihood of F & F failing is diminished; thereby, lowering the price of oil--potentially below $140bbl.
I should have realized all of this on Friday. Maybe I should leave my financial future in the hands of the "professionals" on Wall Street.
I agree with your analysis. We are still in the 4th or 5th inning of the mortgage /credit meltdown. I would have expected Fannie and Freddie to hit the wall in like the 7th inning.
The fact that they are melting down and needing capital so soon tells you they are cooked, and so are a lot of other financials. This is going to get scary before it's over, and it's a long way from over.
Keep in mind that the financials are a leading indicator. The difficulties that ordinary operating companies and small businesses will face with lack of access to credit, higher borrowing costs and lower demand and pricing power are mostly yet to come. The trend line is for an epic economic crisis.
Looking at their balance sheets, Porter points out, you find mortgages with a face value of $1.7 trillion, supported by assets of about $70 billion in core capital. On a combined basis, they're leveraged 24-to-1, but when you toss in their off-balance sheet guarantees, that figure balloons to 68-to-1. It would only take a modest decline in the value of those mortgages to wipe out Fannie and Freddie's equity.
Paulson has very little credibility left. the clear pattern has emerged that he will lie until cornered.
The actions he announced may have some effect if there is a liquidity issue for F or F - but we've been assured there is no such problem. Others, however, have said there is a solvency problem. If that is true, a liquidity injection will simply let them get in deeper before it all blows up.
In short, Paulson's announcement is no reassurance at all.
January 31, nothing really changed since Friday. If you're a short-term trader, you did make a mistake. Otherwise, sit tight. It's not even close to being over.
Last week we saw GSE spreads tighten which makes me think speculators went long expecting a definitave bond bailout while existing investors held nervously hoping for the same thing. After pondering "the plan" I don't see anything definative enough to give either side comfort. I think tomorrow's $3bil auction will be a "success" because of the Treasury's dialing for dollars campaign over the weekend but after that, we may see significant selling pressure. Just a guess.
All the fed programs so far are the equivilant of the haeart and lung machine: alive until the electricity goes out.
"This may actually be cheaper than a bailout. Fanny and Freddy need to issue equity to raise cash. That's almost impossible to do at current prices. The government backstop may induce private buyers to jump in. It's entirely possible the government may not have to actually buy shares at all. If they do, in 5 years there's a decent chance they can sell them at a profit. Whereas a bailout would be almost guaranteed to cost the taxpayers."
This would assume that the business model is actually sound no. IF the leverage levels have to come down and the cost of funding eventually goes up kindnof the same position as Ibanks...The entire busness model is a charade..
Whoa US treasury buying shares. No no bailout here...
I have a feeling this will be the reverse of Bear Stearns which was exactly 4 months ago and also options ex. Monday Open higher, close lower, sell off Tuesday, Reflex up move Wednesday, down slightly Thursday, Then down Friday.
I just got back from fixing my garage door, and saw the news.
As some have pointed out above, the optimistic take on this is that there is no risk to the Treasury if they offer the GSE's a credit line which is not drawn. (Technically - expand the line which already exists, which is one piece of evidence always pointed to by analysts who wanted to talk up the "implicit guarantee.)
However, I'm not sure I'd want to be that optimistic. It seems too early for the regulators to intervene. As the Brits saw in Northern Rock takeover, it can be expensive or legally difficult for regulators to intervene while the equity holders still think their stake is worth something.
Bartman writes:
"Aheadofthecurve writes:
Didn't the gov take a stake in Chrysler?"
Not really.
A loan guarantee. Paid it back early. Lee Iacocca worked for $1/year until then. Think these Wall Street Crooks would ever go for that ?"
I thought the government got some warrants in exchange for the guarantee, and they paid off when the loan when paid back. Too lazy to verify; it may be another bailout I am thinking of.
The play will be to sell the FHLB debt..did soemone say they are backing that debt as well? Belive that amounts to $1.3 trillion or so (long and short paper)...anyone have color on the FHLB side...
I agree with 500 billion to recaptilize.the number I came up with was closer to 750billion
Back of envelope last fall, I arrived at 1.3 trillion. Wish I could remember what I based the figure on at the time, but all I can recall is that I couldn't figure out why no one seemed worried. So I just figured my math was way off.
I believe that Paulson et al know exactly how bad the situation is. They know that FRE and FNM are way underestimating potential losses. They are scared witless, so they are lying and hoping it will get better before they are forced into another move.
Back of envelope last fall, I arrived at 1.3 trillion. Wish I could remember what I based the figure on at the time
Total outsanding mortgage debt is $13.5T. 10% of that would be $1.3T.
2002, the last sane year of lending, the total mortgage debt was $9T. So my estimate is that at least 10% of 2003-2007 -- $450B, and perhaps 20% -- $900B, and not inconceivably 30% -- $1.35B -- will turn out to be deadlosss.
the people on this blog are much above average intelligence. I hear a lot of discontent but, not a lot on how we are going to affect change in our gov!
(Respectfully) This, coming from a country that elected Bush 2.0.
suggest reading the book looser takes all
the country did not elect dubya in 2000 and not in 04 either...the game was rigged.
but granted...it was close enough that a fix in florida and next time ohio was enough.
here is the solution
article one section three of the constitution originally required:
1 congressman per 30,000 citizens
the story of how we got to one congressman or woman representing nearly a million citizens each is about how power brokers took the peoples house away from them
now you gotta be rich and or be backed by the elite if you want to run for congress
Yes, rich people don't get scared about money. They know the game, and they know where to stash it. I think they are making a play to "save" the bond holders. Those are the rich people.
Zack writes:
I believe that Paulson et al know exactly how bad the situation is. They know that FRE and FNM are way underestimating potential losses. They are scared witless, so they are lying and hoping it will get better before they are forced into another move.
Zack | Homepage | 07.13.08 - 9:48 pm | #
Ding Ding Ding, we have a winner! No doubt, stall and hope it gets better, kinda like Iraq.
I did the back of the envelope thing last fall too and got half a trill to a trill and a half. I remember how I did it. Countrywide had a quarter of a trill in REOs at that point. (Lord knows what it is now.)
They granted 20% of the Country's mtges. Assuming everyone was writing more or less the same crap gets you to 1 and a quarter trillion.
Hardly any of these loans are a total loss. Say, a 50% loss. A bit less than 3/4s of a trillion. But maybe twice or more as much loss to come: back to a trillion and a half. The I don't know what I am doing spread: half of a trillion to 1.5 trill.
Now that I know more from reading the blogs and observing the carnage:
3/4s of a trill to 2 Trillion. This just in mtg losses. Not shadowy losses like the hypothetical sale of my house for less money than before loss, not credit cards or car loans or cre loans gone bad. These probably add up to another loss equal to the house mtg loss.
mp writes:
Friday there wasn't a problem, now there may be a problem, but we don't know how big of problem.
I assume this was said with a great deal of sarcasm. These entities hold $5 trillion worth of mortgages. This fact by itself shouts "really big problem." True on Friday, and true today. Paulson's palliatives won't change a thing, regardless of what the short-term market reaction is.
"prairiedog writes:
Yes, rich people don't get scared about money. They know the game, and they know where to stash it. I think they are making a play to "save" the bond holders. Those are the rich people."
They are actually pretty poor - on average. Brad Setser in one of his recent write ups showed that China & Russia probably have GSE debt holdings equual to 10% of their economies. I think the holdings were over a trillion.
They are scared witless, so they are lying and hoping it will get better before they are forced into another move.
My con law prof might disagree, but at this point, Paulson's hands are tied. According to his statement, he believes that Treasury doesn't have the statutory authority to do anything other than the keeping the existing credit line open. The ball is is clearly in Congress's court.
or credit cards or car loans or cre loans gone bad. These probably add up to another loss equal to the house mtg loss.
fwiw, the lack of zooming growth in consumer credit card debt this decade is one positive sign.
It was $1.9T in 2001 and $2.5T 1Q08. 30% over 6 years compared to 100% in the mortgage arena. Of course, a lot of CC debt got moved into the latter, 2004-2007.
Upon further reflection, wonder what new super wonder powers are going to be included in that legislation this week
That's my real concern, sort of how the AUMF
morphed from a search for the 9/11 terrorists to a global war on terror. Already, it's looking like the FED is to become the economic version of the DHS.
I thought the government got some warrants in exchange for the guarantee, and they paid off when the loan when paid back. Too lazy to verify; it may be another bailout I am thinking of.
Nope, you're right. The government got a bunch of warrants during the Chrysler bailout. And when it came time to redeem, Iaccoca wanted the government to conveniently "erase" them. But he didn't get his wish. Like the Mexico bailout under Clinton, the Chrysler bailout under Reagan was ultimately profitable to the U.S. government.
The proposal is a drop in the bucket. At this point, nearly every mortgage in their portfolio is underwater for the home owner. That realization is still sinking in and the carnage is just beginning.
Did you see this by Yves at NC:
"I have been a skeptic of whether the so-called Plunge Protection Team exists (or more accurately, whether it engages in active market support operations as the conspiracy minded believe).
Given the weakness of the steps taken so far, tomorrow has the potential to reveal footprints if such activities take place.
One thing I do expect to happen is that the powers that be will lean on various financial institutions to bid at the $3 billion Fannie sale of short-dated bonds tomorrow. That is a no-brainer and treads on the margin of what one might consider PPT type manipulation.
Firmer evidence would come via odd trading patterns in the S&P. On January 22, the Dow fell nearly 400 points on open, and the S&P also tanked, I don't have access to detailed historical charts of intraday pricing, but the S&P looked as if there was a massive support bid (if I recall right, at 1255). It wasn't spiky, which is what you'd expect from normal bottom fishing buys.
That was only one data point, and there may have been some bizarre technical trigger for bids at that level. But it looked very unnatural. If we see a similar pattern, Monday, my suspicions will increase."
If F&F are a 5 trillion portfolio, and 10% of that is bubble-era nuclear waste, and that a large fraction of those loans will be almost-total writeoffs... that's $NNN billion in losses, easily. Hooboy.
Considering that stated income junk was commonplace by 2002 (and went on for five more years), and that a third of the sales in California are already short sales or foreclosures, I don't think that handicapping is out of line at all!
Let's see. We have a White House, controlled by Republicans, requesting emergency legislation from the House of Representatives, controlled by Democrats, who are still reeling from having been bullshitted into the Iraq war over another piece of emergency legislation.
This will be interesting. Mr. Market will love it.
BTW, kicker theorized above that the GSEs run "matched books". Definitely not the case. They borrow short, lend long, and use dynamic hedging to minimize the risk of minor short-term interest rate fluctuations. Their entire model is based upon borrowing Treasury-cheap, too.
Catchy...
Painfully accurate descriptions, but not catchy...How about something more surreal:
She Is The Darkness
Mike | 07.13.08 - 10:19 pm | #
so how about
darkness at the break of noon
shadows even a silver spoon
the handmade blade the childs balloon
eclipses both the sun and moon
to understand you know too soon
there is no sense in trying
first?
It's interesting to see the level of media attention being given to all this. Cracks in the facade, for all to see.
Amen! This is vague and ambiguous. I can't imagine this providing any stabilization in the market beyond a few hours!
third, bitch!
Paulson mixes things up even more, putting the US govt into the equity market by buying and selling shares of F & F.
This is wrong in so many ways . . . bail-out for shareholders, playing mischief with share prices, making F & F more mixed rather than making it 100% govt or 100% private. . .
Do you trust the people who give no bid contracts to Halliburton to buy and sell F & F shares from the White House???
I thought he would just buy F & F bonds or give a line of credit. Buying equity shares is a disaster that does not even have to wait to happen.
I thought not bailing out shar eholder was about the only thing that there was consensus on from all branches of govt and wall street. . .
Last thread we debated common vs preferred?
It's as if we elected Tyler Durden in 2000 and 2004.
Ka-ching!
sheeeeit, we know who we didn't elect in 2000 and whom we did in 2004. If ever a country deserved its fate.
OT - SP Futures seem to like the announcement (as well as USD/YEN, which drives the whole shebang).
I would love to see the SPX retrace to perhaps the 1256 level Monday; a rejection of that price on lighter volume than Friday's would set up an A-B-C down inside a giant weekly A-B-C down confirmed this week (the weekly projection is 1120, oddly precisely between the 1175 and 1080 Fib retracement levels of '02-'07 cyclical bull move, which I considered likeliest Intermediate Bottoms).
IOW - short all rallies. This market could crash over the next few months.
Terms and conditions to protect the taxpayer???
Please specify. Boilerplate made of chewing gum, string and duct tape?
All the chatter of "one and done" may hammer all other financial stocks, including LEH, WB, etc. It seems that there is a (possibly erroneous) consensus that the U.S. government can do no more than this.
This will be fun to watch!
Schumer: Don't blame me for IndyMac failure
Sen. Charles Schumer said Sunday the Bush administration is trying to "blame the fire on the person who calls 911" by suggesting he had a role in one of the costliest U.S. bank failures
Federal regulators with the Office of Thrift Supervision were "asleep at the switch" when it came to IndyMac's "reckless" behavior, the New York Democrat complained.
Schumer: Don't blame me for IndyMac failure - CNN.com
Yes, no, maybe, okay!
Paulson went from an adamant no to a total 180 turn. We may need to go back to our 6 day trading days that were pre-Great Depression days with the bailout on Friday and this action.
This is only a drop in the bucket. Another IndyMac will push the market down once again.
This is total market massaging. Why not wait until Monday morning? Nope. They have to dish this out on Sunday a few hours before world markets open. Memories of Bear Stearns.
Yes, Schumer is right that the OTS was asleep at the switch when Indymac was engaging in reckless behavior. But so was Schumer. He said jack all until now. The train passed the switch 4 or 5 years ago and then it derailed about 2 years ago. Where is Schumer on F & F and everything f...ing thing else?
Where's my housing, comrade?
The big bank earnings this week will cause the next run/panic...
I saw three government vans parked outside a hotel tonight. (GOV plates) crew cuts, duffel bags and pelican cases. Thought to myself - I wonder if it's the FDIC? mind flashing to posts from the recent few days of the FDIC as the new MIB, or in this case khakis.
But before I get all FUD (ok, now that I heaped on the FUD), I think of a wise person who told me - 'but if the global pool of money takes their money out of the stock market, just where are they going to put it? in a sock?' there aren't enough places. what, the Chinese market? (hello Cliff, meet Cliff).... so in the market it will stay, (just perhaps other stocks).
So it goes. Time will tell.
Buying of equity shares is de facto nationalization....
Contact your Congressman, they are going to need Congressional approval for some of the socialist things they want to do. Stop the Federal Reserve from usurping more power. They are the problem and giving them more power is the exact opposite of what needs to happen.
Some great irony:
As a renter who pays taxes, I'm arguably more of a homeowner than a recent homebuyer.
this is wrong on so many levels I can't even begin to describe.....
Why don't they just buy them outright?? since they have given the green light to purchase equities.
Can you imagine a company putting out a statement like this??
Total and utter bullshit...
We are now socialists with a flag waving PR machine to boot.
Shameless
Ciao
MS
It will be interesting to see what position Barack Obama takes on this issue. Will the Democrats insist that the equivalent of bankruptcy be declared for the GSEs, or will they fold and let the Republicans protect the bondholders?
I want my share certificates. If public money is being used to buy equity, I want my shares..
Issue #1: Is the U.S. Venezuela, Argentina, or Zimbabwe?
buying of equity shares is nationalization only if all of them are bought and it requires an act of Congress to sell any of them back to the open market.
buying some shares and indicating that you might buy more is the equivalent of making Jim Cramer the Sec of Treasury. No, it isn't even that good an idea. It is more on a par with letting Dick Cheney buy Blackwater and have his own private army of mercenaries . . . oops, we already let that happen.
We are so screwed.
Looks like I changed my handle right on time.
Is there any precedent for this in US history -- the US Govt purchasing equity in ostensibly private companies? Uh, "if needed."
Roubini had the right plan. Wipe out equity and 5% haircut on bondholders to pay for recap. That would have been capitalism.
Privatize profits, socialize the losses. F'ing joke.
Is there something in The Constitution which describes how the Treasury Dept. may purchase equity in a private corporation?
Its obvious what position Obama will take on this. Complete neutrality. He'll abstain from voting for fear of compromising his position. Pathetic.
This is not a partisan view. McCain will do the same thing.
Sheeple will continue to choose between a giant douche and a turd sandwich, and continue to feel good about participating in the democratic process. Sadly it is a sham. Orwell's predictions in Animal Farm and 1984 have never been more true than today.
AP thinks this may be the last help from the government:
Feds won’t help more credit crunch victims - Stocks & economy- msnbc.com
Hot potato -- getting whipped through Congress's window...
Two words that don't belong next to each other "AP" and "thinks".
This plan is just goofy enough that it has a pretty good chance of going the way of the Super SIV...
This situation is very reminiscent of Ned Beatty running around the north Georgia mountains in his underpants. It's not gonna be pretty but it sure is hard to avert your eyes.
The only industry/corporation that I can recall being nationalized is Amtrak, and the G owns all of the shares.
safe_as_apartments writes:
AP thinks this may be the last help from the government:
Where did Paulson's statement say that? This is nothing more than the first guy the reporter could reach on a Sunday evening shooting his mouth off.
the last help . . . but, at the same time, the Treasury can buy an unlimited amount of equity.... see the confusion? Just like an implicit guarantee, except this allows insiders to make out like bandits with F & F stock.
Allowing people to make killings in govt manipulated stock is beyond moral hazard.
Making sure holders of govt agency issued bonds get paid their interest and principal is (almost always) part of the essence of fiscal responsibility.
When the Bush Admn gets to choose, expect the most f....ed up non-solution no one had even thought of before.
Is there any precedent for this in US history -- the US Govt purchasing equity in ostensibly private companies?
Truman trying to nationalize the steelmakers?
@As a renter who pays taxes, I'm arguably more of a homeowner than a recent homebuyer.
Best line I've heard today (I'm in the same position)!
Remember this is all a part of the master plan for privatization of public property.
Good one! Super SIV 2.0. Let's make that stick!
Didn't the gov take a stake in Chrysler? Besides, in most of the ROW governments take equity stake in companies. Often they sell them back at nice profits. Probably won't be the case here, but this is not so unprecedented.
There goes the neighbourhood.
They're also extending credit to the FHLBs. This is indeed a major bailout of the mortgage system at the expense of the taxpayer...
of course what we say here doesn't matter, but out in the world beyond this blog it will be important to distinguish what Paulson proposed from nationalization.
Industries and companies have been nationalized before, but I do not know an example of the govt becoming a stock trader.
But, now that I think about it, we have heard this idea before. The Bushies wanted to invest Social Security funds in the stock market. Remember??? Eeerily familiar.
Our government cannot be allowed to become a Wall Street trading firm. That is not what government is.
If Treasury buys FNM's equity at current prices, would that not massively dilute current shareowners? We all knew a bail out was inevitable, this form actually is pretty reasonable at punishing shareowners. Treasury should also reduce management pay, replace the Board, and claw back bonuses from prior management.
Equity!?
Chrysler was given loan guarantees.
I do not know an example of the govt buying shares of commonly traded stock.
Chrysler-----Gov guaranteed the loans---no equity position.
It didn't cost the taxpayers anything as Chrysler paid up in full.
.
This whole thing stinks. Hard to call it socialism though when the general public is likely to take it in the shorts. Sounds more like crony capitalism as practiced in the US - on a giant scale - but with the usual smoke and mirrors removed. On second thought, it does sound something like the government-business arrangements as practiced in "socialist" Germany prior to 1945.
The Supreme Court rejected Truman's attempt to nationalize the steel industry because the Court felt that it did not fall under the President's vanilla "national security" umbrella.
The general consensus is that Congress can nationalize any industry (e.g. Amtrak) that it wants under the Commerce Clause, provided that it meets the "just compensation" clause of the Fifth Amendment.
Two words that don't belong next to each other "AP" and "thinks".
12th Percentile
Example from the 3:32pm copy of the AP story by Jeannie Aversa:
The official, who spoke on condition of animosity, also sought to send a calming message about Fannie's and Freddie's financial shape, saying: "There's been no deterioration of the situation since Friday."
Upon further review--maybe that wasn't a typo.
Issue #1: Is the U.S. Venezuela, Argentina, or Zimbabwe?
None of the above.
Chavéz, whether you hate him or not, has set up all sort of programs for the poor—literacy programs, primary schools, trade schools, and health care facilities. The U.S. would never do that.
As for Argentina, they finally halted their slide when they rejected the prescriptions of the I.M.F. and the World Bank. The U.S. would never do that because the people who run the I.M.F. and the World Bank are the same people who run the U.S.
The U.S. is hardly in Zimbabwe’s class. Our dollar is not going to zero.
No, the U.S. is its own case: A nation run by gangsters inhabited by a people who secretly want nothing more than to be robbed and left impoverished.
They're not saying the Govt will buy traded equities. I'm not sure what they ARE saying...but I don't think that's it. Anyway, FRE and FNM are saying they won't act on it anyway.
Argento
right, nationalization is possible and sometimes the right thing to do.
govt become a stock trader is wrong, dangerous, stupid, and I sure hope someone can construct a rock solid legal argument against it as well as a massively effective politcal campaign against it.
A dose of honest socialism would be good for this country, making for an honestly mixed economy. Expanding the Bush Crony capitalism into the stock market is abominable.
Newly or specially issued shares or existing shares? More details needed as CR stated.
Mailgibs
What other kind of equities are there, other than traded equities?
There's loans and there's buying equities. I think Paulson was frightfully clear on this.
The oil bomb | Pakistan | News | Newspaper | Daily | English | Online
it's food for thought- next week Iran sells oil in Euros not $
I understood there would be ponies.
It's as if we elected Tyler Durden in 2000 and 2004.
That's giving Bush way too much credit. At least Tyler Durden had a philosophy about life. Bush only has delusions.
OK, I really don't know what he's talking about, and this is all over my head--though I do have a great deal riding on whatever the hell is going on.
It just goes to show, when you let people get away with torture they then start to think they can do anything
12th Percentile writes:
Two words that don't belong next to each other "AP" and "thinks".
two more words that do not go together: 'AP' and 'speaks'. Mmmmmore llllllllike sssssttttuttters.
One rate...
backstop means anyone anywhere gets the same rate, if the risk is the same...
that the govvie bails you out.
So it goes. Time will tell.
Indeed. I feel like almost every post these days could be tagged "Ephemera". It's a little surreal, really fascinating, and in some ways I feel lucky to have a chance to see it all happen.
If only I didn't have to live through it, too.
"Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need. We're the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War's a spiritual war... our Great Depression is our lives. We've all been raised on television to believe that one day we'd all be millionaires, and movie gods, and rock stars. But we won't. And we're slowly learning that fact. And we're very, very pissed off."
That pretty well sums it up.
As I had sussed out, they will buy a special preferred to bailout the capital needs, access to the Fed, and a swift kick to the shorts.
I knew on Friday that the Freddie letter would precipitate this.
As I stated, they will not allow this to fail, it would be catastrophic.
Everybody who thinks this will precipitate a dollar drop is wrong, letting fannie and freddie go would have done that.
Now, we return to the usual glibertarian rants that assume we can currently just switch off the financial system and resume a gold backed dollar.
Only at $100k per ounce.
Ready? I thought so.
Carry on,
Conjure, you ready for some peace and quiet?
I think Bushco has figured out they need to leave Iran to the next folks.
Someday this war's gonna end...
Even the hub, who rolls his eyes when I opine on the dreadful things that will happen, said to me, something awful must be about to happen because all these gov't spokespersons are going all reasurring on the tv news. He was NOT reassured.
Roubini has an interesting take on this. If anyone has a chance, read the link on CR for Roubini. He proposes just writing down the debt so investors essentially take the losses.
AllenM
It looks like you will take a tidy profit on Monday, but I can't see having confidence in this going forward...... I think its going to calm the waters like switching on a giant whirlpool.
No libertarian rant here. I would be a social democrat if there were such a thing in this country.
So, forgive me if I'm being dense, but there's been a lot of news over the weekend:
Has anything actually changed for FNM and FRE?
So far it's just talk, right, and some poorly-defined access to the discount window?
"Orwell's predictions in Animal Farm and 1984 have never been more true than today."
1984 was Soviet Union 1937, or Germany 1944.
PPT,llc buys FNM,FRE
in other news, Madonna's gay brother has a crush on Guy
"This whole thing stinks. Hard to call it socialism though when the general public is likely to take it in the shorts."
But that is socialism.
Nothing happened yet. Congress must approve almost everything. The Fed window borrowing doesn't help FRE or FNM long-term, anyway, which is where they need it, right? And how will "new ownership" of FRE and FNM help? If they stunk before, they'll stink tomorrow.
Meanwhile, any FRE or FNM bailout probably means help is less likely for LEH, WM or WB.
1984 was the BBC in 1948
AllenM - concur.
If either company taps this line of credit, it will be a naked and very public admission that one or both of their capital positions is not as "strong" as alleged and the management will be caught in a lie. If they tap the equity line, they are done for with the exception of a 100% taxpayer funded bailout.
"On second thought, it does sound something like the government-business arrangements as practiced in "socialist" Germany prior to 1945."
Germany 1933-45 was a predatory parasitic state living on plunder and, latterly, slave labor. Lasted 12 years.
"Paulson, speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence."
Bloomberg
The collapse in confidence is in Paulson, Bernanke, and the US economy - F&F are incidental.
Somebody call 911.
The bus driver is drunk.
"1984 was the BBC in 1948."
The experience of the BBC during the war helped Blair (Orwell) write the book, but he was a lot deeper a mind than that.
The taxpayer will come out of this - smelling like a roast.
But Germany today is a well-run mixed economy. No housing bubble there, just solid long term growth, a strong Euro, and more national health care than anyone knows what to do with.
I expect a surge in demand for crisco...
@theyieldcurve i heard Tyler Durden just got twins, boy and girl, what a coincidence.
More:
"Paulson's proposal, which the Treasury anticipates will be incorporated into an existing congressional bill and approved this week, signals a shift toward an explicit guarantee of Fannie Mae and Freddie Mac debt. The two shareholder-owned companies are government-sponsored enterprises, giving investors the indication of an implicit federal backing."
Means that if they do get the "explicit" backing, stocks in F&F become US Treasury Bonds. I wonder if they will be AAA.
Nikkei is flat at the open. Down about 18.
Do they even care?
385 visitors.
Kwark,
The fascists did something like this public got the risk, Kruppes et al got the money.
Worked until the Red Army crossed the Vistula..............
Hmm. Is the CR "Visitors Online" signal indicating a rally?
"Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need. We're the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War's a spiritual war... our Great Depression is our lives. We've all been raised on television to believe that one day we'd all be millionaires, and movie gods, and rock stars. But we won't. And we're slowly learning that fact. And we're very, very pissed off."
Not a bad analysis. But then what?
Dollar is up a bit. Oil down $1.
Do any of these GSE bail-out plans help the shareholders? I have read many of the proposals to allow borrowing at the Fed, or government funding, but nothing seems to make it clear what would happen to shareholder equity in each of these scenarios. Any schemes based on "borrowing" money likely wouldn't dilute equity, but any actual efforts to raise capital certainly would.
The government needs to make it clear it will bail out the shareholders or we will be in for a world of hurt. It doesn't help that they will just provide a back-stop to prevent defaults on GSE debt. If the share values drop much further private investors will simply abandon the entire financial system altogether.
Kotoba mo nai wa.
Tomorrow is going to be very ugly for the markets.
Trust me, you'll see.
This is not what big money longs wanted to see.
They wanted to continue to hear that all was well.
Watching the local news. they showed a few hundred morons in Brett Favre shirts protesting to keep him with the Packers... Meanwhile these iditos have no idea they are about to buy some FNM stock...Keep the sheeple at bay and you win Bush..
What if they provide the backstop and F & F don't tap any money. I don't think they actually need any money right now. Well, I guess that long scheduled 3 bill is needed, but that is a drop in the bucket.
Sorta on the level of they gave a war and nobody came.
They are in medium term trouble, but who knows at what level the house price market will bottom out?
They very likely think that their 401k's are FDIC insured.
Have we checked with the Chinese? After all somebody somewhere will have to buy this treasury debt. If the Treasury were a Chinese bank (good argument to be made here) then dont you have to check with the owners before you make a loan, especially knowing its a bad loan?
Hahahaha.
If I see some of those beer bellied hillbillies in the crowd at the Beijing Olympics go into the good old USA USA chant, I am goint to piss myself......
they showed a few hundred morons in Brett Favre shirts protesting to keep him with the Packers
The Packers are an example that nationalism can work. They're the only community-owned national sports franchise.
Why?
Looks like I picked the wrong weekend to quit shooting glue.
That's why to Canadian. Why should people root for their sports idols? I personally don't care very much, but why shouldn't they?
Has anything actually changed for FNM and FRE?
I'd bet that F&F pretty much run a matched book (maturity dates of liabilities match assets). That makes them pretty much immune to the kind of runs that took down Bear Stearns.
The only way they could use the discount window to their advantage would be to dump assets on the Fed and buy back bonds with a higher interest rate on the open market. That would be ugly because the sums involved.
As I see it the most profitable path for current shareholders would be to put F&F into run-off. Most likely the bonds (if held to maturity) will yield more value than they are currently trading on the market. Much better than a massively dilutive equity offering.
Of course, that would be the end-of-the-world as far as the mortgage market is concerned.
Echo's of Bear Stearns where equity holders got a bump because they held the worlds financial system by its tenders.
I'm not sure what you guys are in such an uproar over. These 2 "entities" were never real private companies. They were started by the government and had an "implicit" guarantee. Now it's "explicit". But not much has changed.
Your social security just got privatized after all. The
government will own all the failed enterprises, and you will own the government. You don't even have to pay a broker's commission.
Good news for all the insurers and sovereign funds that own GSE paper.
Bad news for the equity markets.
The equity markets did not want to hear about the equity option - they know that's going nuclear....
LawyerLiz
Yes, that could be Paulson's gambit. If he and Bush et al all believe F & F is really sound as long as there is not a continued run on their stock price, then he could be putting forward this plan as pure PR (or BS), with the added bonus of opening the door to making the govt a stock trader.
But I think F & F will either be pressed again soon (either need to borrow or its shares will boom and bust) or I think the govt stock trading part of the package will lead to mischief very quickly. Remember, they only have 5 months left to rob and plunder.
Can we please just put the U.S. into run-off and be done with it?
AoTC,
I am sure we will all be much happier if your view turns out to be the case, we will see how the credit markets view this turn of events...whither TNX...
Banana republic
From the NYT:
"[As a) nation that holds itself up as a citadel of free enterprise, the government has morphed from lender of last resort into effectively the only lender for millions of Americans engaged in the largest transactions (Housing and College Education) of their lives."
NEWS ANALYSIS; Government As Big Lender - NY Times
One should ask, given the mess made by the Titans of Capitalism, perhaps Housing, Education (and I would add Health Care) have no business as business for profit. Take these three out of the realm of private concerns and we might just have a competitive United States in the facing of extreme capitalist flows of money and globalism. Just a thought.
Anonymous Bosch writes:
Looks like I picked the wrong weekend to quit shooting glue.
Anonymous Bosch | 07.13.08 - 8:35 pm | #
Please don't do this it's really done with a bag and you breath in real deep.
jo6pac
The race to the bottom continues.
If I see some of those beer bellied hillbillies in the crowd at the Beijing Olympics go into the good old USA USA chant, I am goint to piss myself......
Luckily, you and I will be at Bud Camp.
So what is going to happen with Senator Dodd's 300 billion Home Loan Aid Bill?
We can only print treasuries so fast...
"Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need. We're the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War's a spiritual war... our Great Depression is our lives. We've all been raised on television to believe that one day we'd all be millionaires, and movie gods, and rock stars. But we won't. And we're slowly learning that fact. And we're very, very pissed off."
Not a bad analysis. But then what?
A new Great Depression, then 1776 all over again. Either that, or endless painflation and general discontent.
Aheadofthecurve --
I'm not sure what you guys are in such an uproar over. These 2 "entities" were never real private companies.
They are private enough to pay their shareholders dividends and their executives tens of millions of dollars a year.
They were started by the government and had an "implicit" guarantee. Now it's "explicit". But not much has changed.
Everyone knows, and has always known, that there would be a bail-out if necessary. What was not known is what the terms would be. For the bail-out to take the form of an EQUITY INVESTMENT is utterly outrageous.
Of course, there will never be enough people who understand what is happening for any outrage to appear. But "we guys" -- this guy, anyway -- are in an uproar because we do understand.
The Indymac failure made the national news in Canada tonight, just after the piece of the US plundering the Iraq oil supply............
Nikkei +86
Masaka sonna koto ga aruhazu nai yo!
Health care and education yeah, but really, why housing? You can find someplace to live really cheaply if you are willing not to live with granite, et al.
I have my very nice house in Brevard County, and I rent a room for snicker $369 in Dade. Includes utilities. Landlord has never raised my rent. now that I have written this he will. Now, mind you all I do is sleep there 3-4 nites a week. If I had to I could live in that room and be perfectly happy. I was happy in my nice Miami Dade house and I was happy living in the trailer after Andrew, and I was happy
back in the house after it was totally rebuilt, and I was happy in a little cheap house in Brevard, and very happy in my very nice big paid for house in Brevard.
Or, occasionally I was depressed in all those places. Thing is, you can be happy or unhappy anywhere. And as long as you have some imagination you can find somewhere cheap to live.
I'm not sure what you guys are in such an uproar over. These 2 "entities" were never real private companies. They were started by the government and had an "implicit" guarantee. Now it's "explicit". But not much has changed.
It's all about optics. Nothing more. Nothing less.
Klaatu barada nikto!
the housing industry, the sheepskin industry, the disease industry... -- fallon
To which I would add the criminal justice industry.
I'll keep that in mind, jo6pac, should the temptation ever occur.
Dear Treasury Secretary Paulson:
Evening news said that you guys may bail out the mortgage giants. Well sir, I'm a mortgage midget and you can bail me out if you have a mind to. In fact, I'll sell you all of my shares and you can nationalize me. Be sorta like AMTRAK. I think I'd like that.
If that doesn't work for you, can I borrow some money at that there discount window everybody keeps talking about? I'm well-capitalized like Fannie and Freddie but I've got some cash flow issues like they do and my stock has been taking a beating lately. In fact, Achmed down at the 7-11 won't trade them even-up anymore for a Virginia Lottery scratch-off - which is my recapitalization plan until I get my disability check at the end of the month.
I've got some stuff down in the basement and out in the garage that I can bring by as collateral. Probably worth more than what Bear Stearns gave you. Some of its kinda bulky and might not fit thru the window. Do you have like a freight elevator or anything that we can use? Oh, and do you have a hand cart or should I bring one?
vr
Dennis
PS I see that your buddy Bob Steel just took over at Wachovia. That's where I do my banking. Should I be worried?
Will somebody please translate speed. Assuming he's saying anything.
Chase Sucks: You have a good memory. It's so easy to forget the goofy trail balloons like Super SIV!
Ahead of the curve - you appear to now be completely behind the curve. You sound like Brad DuhLong for crying out loud. If you don't realize that there is an issue here, I dont know what kind of glue you are sniffin.
markets don't seem terribly impressed, as far as I can tell. Nikkei up a whopping 4 points at last count ... dollar up a bit, but not all that much ... Long Treasuries down about a half point ...and S&P futures up about 12 points. Who the heck knows what things will look like in 12 hours. But this doesn't (so far) look like a rocking good time party ... more like having a few beers at happy hour and then going home for the night.
the us gov acts like it can borrow money at WILL. As a investor I'm not willing to lend at ANY PRICE!
Last one - Son shite toku tore
TED spread ticked up to 1.21 when I was watching all the other fun...
Here comes the $10,000 Ameriway Buck....
I think that the Statement was intentionally vague. The White House does not want to deal with this problem and wants to try to trick the markets into thinking that everything is fine. If so, they can postpone the day of reckoning to a later date....
Look at one model, the Continental Illinois bank failure. The US bought equity, a little then a lot, but had a preferred position and eventually wiped out all the other shareholders. It then sold its equity to Bank of America, and was done. I believe something similar will happen to FRE and FNM. As the losses mount (foreclosures, housing prices down), the tiny capital cushion of the two companies will be wiped out. It may take a while for this to happen. Shareholders are f'd, and the debt-holders are protected. That's how it works, folks.
Will somebody please translate speed.
"Kotoba mo nai wa" =
"I have no words" (spoken as a female)
then
"Masaka sonna koto ga aruhazu nai yo!" =
"There's really no way this should be possible!"
inserting an "f-ing" in there somewhere is acceptable
Last one - Son shite toku tore
You must lose a fly to catch a trout. I admit it - I'm a sushi lover.
Karl Denninger has an excellent weekend post on the GSE nightmare.
(At MarketTicker)
It is his opinion that F&F need 500 Billion to re-capitalize to reasonable leverages.
Paulson is apparently terrified that wiping out the shareholders (as opposed to bondholders), will send the financial system into cardiac arrest. Even though it is the only sane and sensible thing to do, and upon which everyone except the shareholders themselves seems to agree must happen.
The real question is whether Congress is going to play political games with F/F.
If they adopt the Paulson plan wholesale, then the Dem Congress can pass the puck to BushCo if the plan fails. On the other hand, does anyone think that Congress has the conviction to reject Paulson's plan, and create its own? In that case, the buck stops with Congress.
So far, the Dem. Congress has not been that proactive...
If so, they can postpone the day of reckoning to a later date....
Anyone take the under on Nov 4? Thought not!
And my contribution...
Gen izureba shi-ba oyobazu.
We at CR should be able to come up with a name for this new depression.
I have heard terms, such as
"The Greater Depression"
"The Great Depression II"
Here is my term.
"The Exalted Dejection"
Anyone here with a better term that may stick and get used by the MSM?
uni,
everyone except the shareholders themselves
the price's of fnm and fre seem to indicate that the shareholders do recognize it.
500 Billion to re-capitalize to reasonable leverages.
10%? KD is high. Conforming by defnition was relatively safe beans for this decade. If conforming needs a 10% capital infusion then the other $8T of the debt issue needs what, 50%?
In short, in a nation that holds itself up as a citadel of free enterprise, the government has morphed from lender of last resort into effectively the only lender for millions of Americans engaged in the largest transactions of their lives.
Now make sure and thank the Bush admin. ( the biggest crooks in the history of America ) for pushing you to own a piece of the 'ownership society' sucker !
I agree with 500 billion to recaptilize.the number I came up with was closer to 750billion
crashcadia
it has been named already. I can't remember the poster's name but they referred to it as the:
Grande Depression
It was in reference to Starbucks, but I think it is perfect.
The Grande Depression.
Anyone here with a better term that may stick and get used by the MSM?
For the information age (and a Canadian plug for the metric system): MegaDepression.
CNBC World is talking about the iPhone.
"It's very exciting!"
Apparently
Looks like I picked the wrong weekend to quit turning Japanese.
"We are hopeful that this issue appropriately abates soon."
I'm talking about my new
iBailout3T
It doesn't have many features, but it is built to last and I plan on owning it until I can get to New Zealand.
Anyone here with a better term that may stick and get used by the MSM?
The Great Compression?
Conforming by definition was relatively safe beans for this decade.
According to KD, since 2000 F&F have accepted all kinds of crap paper from Countrywide etc. "Conforming" doesn't mean sh*t if it is low-doc with little down.
"Everyone knows, and has always known, that there would be a bail-out if necessary. What was not known is what the terms would be. For the bail-out to take the form of an EQUITY INVESTMENT is utterly outrageous."
This may actually be cheaper than a bailout. Fanny and Freddy need to issue equity to raise cash. That's almost impossible to do at current prices. The government backstop may induce private buyers to jump in. It's entirely possible the government may not have to actually buy shares at all. If they do, in 5 years there's a decent chance they can sell them at a profit. Whereas a bailout would be almost guaranteed to cost the taxpayers.
All this japanese reminds me of another quote:
The [economic] situation has developed not necesarily to [the USA]'s advantage.
Lawyerliz writes:
Health care and education yeah, but really, why housing?
Why housing? Why do democracies tend to have a stable middle class whom own their own houses and the land underneath?
Of course one could just rely on a benevolent corporate oligarchy to rent land and its improvements to the middle class, but then, who needs a middle class at that point. Small farmers are basically extinct so why no just break down that urban rural divide anyway (and I own a small farm and live in the city in a nice middle class neighborhood so I speak from experience).
But at the rate of housing depreciation and foreclosures combined with what will be lower earning power and higher taxes, perhaps we won't have much a middle class in the end anyway and the US will look more like post-Communist Russia or perhaps we will be the NEW CHINA with the US Treasury and FED having a controlling share of most everything.
Just think how well we could revitalize our manufacturing base if the US socialized not just losses from investments but losses from inputs priced against losing outputs (why Walmart would need no longer outsource cheap consumer crap).
"temporary authority for Treasury to purchase equity", and an "increase in the line of credit".
Uh Huh just like the TAF by the FED, the US is a short across the board. Oh and those nice safe T-bills, the T stands for Toilet.
Anyone here with a better term that may stick and get used by the MSM?
The Five Year Pla
Anyone here with a better term that may stick and get used by the MSM?
The Bush Bust?
The Leveraged Wipeout?
The Long Emergency? (I think that one's Kunstler's)
Sitting here watching 'Fun With Dick And Jane' is highly appropriate...
Jim Carrey started out small. He stole his lawn back!
It is absurd to place the Fed in a consultant role with respect to capital requirements at the GSEs, given that the Fed has virtually no understanding of how the GSEs manage risk.
Read up on Continental Illinois, from this website:
On May 17, the FDIC, Federal Reserve and OCC announced how much they were willing to pay to remain ignorant of whether Continental really was too big to fail. The package they announced in a joint press statement included:
The emergency measures provided a temporary breathing space in which regulators looked for another institution that would agree to take over Continental. The worries about Continentals impaired portfolio and legal entanglements were such that the search proved fruitless.
In July, regulators hammered out a controversial approach to permanently rescuing the institution under which the FDIC would purchase some $4.5 billion book value of impaired loans with an adjusted book value of $3.5 billion in return for assuming $3.5 billion of the banks Federal Reserve debt.
Under the permanent assistance program, the FDIC also acquired preferred stock in Continentals holding company, in return for infusing $1 billion in equity capital into the bank. This transaction effectively left the government agency as the 80% owner of the bank a nationalisation in everything but name.
Shareholders in the bank lost most of the value of their investment immediately after the FDICs stock purchase. They lost the rest of the value of their investment later on, when the FDIC exercised an option to purchase the remaining shares. (The option became exercisable because the losses from the FDIC-assumed impaired loan portfolio reached a pre-agreed level.)
OT: Look like BUD's going to be Belgian.
InBev Agrees to Buy Anheuser-Busch for $70 a Share, WSJ Reports - Bloomberg.com
America's still up for sale.
here is a quick graph I've made of net mortgage lending 2002 - 2008.
In billions, 2008 extrapolated (1Q08x4)
common theme here tonight. common man needs to take back his or her government!
OT: Look like BUD's going to be Belgian.
Belgian Bud Camp?
Nothing another rebate can't solve.
common theme here tonight. common man needs to take back his or her government!
A little revolution now and then is a good thing, dont you think? (Who said and in what movie?)
Once again, I am a bit confused. If the GSEs are as well capitalized as they claim recently, why are the Federal Reserve, OFHEO, the SEC, Congressional leaders of both parties, with the two companies developing a three-part plan for immediate action?
A little revolution now and then is a good thing
Any chance of assembling a Constitutional Convention with 1 thousandth of the net collective wisdom of the founders?
Well,Bud's gone. Who knows, a few folks might notice that.
Belgian Bud Camp?
Hey were going to have real tits at camp this year, none of that plastic American stuff, GIVER..........
Revolution? Nah, I'm just gonna have my gun club buds over to talk a little treason. Buds? Associates...Bud gonna talk Waloon.
echoing
safe_as_apartments comments at 742 above
fan & fred may be it
Feds won’t help more credit crunch victims - Stocks & economy- msnbc.com
"But, some of Wall Streets biggest investors believe there was another message in the governments announcement the rest of the financial sector seems unlikely to get a helping hand. Global banks and brokerages have already written down nearly $300 billion in soured mortgage investments a number projected to ultimately reach $1 trillion.
The credit crisis has obviously entered into a new phase the government"
The Great Decline
I'm convinced Paulson is the driving force behind the PPT. For several years, Paulson has had: 1)a deathly fear against another 2000-01 equity collapse; and 2) a belief that he and the PPT could engineer the U.S. markets out of it, using an orchestrated cadre of black box traders, government-supplied leverage, pre-arranged signals, and a promise not to use any of the leverage short.
I have never believe Paulson could pull it off in a deep enough crisis, because he has no real hold over the black box traders and because propped up U.S. equity indices are bound to get out of whack with other global equities, especially European.
If you want to see real market reaction these days, watch the FTSE, DAX and CAC. They are all at multi-year lows. If they dive over the next 36 hours, it tells you the PPT is about to fold.
The Pyrite Age
the people on this blog are much above average intelligence. I here a lot of discontent but, not a lot on how we are going to affect change in our gov!
Nemo
That goes way back.
not a lot on how we are going to affect change in our gov!
JAL, business class, LAX or SFO -> NRT
The Great Unwind defeats the Credit Tsunami by a nose.
safe_as_apartments writes:
AP thinks this may be the last help from the government:
Feds won’t help more credit crunch victims - Stocks & economy- msnbc.com
safe_as_apartments | 07.13.08 - 7:42 pm | #
Yeah right:
YouTube -
Belgian Bud Camp?
Hey were going to have real tits at camp this year, none of that plastic American stuff, GIVER..........
Belgium is affectionately known as the cockpit of Europe.
Belgium is affectionately known as the cockpit of Europe.
theyieldcurve | 07.13.08 - 9:23 pm | #
LOL
auction pro,
You've never met jg, ipodius, Sivaram Villaleuthapillambac, O-Joe, Sebastian, . . . .
the people on this blog are much above average intelligence. I here a lot of discontent but, not a lot on how we are going to affect change in our gov!
(Respectfully) This, coming from a country that elected Bush 2.0.
Note that FRE and FNM have reported losses of about $12 billion in the last year. Their combined capital cushion is $81 millioin. Clearly they are using optimistic models to value their portfolio, so losses should accelerate as they have to mark to market, and the foreclosures and price declines continue to pile up. Folks, they just don't have enough capital to cover these losses, and if they try to raise capital, shareholders will run for the hills--no matter what the money is private or taxpayer!
Still doesn't change DTI of 43 to 1.
You effect change in the government by enforcing the laws on the books. And pricking asset bubbles. My work is done here.
CR - given the economic turmoil, sounds like 4pm ET on FDIC Fridays and Govt Bailout Sundays will be busy for you in the near term?
Didn't Jefferson say that thing about revolution every so often being a good thing.
'Course he was a homedebtor, and just plain debtor, as well as a slave owner.
Belgium is affectionately known as the cockpit of Europe.
theyieldcurve | 07.13.08 - 9:23 pm | #
LOL
Escariot | 07.13.08 - 9:23 pm | #
Funny, but true...
Cockpit of Europe — Infoplease.com
Just make sure that when you short you have borrowed actual shares. Otherwise the SEC may catch you naked, and the idea of seeing any of you naked fills me with horror.
I hate to admit it, but I am one of the pessimists that went into the weekend short.
I have learned my lesson, though.
The market will go up because F & F will not fail. Rather, they will be bailed out.
The market will go up because Banks will show in their "earnings" reports that they had massive billion dollar writeoffs, but the writeoffs will not be as large as feared.
The market will go because while CPI & PPI will be increasing at frightening levels the Core will still be "tame."
The market will go up because the reatail sales numbers will be impressive due to consumers spending thir stimulus checks on the oil & food--you know, the stuff that went up in price in the CPI that doesn't count.
The market will go up because the bailout of F & F will likely prompt Lawrence Yun to say the worst of the housing crash is behind us.
The market will go up because the dollar will strengthen since the likelihood of F & F failing is diminished; thereby, lowering the price of oil--potentially below $140bbl.
I should have realized all of this on Friday. Maybe I should leave my financial future in the hands of the "professionals" on Wall Street.
Live & Learn
Zack,
I agree with your analysis. We are still in the 4th or 5th inning of the mortgage /credit meltdown. I would have expected Fannie and Freddie to hit the wall in like the 7th inning.
The fact that they are melting down and needing capital so soon tells you they are cooked, and so are a lot of other financials. This is going to get scary before it's over, and it's a long way from over.
Keep in mind that the financials are a leading indicator. The difficulties that ordinary operating companies and small businesses will face with lack of access to credit, higher borrowing costs and lower demand and pricing power are mostly yet to come. The trend line is for an epic economic crisis.
From Barron's:
Looking at their balance sheets, Porter points out, you find mortgages with a face value of $1.7 trillion, supported by assets of about $70 billion in core capital. On a combined basis, they're leveraged 24-to-1, but when you toss in their off-balance sheet guarantees, that figure balloons to 68-to-1. It would only take a modest decline in the value of those mortgages to wipe out Fannie and Freddie's equity.
Didn't Jefferson say that thing about revolution every so often being a good thing.
Correct. Also popularized by Captain Marko Ramius (Sean Connery) in The Hunt for Red October.
Belgium is affectionately known as the cockpit of Europe.
I spent some time in Brugge in my younger years, great place............
New term for this?
A. The Great Unwinding
B. The Great Deleveraging
Belgium is affectionately known as the cockpit of Europe.
theyieldcurve | 07.13.08 - 9:23 pm | #
Funny, I always thought that was Amsterdam!?! [rimshot] - oh, another entendre!)
C
Etz writes:
Somebody call 911.
The bus driver is drunk.
Etz | 07.13.08 - 8:21 pm | #
So is the 911 operator
Rich, we are in agreement.
Paulson has very little credibility left. the clear pattern has emerged that he will lie until cornered.
The actions he announced may have some effect if there is a liquidity issue for F or F - but we've been assured there is no such problem. Others, however, have said there is a solvency problem. If that is true, a liquidity injection will simply let them get in deeper before it all blows up.
In short, Paulson's announcement is no reassurance at all.
Good movie. Don't remember Connery saying that, but I'm sure you're right.
Now go put some clothes o
crashcadia at 859 wrote.
"Anyone here with a better term that may stick and get used by the msm to describe (this new depression)?
how bout this
the last great depression
I found a video of this week's market
Rally
I pretend it is Ben and Paulson driving.
OOOOOoooo, mock t that is a really scary suggestion.
Toonces the driving cat!!!
How about, "The Final Countdown"?
January 31
Don't sweat it, from what I am seeing it may be up for about one week, then you will be ok..........
January 31, nothing really changed since Friday. If you're a short-term trader, you did make a mistake. Otherwise, sit tight. It's not even close to being over.
Last week we saw GSE spreads tighten which makes me think speculators went long expecting a definitave bond bailout while existing investors held nervously hoping for the same thing. After pondering "the plan" I don't see anything definative enough to give either side comfort. I think tomorrow's $3bil auction will be a "success" because of the Treasury's dialing for dollars campaign over the weekend but after that, we may see significant selling pressure. Just a guess.
"Aheadofthecurve writes:
Didn't the gov take a stake in Chrysler?"
Not really.
A loan guarantee. Paid it back early. Lee Iacocca worked for $1/year until then. Think these Wall Street Crooks would ever go for that ?
The Fabulous Furry Freak Brothers in "Fiat Fiasco." And if that smoke don't curl your toes you're too damn young to be watching this show.
All the fed programs so far are the equivilant of the haeart and lung machine: alive until the electricity goes out.
"This may actually be cheaper than a bailout. Fanny and Freddy need to issue equity to raise cash. That's almost impossible to do at current prices. The government backstop may induce private buyers to jump in. It's entirely possible the government may not have to actually buy shares at all. If they do, in 5 years there's a decent chance they can sell them at a profit. Whereas a bailout would be almost guaranteed to cost the taxpayers."
This would assume that the business model is actually sound no. IF the leverage levels have to come down and the cost of funding eventually goes up kindnof the same position as Ibanks...The entire busness model is a charade..
Come on this is America, would have to have something catchy like:
Super Suckdown......
Super Smackdown.....
Friday there wasn't a problem, now there may be a problem, but we don't know how big of problem.
It's brilliant, it's confidence inspiring, it's a nothing burger.
Whoa US treasury buying shares. No no bailout here...
I have a feeling this will be the reverse of Bear Stearns which was exactly 4 months ago and also options ex. Monday Open higher, close lower, sell off Tuesday, Reflex up move Wednesday, down slightly Thursday, Then down Friday.
I just got back from fixing my garage door, and saw the news.
As some have pointed out above, the optimistic take on this is that there is no risk to the Treasury if they offer the GSE's a credit line which is not drawn. (Technically - expand the line which already exists, which is one piece of evidence always pointed to by analysts who wanted to talk up the "implicit guarantee.)
However, I'm not sure I'd want to be that optimistic. It seems too early for the regulators to intervene. As the Brits saw in Northern Rock takeover, it can be expensive or legally difficult for regulators to intervene while the equity holders still think their stake is worth something.
I have one thing to say here and this statement proves it:
Paulson doesn't know how big the problem is, neither does Bernanke.
Now, that is scary.
i never voted for bush nor would I want to be associated with such catastrophe!
A little revolution now and then is a good thing, dont you think? (Who said and in what movie?)
Lawyerliz and theyieldcurve are correct: the original quote is from Jefferson (in a letter to James Madison):
I hold it, that a little rebellion, now and then, is a good thing, and as necessary in the political world as storms in the physical.
"...equity holders still think their stake is worth something."
theyll wake up soon. Bag holders ie state pensions, Legg Mason, bond holders should dump as much as they can.
If F&F rally tomorrow, nekkid short them suckers.
By "this statement," I mean Paulson's announcement.
You can be sure there are auditors at Fannie and Freddie tonight.
Bartman writes:
"Aheadofthecurve writes:
Didn't the gov take a stake in Chrysler?"
Not really.
A loan guarantee. Paid it back early. Lee Iacocca worked for $1/year until then. Think these Wall Street Crooks would ever go for that ?"
I thought the government got some warrants in exchange for the guarantee, and they paid off when the loan when paid back. Too lazy to verify; it may be another bailout I am thinking of.
mp
I believe Paulson knows what is happening as well as Conjure knows the taste of dog balls.
They know.
I'm on the fence about whether they care.
"Meanwhile, any FRE or FNM bailout probably means help is less likely for LEH, WM or WB.
El Cliffo | 07.13.08 - 8:17 pm"
As Meatloaf said, 2 out of 3 (Put Option Positions) is not bad...BURN BABY BURN.
Well, one thing is certain. This statement came from Waffle House and Mr. Market will quickly figure out that much.
The play will be to sell the FHLB debt..did soemone say they are backing that debt as well? Belive that amounts to $1.3 trillion or so (long and short paper)...anyone have color on the FHLB side...
S
I agree with 500 billion to recaptilize.the number I came up with was closer to 750billion
Back of envelope last fall, I arrived at 1.3 trillion. Wish I could remember what I based the figure on at the time, but all I can recall is that I couldn't figure out why no one seemed worried. So I just figured my math was way off.
12%tile. Concur. They know. And they're scared.
I believe that Paulson et al know exactly how bad the situation is. They know that FRE and FNM are way underestimating potential losses. They are scared witless, so they are lying and hoping it will get better before they are forced into another move.
I'm not sure they are scared. I believe this has been their goal.
Privatize profits. Check.
Socialize losses. Check.
Buy land in Paraguay. Check.
Lawyerliz and theyieldcurve are correct: the original quote is from Jefferson (in a letter to James Madison)
May His Noodly Appendage bless you and open your eyes in this season of financial turmoil.
Rich people don't get scared about money. Bernanke's got a boner for making history.
So is the 911 operator
not a banker | 07.13.08 - 9:32 pm | #
OK - We all need a laugh: "St. Charles 911 dispatcher sold drugs on duty, DEA says"
St. Charles 911 dispatcher sold drugs on duty, DEA says | Breaking News Updates New Orleans - Times-Picayune - NOLA.com - NOLA.com
o your math was not way off. but anything that involves gov generally is double the money
1 Square (Charmin) = 2 USD
1 Square (Charmin) = 2 USD
Sister, can you spare a square?
We at CR should be able to come up with a name for this new depression.
The Bush Depression.
Charmin? Don't let the proles know you have that or you will be toast.
It's a single ply economy.
Back of envelope last fall, I arrived at 1.3 trillion. Wish I could remember what I based the figure on at the time
Total outsanding mortgage debt is $13.5T. 10% of that would be $1.3T.
2002, the last sane year of lending, the total mortgage debt was $9T. So my estimate is that at least 10% of 2003-2007 -- $450B, and perhaps 20% -- $900B, and not inconceivably 30% -- $1.35B -- will turn out to be deadlosss.
theyieldcurve writes:
the people on this blog are much above average intelligence. I hear a lot of discontent but, not a lot on how we are going to affect change in our gov!
(Respectfully) This, coming from a country that elected Bush 2.0.
suggest reading the book looser takes all
the country did not elect dubya in 2000 and not in 04 either...the game was rigged.
but granted...it was close enough that a fix in florida and next time ohio was enough.
here is the solution
article one section three of the constitution originally required:
1 congressman per 30,000 citizens
the story of how we got to one congressman or woman representing nearly a million citizens each is about how power brokers took the peoples house away from them
now you gotta be rich and or be backed by the elite if you want to run for congress
change the constitution back
Yes, rich people don't get scared about money. They know the game, and they know where to stash it. I think they are making a play to "save" the bond holders. Those are the rich people.
Zack writes:
I believe that Paulson et al know exactly how bad the situation is. They know that FRE and FNM are way underestimating potential losses. They are scared witless, so they are lying and hoping it will get better before they are forced into another move.
Zack | Homepage | 07.13.08 - 9:48 pm | #
Ding Ding Ding, we have a winner! No doubt, stall and hope it gets better, kinda like Iraq.
I did the back of the envelope thing last fall too and got half a trill to a trill and a half. I remember how I did it. Countrywide had a quarter of a trill in REOs at that point. (Lord knows what it is now.)
They granted 20% of the Country's mtges. Assuming everyone was writing more or less the same crap gets you to 1 and a quarter trillion.
Hardly any of these loans are a total loss. Say, a 50% loss. A bit less than 3/4s of a trillion. But maybe twice or more as much loss to come: back to a trillion and a half. The I don't know what I am doing spread: half of a trillion to 1.5 trill.
Now that I know more from reading the blogs and observing the carnage:
3/4s of a trill to 2 Trillion. This just in mtg losses. Not shadowy losses like the hypothetical sale of my house for less money than before loss, not credit cards or car loans or cre loans gone bad. These probably add up to another loss equal to the house mtg loss.
mp writes:
Friday there wasn't a problem, now there may be a problem, but we don't know how big of problem.
I assume this was said with a great deal of sarcasm. These entities hold $5 trillion worth of mortgages. This fact by itself shouts "really big problem." True on Friday, and true today. Paulson's palliatives won't change a thing, regardless of what the short-term market reaction is.
Pavel said" Not a bad analysis. But then what?"
Then everyone says "Doh" a la Homer Simpson & sinks back down into their Barcaloungers with their remote control & a beer.
troy Iwould not disagree with those numbers
but granted...it was close enough that a fix in florida and next time ohio was enough.
That's more or less my take on it. Unfortunately, the optics don't look good.
"prairiedog writes:
Yes, rich people don't get scared about money. They know the game, and they know where to stash it. I think they are making a play to "save" the bond holders. Those are the rich people."
They are actually pretty poor - on average. Brad Setser in one of his recent write ups showed that China & Russia probably have GSE debt holdings equual to 10% of their economies. I think the holdings were over a trillion.
They are scared witless, so they are lying and hoping it will get better before they are forced into another move.
My con law prof might disagree, but at this point, Paulson's hands are tied. According to his statement, he believes that Treasury doesn't have the statutory authority to do anything other than the keeping the existing credit line open. The ball is is clearly in Congress's court.
or credit cards or car loans or cre loans gone bad. These probably add up to another loss equal to the house mtg loss.
fwiw, the lack of zooming growth in consumer credit card debt this decade is one positive sign.
It was $1.9T in 2001 and $2.5T 1Q08. 30% over 6 years compared to 100% in the mortgage arena. Of course, a lot of CC debt got moved into the latter, 2004-2007.
The fed is now requesting it be referred to in all offical publications as THE FRED
Well then Drop Dead FRED
Now that the desired response has been achieved as planed time to move on to the next one. War is hell.
So who in congress are we all calling tomorrow.
Nikkei happy
+143
Interesting they are going to Congress Argento. I don't think it has anything to do with what Paulson perceives as his authority.
They must believe they have more time than with BSC. Run is on the stock, not deposits.
I do believe they are scared of a bank run tomorrow.
What, me worry?
everybody remember Paulsons fist bailout attempt?
it was called
MLEC
Mter Liquidity Enhancement Conduit
(in other words, financial Viagra !!!)
liquidity enhancement...ha
the plan drooped and whithered
MTER should read MASTER
as in master b@@@@@
Charles Ponzi writes:
What, me worry?
Hey!!! Find your own catchphrase!
Upon further reflection, wonder what new super wonder powers are going to be included in that legislation this week? hmmmm......
Major announcements on a Sunday aren't a sign of the end-times.... nope.
/snark
Now that Congress is involved, we can all breathe a sigh of relief.
Upon further reflection, wonder what new super wonder powers are going to be included in that legislation this week
That's my real concern, sort of how the AUMF
morphed from a search for the 9/11 terrorists to a global war on terror. Already, it's looking like the FED is to become the economic version of the DHS.
I thought the government got some warrants in exchange for the guarantee, and they paid off when the loan when paid back. Too lazy to verify; it may be another bailout I am thinking of.
Nope, you're right. The government got a bunch of warrants during the Chrysler bailout. And when it came time to redeem, Iaccoca wanted the government to conveniently "erase" them. But he didn't get his wish. Like the Mexico bailout under Clinton, the Chrysler bailout under Reagan was ultimately profitable to the U.S. government.
We at CR should be able to come up with a name for this new depression.
I have heard terms, such as
"The Greater Depression"
"The Great Depression II"
Here is my term.
"The Exalted Dejection"
How about the World Depression? World Depression II?
The proposal is a drop in the bucket. At this point, nearly every mortgage in their portfolio is underwater for the home owner. That realization is still sinking in and the carnage is just beginning.
mock turtle --
everybody remember Paulsons fist bailout attempt?
Ah, those were the days. I was still net long, "Banker" was here laying the smack-down... Good times, good times.
Now Paulson et. al. aren't even pretending anymore. It's all just "Hey, Congress, pony up!"
Oh well. At least I still have my SunSetter Retractable Awning.
What to call it:
The Great Unwind
Catchy.
The Long Emergency
Painfully accurate description, but not catchy.
The Last Great Depression
Again, painfully accurate, but not catchy.
How about something more surreal:
She Is The Darkness
Mike,
You another Glen Cook fan?
energycon,
I concede, you caught me
MTER should read MASTER
How can you leave out the @$$ when you're talking about Paulson?
Rich,
Did you see this by Yves at NC:
"I have been a skeptic of whether the so-called Plunge Protection Team exists (or more accurately, whether it engages in active market support operations as the conspiracy minded believe).
Given the weakness of the steps taken so far, tomorrow has the potential to reveal footprints if such activities take place.
One thing I do expect to happen is that the powers that be will lean on various financial institutions to bid at the $3 billion Fannie sale of short-dated bonds tomorrow. That is a no-brainer and treads on the margin of what one might consider PPT type manipulation.
Firmer evidence would come via odd trading patterns in the S&P. On January 22, the Dow fell nearly 400 points on open, and the S&P also tanked, I don't have access to detailed historical charts of intraday pricing, but the S&P looked as if there was a massive support bid (if I recall right, at 1255). It wasn't spiky, which is what you'd expect from normal bottom fishing buys.
That was only one data point, and there may have been some bizarre technical trigger for bids at that level. But it looked very unnatural. If we see a similar pattern, Monday, my suspicions will increase."
"The Little Depression That Could"?
How 'bout a biblical reference:
Yea, though I walk through the valley of the shadow of death
All comments here are The Snark of Darkness.
How about "The Great Looting"?
If F&F are a 5 trillion portfolio, and 10% of that is bubble-era nuclear waste, and that a large fraction of those loans will be almost-total writeoffs... that's $NNN billion in losses, easily. Hooboy.
Considering that stated income junk was commonplace by 2002 (and went on for five more years), and that a third of the sales in California are already short sales or foreclosures, I don't think that handicapping is out of line at all!
American Capitalism
1776-2008
R.I.P.
I think Escariot nailed it... "The Five Year Plan" is perfect.
Let's see. We have a White House, controlled by Republicans, requesting emergency legislation from the House of Representatives, controlled by Democrats, who are still reeling from having been bullshitted into the Iraq war over another piece of emergency legislation.
This will be interesting. Mr. Market will love it.
BTW, kicker theorized above that the GSEs run "matched books". Definitely not the case. They borrow short, lend long, and use dynamic hedging to minimize the risk of minor short-term interest rate fluctuations. Their entire model is based upon borrowing Treasury-cheap, too.
Stick a fork in'em; they're done.
Depressiazilla
Mariana Tranch
The Recession That Wasn't
Brokeback Housing
Bailouts Unlimited
The Great Ungluing
The 40-year Slide
The Big Unboom
The Big Bust
The Great Rebalance
This is fun
mp,
Yeah, can't see this being good news, especially right on the tail of IndyMac.
Watch the dollar collapse tomorrow. I wonder how fast it will go down.
"collateralized by U.S. government and federal agency securities."
The Fed is going to lend them cash collateralized by cash equivalents? What sense does that make? Maybe 10% collateral.
"Lawyerliz writes:
Didn't Jefferson say that thing about revolution every so often being a good thing.
'Course he was a homedebtor, and just plain debtor, as well as a slave owner."
Congress also bailed out Jefferson, whom lived well beyond his means.
On Jan. 30, 1815, Congress approved the purchase of Thomas Jefferson's personal library of 6,487 books for $23,950.
That was a tidy sum!
I have about half as many books. Perhaps I should call my Congressman and see what kind of deal I could get.
Mike writes:
What to call it:
(whats been presented so far is...)
Catchy...
Painfully accurate descriptions, but not catchy...How about something more surreal:
She Is The Darkness
Mike | 07.13.08 - 10:19 pm | #
so how about
darkness at the break of noon
shadows even a silver spoon
the handmade blade the childs balloon
eclipses both the sun and moon
to understand you know too soon
there is no sense in trying
dyla
270 plus comments in 3 hours. Wow.
Chuck Schumer is to blame for Fannie and Freddie as well.
The total US GDP is something like 10-11 trillion so this debt will add......well, I won't go on. Raise the US debt limit to what?
"We at CR should be able to come up with a name for this new depression"
In my best barista parlance, "The Grande Depression"
In my best barista parlance, "The Grande Depression"
Conjure says, "I like it, I like it."
we can call it the CR Depression for all the one-sided negative bearish viewpoints
Sebastia