Cramer just had a great rant on CNBC regarding FAN and FRE. He called on the exchange to stop trading the stocks, because there is obviously some inside information known to insiders, but not the general market. He likened this trade to the 1920s when there were virtually no controls over the inside wealthy traders. He blamed TPTB for dismantling the regulations put in during the depression.
Meh, Cramer's just pissed that his bottom call on financials is looking foolish. Again.
Hard to believe that the market could rally simultaneously, but there ya have it. It's amazing how long people can whistle past the graveyard...
I actually closed out of my FNM puts late today, and dipped my toe into FRE at $3.00/share. I'm hoping for one more little counter trend rally (plus short squeeze), which would allow me to flip a quick profit and repurchase puts at a lower price.
But maybe these clowns really are toast this time?
Cramer's lost his marbles. Does anyone really need insider information to see that those two's goose is cooked? The big question, at this rate, is: Will they make it to the weekend?
It's kind of ironic. Paulson requested and received his "blank check" because he hoped that by having it, he would never need to use it. Scare away the short sellers, and the GSEs could recapitalize in the marketplace. In theory.
But without any apparent plan, and with the implication that the authority (if used) would wipe out the common, valuing these entities is now harder than ever. Uncertainty about what the government itself intends to do makes it impossible for any sane person to touch these things, long or short.
So much for GSE (Gov't Sponsored Enterprise). Soon to be Government Mortgage Liquidators.
They might as well exchange the GSE bonds for Treasury bonds and get it over.
Wash out the 'investors', and, most importantly, figure out how to end for this generation and next the idea that mortgages can be cascaded through leverage. If a bank wants to write a mortgage at rates that people will accept, then they should hold that mortgage on their books until it is repaid - with NO off balance crapola and other hinky tricks.
Oooo ... can't wait to get me some of that hot, fresh, GSE debt!
Not. (I'm not sure there is anyone out there that does want GSE debt. China and Russia, to protect what they already have? Will they continue to throw good money after bad?)
And the implied government backing shall become explicit.
Whatever - a few trillion here, a few trillion there... none of it can be paid back anyway. What's the debt level now, not even factoring in "Mission Accomplished" and how can a nation of broke people with no jobs ever pay it back?
The only real question left is hyperinflation vs. deflation.
As I look over the list of tough situations sorted out by the current administration, and contemplate the FRE/FNM nationalization fiasco in our future, I am tempted to short the bejeezus out of everything in sight.
"The Russian finance minister, Alexei Kudrin, told reporters in Moscow on Tuesday that Russia was still buying debt issued by Fannie Mae and Freddie Mac, but on a smaller scale."
It's never good to have your economy dependent on the kindness of Russia.
Well, I think there was little follow-through today and we have a good chance for a stock market bottom now and further commodity downside. Later this year I do expect more downside for stocks, but not yet.
That said I don't like the whole GSE concept alongside massive lobbying and jobs for retiring politicians.
O-Joe
The market broke its pennant formed since the 7/15 lows. It looks like it may want to test the lower trendline of that pennant, but nothing more is happening positively.
Why is yield on their paper better than US bonds when they are now equivalent? Is this the yield that we will expect on US bonds when their bonds come into our books? (US devbt)
Because investors do not believe that the US can really step up to that level of guarantee without major repercussions.
It's a big game of chicken.
If the US does manage to trigger a sell off in treasuries it's going to be a real slaughter for all the other forms of debt for which treasury yields form the base.
How much does it help for homeowners to be able to borrow at "reasonable" rates if corporations can't?
You can't cheat your way to prosperity.
We need to stop focusing all our efforts on trying to do just that.
What do the companies look like after the bailout? It's not like these behemoths can go away overnight or that we can pretend the government has the staff to run these places?
Treasuries yields rising to reflect true market value and conditions would trigger a massive wave of defaults on ARMs of all types tied to the FFR. Wht do you think there ia all this scurrying around to get people into fixed rate loans? The govt cannot set interest rates like this for long and time is short.
Fannie Mae's chief executive sought to reassure investors that no bailout is imminent.
"They haven't offered anything and we haven't asked for anything," Fannie Mae CEO Daniel Mudd said in a public radio interview Wednesday morning. "I don't anticipate that they will do that."
Mudd said the company's financial position "remains very strong," and that he intends to remain Fannie's CEO.
As per Seeking Alpha, From a traditional corporate finance perspective, this is an investment grade company, says National Citys treasurer. The rating agencies say so and the balance sheet says so.
Whether it was with a straight face ihard to fathom, and I play a lot of poker.
It seems like market participants are trying to force Paulson's hand.
Adam Smith's invisible Hand at work.
Rob Dawg said: The govt cannot set interest rates like this for long and time is short.
Yep. The end game is here.
Is it just me, or is there an unusual amount of cliff diving going on? Certain stocks, Freddie and Fannie's credit, Architectural billing...
The only bullish indicators I'm seeing are manufacturing in Texas and the Carolinas. Yea.. Ohio, Michigan, and other manufacturing states puts the overall industry down.
304 visitors. As Shaggy might say; "I have a very bad feeling about this Scooby."
Everything is undone. The centre cannot hold (ask Tanta if you need to know).
The TVA raises rates more than at any time in nearly the last two generations. Financials down market up. Oil up on massive inventory increases. California still no budget. And don't underestimate this last. When a 20% of 18% of the US economy is about to shut down the ripple effects will be international. Especially since Cali is such a major player in the muni market. That alone could trigger a cascade failure of dozens of hedge funds and strain typically stuporous investment pool redemptions in a flight to quality.
The bail out legislation stipulates that the GSE's must request a capital injection. Fat chance. The CEO's and Boards could be sued by shareholders for agreeing to an injection that would wipe them out.
The only way around this is for OFHEO to force them into conservatorship, fire the mgmt, and hire a CEO that will agree to a capital injection. Problem: OFHEO has repeatedly said the GSE's are well capitalized.
So what does Hank do? I think Cramer is being to generous -- its likely Hank has no idea what to do here. Forcing them into conservatorship seems like the most obvious choice. The problem with that course is that Hank and OFHEO's Lockhart will be open to political charges of incompetence -- claiming that they are well capitalized one moment, taking them over the next. Further, its likely that a nationalization will stick in W.'s Crawford craw.
Will Hank bite the bullet and accept the blame, or will he still try to kick the problem to the next administration? Relax, Cramer, I don't think anyone knows the answer at this point...
Ah well, the game is up, and Paulson should just do the deal over the weekend. Of course, he will hither, dither, and make things much worse.
Obviously we have a bunch of zombie banks- Wachovia and Wamu come to mind, along with some major stupidity yet to come when Bank of America allows the CFC entity to bk.
So what to expect? A continuous dripping of bad news, followed by another bottom calling rally, followed by another patch on the system, followed by the next blowout crisis.
I am getting bored with it.
Now, as the man said, it gets weird.
I read the stuff about Russia, and look at $1400 an ounce platinum, scratch my head, and then begin to wonder why every ounce available isn't stuffed into everyone's safety deposit box. But enough sounding like the Mogambo Guru.
But hey, capitalism in the late stage is just strange indeed.
Reuters
U.S. banks may keep credit tight even in GSE bailout
"It's a mistake to think a bailout of Fannie and Freddie is going to cause a sigh of relief by lending officers and for them to loosen credit," said Bill Hackney, managing partner of Atlanta Capital Management Co. "Damage to balance sheets has already been substantial." U.S. banks may keep credit tight even in GSE bailout
| Reuters
When I see what's going on with F&F I can't help thinking of Kurt Vonnegut words of wisdom; "Goodness me the clock has struck,
Alackday and fuck my luck!"
Fannie and Freddie may be toast. US government debt may be toast. The dollar may be toast. But always remember, we've got nucl'r weapons. We can make the world an offer it can't refuse: Buy our dollars and our debt, or else!
But empty threats don't seem to be helping the Georgians much.
as bad as that bazooka to the ass can be, wouldn't you agree it's better then not taking it? somehow, lord only knows how, taking on that amount of debt is the lesser of two evils.
the really bad news is that there are probably another 10 evils waiting to be decided on.
And explain to me why the mortgage interest rates went down today, but a couple weeks back it shot up after Fannie and Freddie announced bad quarterly results?
Goldman decreased their gold forecast to 740-810 while maintaining oil at 149.
Something not right there, their research teams are not talking to one another.
Broker,
You made me think of Slaughterhouse 5 where the bombers went in reverse. That would be a nice trick for the finance world right now...and less grey hair for me.
If downstream brokerages deliberately stuck their heads in the sand but continued to actively market these products to unknowing investors, that will certainly be relevant to our calculus of the firms' culpability," Benjamin Lawsky, deputy counselor and special assistant in the attorney general's office, said in the letter. "These firms are licenses broker-dealers and were obviously well paid by their clients for their specialized knowledge and diligence regarding the appropriateness of various products as investments."
We aren't the only ones and unlike us they would probably not afraid to use them. That is where "W" screwed up after 9-11. He should have turned Afgo into a sheet of glass and asked who's next. Now were bogged down in two wars, not one and we are being financially bleed dry. To many women in this country and we ain't gonna use no nukes.
And that would be where? A currency that has lost purchasing power for the last 20 years?
I said in an earlier thred that the Ruskies or the Olympic hosts would not like to suffer losses on the bonds they hold - and its a lot!
Then again, economic might is a reality. The Ruskies simply have to rumour a major sell order and things would get rather shakey. Or perhaps they dump maybe just 100M in liquidation mood to make a point.(Enough for the missle agreement to be undone?) I think the fact that they elected to default some years ago instead of trying workouts speaks volumes of their forward approach in getting things done.
The reality is that the US, contrary to popular thinking, is not the economic powerhouse it once was simply because of debt.
Once F & F go PK the Treasury will have found them insolvant. Stock holders get nothing. Bond holders remain whole. And, the US taxpayer gets pinged. New mangement, new paper, new entity. While this all goes on incremental lending aint gunna happen and the credit cycle gets even worse.
Something not right there, their research teams are not talking to one another.
Eh, maybe they think inflation won't be as big an issue, Europe will have to cut rates, but there will be political instability that will overcome the demand destruction on the price of oil.
FFDIC, I'd say those last two articles you linked to are ominous. 1) Banks are being forced to delever and recapitalize. 2) Bids on Credit card debt securitizations being issued by banks are drying up in the way that bids on mortgage backed securities have done. All leading to a potential banking/consumer credit crunch of massive proportions. I also liked the Fortune article's take on the standard of living bubble as underlying all this - the U.S. consumer spending more than they make and borrowing through the dotcom and housing bubbles to allow them to fake a rising standard of living when incomes were not keeping pace.
Sorry AllenM, back in the day (early 90's) we held the mortgages whole in the bank without derivatives and measured our profit in millions. We were sold to a larger regional and I left. I don't know this world but it sounds like the asylum is being run by the loonies.
Eh, maybe they think inflation won't be as big an issue, Europe will have to cut rates, but there will be political instability that will overcome the demand destruction on the price of oil.
Inflation is already an issue. Europe may not cut rates, Trichet gave no inkling of that and besides it's not even in his mandate.
I guess their spin can only be spun so much before they get tangled in their own web.
Like I've said time and again, J6P's going to go into shock when his choices for purchasing a home entertainment center at Best Buy are "cash or layaway"?
Things fall apart; the centre cannot hold;...
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?
-- William Butler Yeats, "The Second Coming"
There are those who have a vested interest in this second coming and they seem to hold the upper hand judging by the unremitting sell off of FRE/FNM.
"It seems like market participants are trying to force Paulson's hand."
I agree, but why? What is the end game? Complete nationalization of the wholesale mortgage industry or national default?
Just asking, I don't know the answer.
"Russia has warned that a US-Polish missile defence deal creates a new arms race in Europe and beyond.
A foreign ministry statement said that Moscow "will be forced to react, and not only through diplomatic demarches". It did not elaborate. --BBC"
A friend of mine who fixes personal computers for a living (for the last 7 years or so) and is decidedly not the alarmist type has mentioned to me twice in the last couple of weeks that he is getting deluged with calls to clean up machines with vicious viruses. He said he told two people yesterday that it would be cheaper to toss the machines and get new ones.
I'm not sure how he knows this, but he says the viruses are coming from Russia. He (seriously not a conspiracy type) is actually considering the idea that they may be some sort of 'payback' from Russia.
PS....i asked him if he can figure out how these people are getting them and he says that to the best he can figure it is popups that ask people to update things, mostly adobe. He is now telling people if they get any request to update something to close it down, go to the vendor's website and update from there.
Merrill brokers sold the securities to investors as a conservative, cash-like investment but when the auction market dried up this year, investors were left holding long-term notes that are hard to sell.
The brokers requested Pimco and BlackRock buy back their securities from stranded investors, Bloomberg reported.
The news agency reported that more than 300 brokers e-mailed Pimco and told the asset manager its executives may no longer be welcome at Merrill's offices.
Like I've said time and again, J6P's going to go into shock when his choices for purchasing a home entertainment center at Best Buy are "cash or layaway"?
My fave part is he will have to drive by 3 empty, boarded Best Buys to get to one to find out they don't offer credit any more.
These two companies were intentionally stuffed to their gills in crap and as far as I can tell are still being topped off. Pouring money on this fire will only make the fire bigger. But you can't get off the roller coaster now until it comes to a complete stop and the last drop is the biggest drop ever built. WEEEEEEEEEEEEEEE.
"The Russian finance minister, Alexei Kudrin, told reporters in Moscow on Tuesday that Russia was still buying debt issued by Fannie Mae and Freddie Mac, but on a smaller scale."
Everyone knows that Russian Finance Ministers always tell the truth. Could be, though, that smaller scale means a couple of bucks.
"Any predictions on the date of the next crisis? One week? One month?"
Constant crisis mode from here on out, you can't really say you comrehend what is happening now or going to happen going forward now that Freddie and Fannie are toast. Constant crisis.
If agency bonds have the backing of the US treasury, then why was yesterday's spread at the auctions 1.3% above the five year T-Bill? I looked recently at Pimco's fund that does agency bonds and it has been appreciating quite nicely.
Short of the US going bankrupt, where is the downside risk in these bonds?
We should go back to a suggestion from Bernanke in spring and insure the GSE securities explicitely by the federal government for a fee. Holders of old bonds get only what is in their bond, nothing more.
The uncertainty in the market costs the taxpayer and house buyers extra and enriches those with political antennas.
Hank and his IB cronies are looking at the F&F crisis as an opportunity to transfer the mortgage market business to the banks. They will arrange over time an appropriate F&F failure, while establishing the foundation of a profitable covered bond business, snatching victory from the jaws of defeat for the banks, screwing homebuyers with higher mortgage rates, homeowners with lower values, and losses all around for GSE equity holders and taxpayers.
Will Hank bite the bullet and accept the blame, or will he still try to kick the problem to the next administration?
No reason he can't do both. He'll bite the bullet, bail out the GSE's per plan, then let the next administration deal with the unintended consequences. All he's doing is now is stalling per GOP orders. NOBODY knows exactly how this will all play out once the bailouts happen, but ANY action he takes means more votes for Democrats in November. If Democrats make non-action an issue before the election, then he'll take his action to diffuse the issue before the election. Politics.
Reading the yahoo boards is a reality check on how dumb a good portion of Americans are.
I remember browsing the yahoo boards just a few weeks or days before the collapse of New Century. There was a guy on there saying he was gonna buy up a bunch of shares, because at the then-current price, the dividend yield was extremely attractive. People replied, "You idiot! How long do you think they will be paying a dividend?" And he replied something along the lines of "I don't think the board would cut the dividend and risk undermining investor confidence in the company." I am not making this up.
syvanen writes: ...Short of the US going bankrupt, where is the downside risk in these bonds?
::
Repayment, always repayment. So why buy?
US Treasury is a backstop -> zero cash absent USD printing, massive inflation. US Treasury (and agencies) operates virtually no revenue streams other than taxes, and we all know those are drying up, irrespective of POTUS-elect, over the next decade, minimum.
Similarly, IBs and reserve banks cannot report income to recover liabilities. Simple as that: all but "core banks" are broke, insolvent. FRB is swapping USD for defaulting corp coupons and commercial paper to bankroll enterprise cash flow --bank clients!-- while speculators capture overnight capital gains. Worse, IBs and reserve banks are either unwilling or unable to issue securities ("recapitalize"), corp obligations or booked income, of sufficient value to substitute MBS. Hence rising capital costs at issue and at coupon.
There is no prospectus on FN revenue generation, because these intermediaries simply cannot break the box. Gains to speculators have nothing to do with anything except redistributing profits already captured.
More recently, some shmuck tried to tell me that I should buy Fannie and/or Freddie because they were under 10 bucks and "the furniture has to be worth at least that".
I made the mistake of trying to explain when it comes to selling furniture, common shares are last in line to get paid. Lights were on, but nobody was home.
You know, because the cost of the free water behind the free dams has risen so dramatically.
Dunno much about TVA, but if it's anything like BPA, the problem is this: there isn't enough (almost) free power to meet the needs of the region, so the federal agency has to go to the market to buy power to meet that demand. As market prices increase, so do the bills of BPA's customers. I bet TVA is in the same situation.
peAkcredit writes:
Hank and his IB cronies are looking at the F&F crisis as an opportunity to transfer the mortgage market business to the banks. It's just the American way.
peAkcredit | 08.20.08 - 6:34 pm | #
I think you hit the nail on the head. Crony capitalism at its finest. The so-called invisible hand is the one stealing our wallet out of our pocket while we're busy watching the train wreck on HD TV that we bought from BestBuy on credit with no payments til January.
Would anyone else here be not the least bit surprised if Cox plays a slightly draconian hand either tomorrow or Friday, causing a predictable short covering event slash rally ... and thereby giving Hank at least another week before he has to pull off a weekend at Bernie's with the GSEs?
A Cox stick save wouldn't surprise me, but then again nothing would at this point. I'm not sure what effect it would really have, though, beyond a few 5 minute fat green candles on the XLF. Most of the zombie banks and builders are now in the hands of the day traders and da Boyz. They've seen this trick before, and they play both sides.
"Weekend at Bernie's" might be one scenario, but so would "Night of the Living Dead." Either way, Fannie and Freddie shareholders will have headed for the exits long before this film ends.
"The news agency reported that more than 300 brokers e-mailed Pimco and told the asset manager its executives may no longer be welcome at Merrill's offices"
Perhaps because someone swapped out the door mat which said "Welcome to Merrill" but now reads "Closed Call Treasury"
Tyler K,
That's been the SOP for the last year. Think of last August. Watch the market fall 300+ points then magically rally back to unchanged. Then a huge rally Friday after Cox, Paulson, or Bernanke 'publicly' announce some other band aid for the broken leg.
You know, they'll call their favorite trading desks Thursday at 2 pm and tell' em to back up the truck.
Like I've said time and again, J6P's going to go into shock when his choices for purchasing a home entertainment center at Best Buy are "cash or layaway"?
This will not happen until China comes apart at the seams -- perhaps taking a few other Asian mercantilist nations along with it. The Asian vendor financing fraud is the cornerstone of this entire edifice of financial chicanery.
If J6P can't buy, unemployment in Asia will skyrocket, the Chinese citizenry will revolt and string up every corrupt crony capitalist they can lay their hands on, and as the nation descends into chaos exports will decline further, and there'll be even fewer dollars coming in with which to buy GSEs and Treasuries to subsidize J6P's purchases of the exports, sending the system into a death spiral.
There will be a dramatic diaspora of corrupt Chinese businessmen and officials to the US (or Canada), like that of Iranians after the Shah's overthrow. It seems that in anticipation of this, many of them have prepositioned a family member here.
The GSEs each have over $500 billion in unencumbered securities. They can repo their mortgage backed securities to obtain at least $250 billion of cash, even if you assume they will take a haircut of 50%.
Bear Stearns went down because it became insolvent. It used repurchase agreements to fund its daily operations. Fannie and Freddie don't currently do repos at all. I don't see any risk they will lose their solvency.
The biggest risk to the share price of FNM and FRE is that the Treasury/Fed would force the GSEs to take an infusion of equity capital, which would bring the stock price to zero.
Unless the Fed/Treasury forces such an equity infustion, the senior executives of Fannie and Freddie would definitely prefer to use repos to obtain cash and stay in business than to have equity holders completely wiped out (and their jobs lost!) by obtaining an equity infusion from the Fed/Treasury.
"Although Josh Rosner, of consulting and research house Graham-Fisher, argues that the minimum the pair need to raise is at least $40bn, he believes the realistic number is more like $100bn.
His estimates are based on the roughly $3,500bn in guaranteed books of business the two firms hold, and are based on past peak losses of approximately 1.3pc in the 2002-03 housing downturn"
while I do agree that the pennant has failed...it means absolutely nothing in the time of massive intervention and printing press operations, sorry AUCTIONS.
It may be a way to suck a larger short side in and then turn it for yet another squeeze-induced rally.
This admin. doesn't want F&F to fail in October 1 month before the election nor do they want to nationalize. They write 80% of current mortgages. Many headless chickens are flopping. I think the play is F&F will receive any money they may or may not need, not from Govt. directly at least. All parties are being coy as their share price plummets. Soon a knight in shining armor will arise. F&F share price doubles, triples or quadruples.
"Bear Stearns went down because it became insolvent."
The rest of them are as well (the remaining four) however BSC was not in any worse shape than the rest.
Paulson took out his dick, measured it and it was bigger than Cayne's. This is the payback for BSC's lack of participation in LTCM. That's why BSC was allowed to fail. LEH actually has a worse sheet then them ( I know what shit loans they wrote up to mid '07)and why are they still around?
...this is the payback for BSC's lack of participation in LTCM. That's why BSC was allowed to fail. LEH actually has a worse sheet then them...and why are they still around?
I realize "Big Picture" - with his usual level of inaccuracy - has published that Bear was the only major not to participate - but that is factually incorrect. The other company you mentioned above is another major who chose not to "help" with the LTCM bailout.
So I'm afraid your entire theory is blown out of the water, mate.
Is there a way to find out who owns one's mortgage debt?
It would be interesting to make an offer:
Hello, I owe your firm 250K on a currently 400K (By Zillow.com) rated house, however it is a very depressed area.
I would be willing to take this loan off your hands for 145,000 for full payment, and for you to report the loan paid as agreed, as it has been for over 5 years. As you can see we never were late with a payment, this offer simply gives you one less thing to worry about and helps you sleep at night.
If Obama is lucky and/or smart, he will keep his inept campaign management team in place through election day so that McCain will have to deal with the cold, hard reality in January. Let him be the 21st century Hoover.
Broker,
You made me think of Slaughterhouse 5 where the bombers went in reverse. That would be a nice trick for the finance world right now...and less grey hair for me.
-lama
Here it is...
American planes, full of holes and wounded men and corpses took off backwards from an airfield in England. Over France, a few German fighter planes flew at them backwards, sucked bullets and shell fragments from some of the planes and crewmen. They did the same for wrecked American bombers on the ground and those planes flew up backwards to the formation.
The formation flew backwards over a German city that was in flames. The bombers opened their bomb bay doors, exerted a miraculous magnetism which shrunk the fires, gathered them into cylindrical steel containers, and lifted the containers into the bellies of the planes. The containers were stored neatly in racks. The Germans below had miraculous devices of their own, which were long metal tubes. They used them to suck more fragments frm the crewmen and planes. But there were still a few wounded Americans, though, and some of the bombers were in bad repair. Over France, though, German fighters came up again, made everything and everybody as good as new.
When the bombers got back to their base, the steel cylinders were taken from the racks and shipped back to the USA, where factories were operating night and day, dismantling the cylinders, separating the dangerous contents into minerals. Touchingly, it was mainly women who did this work. The minerals were then shipped to specialists in remote areas. It was their business to put them into the ground, to hide them cleverly, so they would never hurt anybody ever again.
The American fliers turned in their uniforms, became high school kids. And Hitler turned into a baby, Billy Pilgrim supposed. That wasn't in the movie. Billy was extrapolating. Everybody turned into a baby, and all humanity, without exception, conspired biologically to produce two perfect people named Adam and Eve, he supposed.
If Obama is lucky and/or smart, he will keep his inept campaign management team in place through election day so that McCain will have to deal with the cold, hard reality in January. Let him be the 21st century Hoover.
If that happens, it will prove that god is not dead, but instead, god hates us.
"REBear writes:
Why don't FRE and FNM put all the bad loans in a separate entity and spin it off? Paulson can later nationalize the skunk."
That is actually a good question but in a different way. As near as I can tell Fannie doesn't have a huge book of bad loans (and I think Freddie is the same).
Out of trillions in Fannies loan book there is only a few hundred million in subprime (and they stopped taking any more long ago). And there is just over 10% it looks like in ALT-A (and they have likewise virtually stopped taking those as well).
The vast majority of their loans appear to be fairly high quality, fully performing, with low foreclosure rates and no real indication they will rise significantly.
They also have as someone noted a lot of liquidity - or ability to create liquidity. Not to mention a lot of cash income - think something like $3 million in Q1 2008 alone.
The biggest problem, and almost entire basis it seems for all the negative comments about their "solvency" are the billions in "fair value" accounting adjustments - where they are being required to write down fully performing loans that seem to have little indication they are ever likely to be a problem, that they intend to keep, to fire liquidation sale prices.
I can't seem to make sense why there is not more review and discussion of the strength of the loans in these companies - since the loans are the assets that make up the value?
Fannie Mae Chief Executive Daniel Mudd said on National Public Radio that "Fannie Mae has more capital than it has ever had in its history" and it has not been offered help by U.S. Treasury officials.
What a bailout for the two mortgage giants will look like is unclear at the moment. According to Barron's, who issued a report this weekend for Fannie and Freddie, a possible structure would consist of the government purchasing massive quantities of preferred stock in both companies.
Preferred stocks are convertible investments that are often first in line to get paid off if a company goes bankrupt.
Quincy Krosby, chief investment strategist at The Hartford, said the government would likely use convertible stock because it has the highest chance of providing the necessary liquidity to Fannie and Freddie, while also providing the best chance of taxpayers getting their money back or even turning a profit.
220mph wrote: They also have as someone noted a lot of liquidity - or ability to create liquidity. Not to mention a lot of cash income - think something like $3 million in Q1 2008 alone.
Then, if I were you, I would be out there buying up as much their stock as I could. Sounds like the best thing since sliced bread.
I just asked the question, to try and understand the relationship between the seeming strength of the assets (loans) vs the claims of insolvency and alleged need for a bailout
If the underlying loans are generally OK, and they have strong cash flow (I should have said appx $3 billion, not million, in Q1 2008) then how are they supposedly "insolvent" and in need of a bailout?
the GNMA bonds you are referring to are bonds backed by single-family mortgages guaranteed by GNMA. They
are mortgage-backed securities. They are not, at least directly, corporate credits.
ouch
and the market is up?
somebody is going to make a bunch...
$2?
Eeet ees bale-ooot!
(Indian Chief in F Troop)
Cramer just had a great rant on CNBC regarding FAN and FRE. He called on the exchange to stop trading the stocks, because there is obviously some inside information known to insiders, but not the general market. He likened this trade to the 1920s when there were virtually no controls over the inside wealthy traders. He blamed TPTB for dismantling the regulations put in during the depression.
Something tells me Fannie and Freddie's DTI is way over 38%. What kinds of mods will they be demanding?
Can we just default on the US government debt and get all over with? We can rebuild and pay as you go.
Meh, Cramer's just pissed that his bottom call on financials is looking foolish. Again.
Hard to believe that the market could rally simultaneously, but there ya have it. It's amazing how long people can whistle past the graveyard...
I actually closed out of my FNM puts late today, and dipped my toe into FRE at $3.00/share. I'm hoping for one more little counter trend rally (plus short squeeze), which would allow me to flip a quick profit and repurchase puts at a lower price.
But maybe these clowns really are toast this time?
because there is obviously some inside information known to insiders, but not the general market.
Is there a hotline I can call to get this inside info?
because there is obviously some inside information known to insiders, but not the general market.
Here is the inside information: They're both toast.
Cramer's lost his marbles. Does anyone really need insider information to see that those two's goose is cooked? The big question, at this rate, is: Will they make it to the weekend?
It's kind of ironic. Paulson requested and received his "blank check" because he hoped that by having it, he would never need to use it. Scare away the short sellers, and the GSEs could recapitalize in the marketplace. In theory.
But without any apparent plan, and with the implication that the authority (if used) would wipe out the common, valuing these entities is now harder than ever. Uncertainty about what the government itself intends to do makes it impossible for any sane person to touch these things, long or short.
I'm sure they have a plan. right?
right?
Soon to be released at a book store near you: "Dreams of my Fannie" by F.D. Raines.
yeah, but agency bonds are backed by the full faith and credit of the US gubbermint, and with a better yield than a t-bill.
Defsounds — Think Different — Dame Dash Faces Foreclosure
I'd love to see your comments on this one..
Time for Dame to Dash?
booooooooooo
So much for GSE (Gov't Sponsored Enterprise). Soon to be Government Mortgage Liquidators.
They might as well exchange the GSE bonds for Treasury bonds and get it over.
Wash out the 'investors', and, most importantly, figure out how to end for this generation and next the idea that mortgages can be cascaded through leverage. If a bank wants to write a mortgage at rates that people will accept, then they should hold that mortgage on their books until it is repaid - with NO off balance crapola and other hinky tricks.
Hank, of course, really is itching to use that big bazooka before he retires (escapes) to Paraguay with cronies.
Oooo ... can't wait to get me some of that hot, fresh, GSE debt!
Not. (I'm not sure there is anyone out there that does want GSE debt. China and Russia, to protect what they already have? Will they continue to throw good money after bad?)
Fannie owes $120 billion, Freddie owes $103 billion. Due, like, right now.
Can't pay. 'Nuff said.
Oh, and short Bucky. You born and bred American dopes.
Might be haveing IE problems. getting "Operation Aborted" spardically.
Is that a bazooka in your pocket, or are you just happy to see Fannie?
And the implied government backing shall become explicit.
Whatever - a few trillion here, a few trillion there... none of it can be paid back anyway. What's the debt level now, not even factoring in "Mission Accomplished" and how can a nation of broke people with no jobs ever pay it back?
The only real question left is hyperinflation vs. deflation.
As I look over the list of tough situations sorted out by the current administration, and contemplate the FRE/FNM nationalization fiasco in our future, I am tempted to short the bejeezus out of everything in sight.
From NYTimes:
"The Russian finance minister, Alexei Kudrin, told reporters in Moscow on Tuesday that Russia was still buying debt issued by Fannie Mae and Freddie Mac, but on a smaller scale."
It's never good to have your economy dependent on the kindness of Russia.
Why don't FRE and FNM put all the bad loans in a separate entity and spin it off? Paulson can later nationalize the skunk.
Good that the bad news is out now
Well, I think there was little follow-through today and we have a good chance for a stock market bottom now and further commodity downside. Later this year I do expect more downside for stocks, but not yet.
That said I don't like the whole GSE concept alongside massive lobbying and jobs for retiring politicians.
O-Joe
Everyone, please...
The market broke its pennant formed since the 7/15 lows. It looks like it may want to test the lower trendline of that pennant, but nothing more is happening positively.
Down we go; next stop: SPX 1077, INDU 9600
Why is yield on their paper better than US bonds when they are now equivalent? Is this the yield that we will expect on US bonds when their bonds come into our books? (US devbt)
I'm guessing they get taken over this weekend.
Interesting reading on the yahoo boards - lots of the longs there think that the government is going to bail out the shareholders.
Reading the yahoo boards is a reality check on how dumb a good portion of Americans are.
It's never good to have your economy dependent on the kindness of Russia.
Paul | 08.20.08 - 4:45 pm | #
Russia has warned that a US-Polish missile defence deal creates a new arms race in Europe and beyond.
A foreign ministry statement said that Moscow "will be forced to react, and not only through diplomatic demarches". It did not elaborate. --BBC
You don't think they would, you know, call the loans? Nah. They wouldn't. Would they...
Why is yield on their paper better than US bonds when they are now equivalent?
Because investors do not believe that the US can really step up to that level of guarantee without major repercussions.
It's a big game of chicken.
Interesting reading on the yahoo boards - lots of the longs there think that the government is going to bail out the shareholders.
I have to ask: Just what is the line of reasoning?
Because investors do not believe that the US can really step up to that level of guarantee without major repercussions.
It's a big game of chicken.
If the US does manage to trigger a sell off in treasuries it's going to be a real slaughter for all the other forms of debt for which treasury yields form the base.
How much does it help for homeowners to be able to borrow at "reasonable" rates if corporations can't?
You can't cheat your way to prosperity.
We need to stop focusing all our efforts on trying to do just that.
Oooo ... can't wait to get me some of that hot, fresh, GSE debt!
Hot, fresh, steaming... oh and here come the flies.
Found this long but good bank article over at nakedcap:
Banks losses and capital: The new version of the paradox of Achilles and the tortoise
Bank capital and write-downs: Zeno’s paradox and the subprime crisis | vox - Research-based policy analysis and commentary from leading economists
What do the companies look like after the bailout? It's not like these behemoths can go away overnight or that we can pretend the government has the staff to run these places?
Treasuries yields rising to reflect true market value and conditions would trigger a massive wave of defaults on ARMs of all types tied to the FFR. Wht do you think there ia all this scurrying around to get people into fixed rate loans? The govt cannot set interest rates like this for long and time is short.
Fannie Mae's chief executive sought to reassure investors that no bailout is imminent.
"They haven't offered anything and we haven't asked for anything," Fannie Mae CEO Daniel Mudd said in a public radio interview Wednesday morning. "I don't anticipate that they will do that."
Mudd said the company's financial position "remains very strong," and that he intends to remain Fannie's CEO.
The article requested is no longer available.
He said that with a straight face?
"Of Bazookas and GSEs" by Hank Paulson will be published next year. (in Argentina)
Bill Miller must want to shoot himself.
rob you nailed it, they know the shit that is coming down, it's becoming crystal clear to them how compounded this problem can get.
2009 is going to be amazing.
Those GSE longs must be hoping for a $10 a share BSC-style payoff. LMAO!!!
"And it would have worked too if it weren't for you meddling bloggers and their darned dawg." -Paulson
[except the animation is much worse]
As per Seeking Alpha, From a traditional corporate finance perspective, this is an investment grade company, says National Citys treasurer. The rating agencies say so and the balance sheet says so.
Whether it was with a straight face ihard to fathom, and I play a lot of poker.
It seems like market participants are trying to force Paulson's hand.
Adam Smith's invisible Hand at work.
Rob Dawg said:
The govt cannot set interest rates like this for long and time is short.
Yep. The end game is here.
Is it just me, or is there an unusual amount of cliff diving going on? Certain stocks, Freddie and Fannie's credit, Architectural billing...
The only bullish indicators I'm seeing are manufacturing in Texas and the Carolinas. Yea.. Ohio, Michigan, and other manufacturing states puts the overall industry down.
Got Popcorn?
Neil
Paulson is that a bazooka in your pocket, or are you just prairie dogging?
I expect that when it's time for Hank's quick draw the bazooka will go off in his pocket and blow his balls off. Then what?
What does this mean if you own Ginnie Mae shares or treasuries? Can some kind soul humor me with what this is likely to mean to said investments?
I expect that when it's time for Hank's quick draw the bazooka will go off in his pocket and blow his balls off. Then what?
Conjure feasts.
Bill Miller must want to shoot himself.
Anyone remember how much he bet?
Said Insider information: President Kennedy's brain has been located, inside Cramer's skull. Cramer's brain is listed on ebay, but no bids.
304 visitors. As Shaggy might say; "I have a very bad feeling about this Scooby."
Everything is undone. The centre cannot hold (ask Tanta if you need to know).
The TVA raises rates more than at any time in nearly the last two generations. Financials down market up. Oil up on massive inventory increases. California still no budget. And don't underestimate this last. When a 20% of 18% of the US economy is about to shut down the ripple effects will be international. Especially since Cali is such a major player in the muni market. That alone could trigger a cascade failure of dozens of hedge funds and strain typically stuporous investment pool redemptions in a flight to quality.
The bail out legislation stipulates that the GSE's must request a capital injection. Fat chance. The CEO's and Boards could be sued by shareholders for agreeing to an injection that would wipe them out.
The only way around this is for OFHEO to force them into conservatorship, fire the mgmt, and hire a CEO that will agree to a capital injection. Problem: OFHEO has repeatedly said the GSE's are well capitalized.
So what does Hank do? I think Cramer is being to generous -- its likely Hank has no idea what to do here. Forcing them into conservatorship seems like the most obvious choice. The problem with that course is that Hank and OFHEO's Lockhart will be open to political charges of incompetence -- claiming that they are well capitalized one moment, taking them over the next. Further, its likely that a nationalization will stick in W.'s Crawford craw.
Will Hank bite the bullet and accept the blame, or will he still try to kick the problem to the next administration? Relax, Cramer, I don't think anyone knows the answer at this point...
Fortune
The next credit crunch / Our easy access to plastic is about to dry up - and with it our ability to fake living the good life.
Value Driven: The standard-of-living bubble - Aug. 20, 2008
Well, isn't this all just peachy?
Howls of derisive laughter.
Ah well, the game is up, and Paulson should just do the deal over the weekend. Of course, he will hither, dither, and make things much worse.
Obviously we have a bunch of zombie banks- Wachovia and Wamu come to mind, along with some major stupidity yet to come when Bank of America allows the CFC entity to bk.
So what to expect? A continuous dripping of bad news, followed by another bottom calling rally, followed by another patch on the system, followed by the next blowout crisis.
I am getting bored with it.
Now, as the man said, it gets weird.
I read the stuff about Russia, and look at $1400 an ounce platinum, scratch my head, and then begin to wonder why every ounce available isn't stuffed into everyone's safety deposit box. But enough sounding like the Mogambo Guru.
But hey, capitalism in the late stage is just strange indeed.
Someday this war's gonna end...
Fannie Mae's chief executive sought to reassure investors that no bailout is imminent.
The bailout will happen as soon as the VIX gets over 30.
Freddie, Treasury met to discuss aid -sources
Freddie, Treasury met to discuss aid - sources
| Reuters
Taxpayers are about to get shoot in the ass with a bazooka, the first of many to come.
Reuters
U.S. banks may keep credit tight even in GSE bailout
"It's a mistake to think a bailout of Fannie and Freddie is going to cause a sigh of relief by lending officers and for them to loosen credit," said Bill Hackney, managing partner of Atlanta Capital Management Co. "Damage to balance sheets has already been substantial."
U.S. banks may keep credit tight even in GSE bailout
| Reuters
When I see what's going on with F&F I can't help thinking of Kurt Vonnegut words of wisdom; "Goodness me the clock has struck,
Alackday and fuck my luck!"
Fannie and Freddie may be toast. US government debt may be toast. The dollar may be toast. But always remember, we've got nucl'r weapons. We can make the world an offer it can't refuse: Buy our dollars and our debt, or else!
But empty threats don't seem to be helping the Georgians much.
as bad as that bazooka to the ass can be, wouldn't you agree it's better then not taking it? somehow, lord only knows how, taking on that amount of debt is the lesser of two evils.
the really bad news is that there are probably another 10 evils waiting to be decided on.
"The TVA raises rates more than at any time in nearly the last two generations..."
The Tennessee Valley Authority controls interest rates? In all my years on the board, my banking buddies never once mentioned them!
And explain to me why the mortgage interest rates went down today, but a couple weeks back it shot up after Fannie and Freddie announced bad quarterly results?
Goldman decreased their gold forecast to 740-810 while maintaining oil at 149.
Something not right there, their research teams are not talking to one another.
Broker,
You made me think of Slaughterhouse 5 where the bombers went in reverse. That would be a nice trick for the finance world right now...and less grey hair for me.
Hey,
How come CR gets to use RED?
If downstream brokerages deliberately stuck their heads in the sand but continued to actively market these products to unknowing investors, that will certainly be relevant to our calculus of the firms' culpability," Benjamin Lawsky, deputy counselor and special assistant in the attorney general's office, said in the letter. "These firms are licenses broker-dealers and were obviously well paid by their clients for their specialized knowledge and diligence regarding the appropriateness of various products as investments."
"The TVA raises rates more than at any time in nearly the last two generations..."
The Tennessee Valley Authority controls interest rates? In all my years on the board, my banking buddies never once mentioned them!
Outlier
ELECTRIC rates. You know, because the cost of the free water behind the free dams has risen so dramatically.
Re: Taxpayers are about to get shot in the ass with a bazooka,
That's why Bernanke has KY Jelly
But always remember, we've got nucl'r weapons.
We aren't the only ones and unlike us they would probably not afraid to use them. That is where "W" screwed up after 9-11. He should have turned Afgo into a sheet of glass and asked who's next. Now were bogged down in two wars, not one and we are being financially bleed dry. To many women in this country and we ain't gonna use no nukes.
"flight to quality"
And that would be where? A currency that has lost purchasing power for the last 20 years?
I said in an earlier thred that the Ruskies or the Olympic hosts would not like to suffer losses on the bonds they hold - and its a lot!
Then again, economic might is a reality. The Ruskies simply have to rumour a major sell order and things would get rather shakey. Or perhaps they dump maybe just 100M in liquidation mood to make a point.(Enough for the missle agreement to be undone?) I think the fact that they elected to default some years ago instead of trying workouts speaks volumes of their forward approach in getting things done.
The reality is that the US, contrary to popular thinking, is not the economic powerhouse it once was simply because of debt.
Once F & F go PK the Treasury will have found them insolvant. Stock holders get nothing. Bond holders remain whole. And, the US taxpayer gets pinged. New mangement, new paper, new entity. While this all goes on incremental lending aint gunna happen and the credit cycle gets even worse.
Hey Outlier, call up your bond buddies and price a couple of billion in new debt, then get back to me;-}
Something not right there, their research teams are not talking to one another.
Eh, maybe they think inflation won't be as big an issue, Europe will have to cut rates, but there will be political instability that will overcome the demand destruction on the price of oil.
Read Roubini's latest:
"Hundreds of small banks...will go bust."
"In a few years time there will be no janor independent broker dealers as their business model....is bust..."
"The FDIC will...run out of money as hundreds of banks will go bust..."
"Fanny and Freddy are insolvent..."
"This...crisis signals the beginning of the decline of the American Empire..."
FFDIC, I'd say those last two articles you linked to are ominous. 1) Banks are being forced to delever and recapitalize. 2) Bids on Credit card debt securitizations being issued by banks are drying up in the way that bids on mortgage backed securities have done. All leading to a potential banking/consumer credit crunch of massive proportions. I also liked the Fortune article's take on the standard of living bubble as underlying all this - the U.S. consumer spending more than they make and borrowing through the dotcom and housing bubbles to allow them to fake a rising standard of living when incomes were not keeping pace.
Someday this war's gonna end...
Not in our lifetime brother.
"Sir, turn up the T.V. set the war has started on the ground" - Roger Waters
Whoops, make that FFDIC's first two articles.
Sorry AllenM, back in the day (early 90's) we held the mortgages whole in the bank without derivatives and measured our profit in millions. We were sold to a larger regional and I left. I don't know this world but it sounds like the asylum is being run by the loonies.
daveNYC writes:
Eh, maybe they think inflation won't be as big an issue, Europe will have to cut rates, but there will be political instability that will overcome the demand destruction on the price of oil.
Inflation is already an issue. Europe may not cut rates, Trichet gave no inkling of that and besides it's not even in his mandate.
I guess their spin can only be spun so much before they get tangled in their own web.
Like I've said time and again, J6P's going to go into shock when his choices for purchasing a home entertainment center at Best Buy are "cash or layaway"?
Things are going to get much worse. I think CR is far too optimistic re recession. It may be slow in building but it will be a humdinger.
For the person who asked about Ginnie Mae - it is not publicly traded.
Ginnie Mae - Government National Mortgage Association (GNMA)
Things fall apart; the centre cannot hold;...
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?
-- William Butler Yeats, "The Second Coming"
There are those who have a vested interest in this second coming and they seem to hold the upper hand judging by the unremitting sell off of FRE/FNM.
"It seems like market participants are trying to force Paulson's hand."
I agree, but why? What is the end game? Complete nationalization of the wholesale mortgage industry or national default?
Just asking, I don't know the answer.
"Russia has warned that a US-Polish missile defence deal creates a new arms race in Europe and beyond.
A foreign ministry statement said that Moscow "will be forced to react, and not only through diplomatic demarches". It did not elaborate. --BBC"
A friend of mine who fixes personal computers for a living (for the last 7 years or so) and is decidedly not the alarmist type has mentioned to me twice in the last couple of weeks that he is getting deluged with calls to clean up machines with vicious viruses. He said he told two people yesterday that it would be cheaper to toss the machines and get new ones.
I'm not sure how he knows this, but he says the viruses are coming from Russia. He (seriously not a conspiracy type) is actually considering the idea that they may be some sort of 'payback' from Russia.
PS....i asked him if he can figure out how these people are getting them and he says that to the best he can figure it is popups that ask people to update things, mostly adobe. He is now telling people if they get any request to update something to close it down, go to the vendor's website and update from there.
Since we're citing poetry
I met a traveler from an antique land who said two vast and trunkless legs of stone stand in the desert. Near them on the sand...
ZIRP,
Tanta would be proud of you.
Merrill brokers sold the securities to investors as a conservative, cash-like investment but when the auction market dried up this year, investors were left holding long-term notes that are hard to sell.
The brokers requested Pimco and BlackRock buy back their securities from stranded investors, Bloomberg reported.
The news agency reported that more than 300 brokers e-mailed Pimco and told the asset manager its executives may no longer be welcome at Merrill's offices.
Merrill presses issuers to buy back ARS--Bloomberg
| Reuters
Game of hot potato and not a bag-holder in sight.
Merrill Lynch: "Still Bulshitting America"
Like I've said time and again, J6P's going to go into shock when his choices for purchasing a home entertainment center at Best Buy are "cash or layaway"?
My fave part is he will have to drive by 3 empty, boarded Best Buys to get to one to find out they don't offer credit any more.
Any predictions on the date of the next crisis? One week? One month?
These two companies were intentionally stuffed to their gills in crap and as far as I can tell are still being topped off. Pouring money on this fire will only make the fire bigger. But you can't get off the roller coaster now until it comes to a complete stop and the last drop is the biggest drop ever built. WEEEEEEEEEEEEEEE.
"The Russian finance minister, Alexei Kudrin, told reporters in Moscow on Tuesday that Russia was still buying debt issued by Fannie Mae and Freddie Mac, but on a smaller scale."
Everyone knows that Russian Finance Ministers always tell the truth. Could be, though, that smaller scale means a couple of bucks.
"Any predictions on the date of the next crisis? One week? One month?"
Constant crisis mode from here on out, you can't really say you comrehend what is happening now or going to happen going forward now that Freddie and Fannie are toast. Constant crisis.
If agency bonds have the backing of the US treasury, then why was yesterday's spread at the auctions 1.3% above the five year T-Bill? I looked recently at Pimco's fund that does agency bonds and it has been appreciating quite nicely.
Short of the US going bankrupt, where is the downside risk in these bonds?
"We aren't the only ones and unlike us they would probably not afraid to use them."
Everyone's afraid - and right to be.
"Any predictions on the date of the next crisis? One week? One month?"
Noonish tomorrow sound good?
We should go back to a suggestion from Bernanke in spring and insure the GSE securities explicitely by the federal government for a fee. Holders of old bonds get only what is in their bond, nothing more.
The uncertainty in the market costs the taxpayer and house buyers extra and enriches those with political antennas.
Hank and his IB cronies are looking at the F&F crisis as an opportunity to transfer the mortgage market business to the banks. They will arrange over time an appropriate F&F failure, while establishing the foundation of a profitable covered bond business, snatching victory from the jaws of defeat for the banks, screwing homebuyers with higher mortgage rates, homeowners with lower values, and losses all around for GSE equity holders and taxpayers.
It's just the American way.
Detroit Dan writes: Any predictions on the date of the next crisis?
Historically, October has always been a great month to have a crisis roll in. (Must be the prime migrating time for black swans...)
Paulson could learn a trick or two from the Ruskies on hardball tactics.
Like threatening to burn down a national forest or two if we don't all do our patriotic duty and buy FNM and FRE common stock tomorrow:
Burn, baby burn
Will Hank bite the bullet and accept the blame, or will he still try to kick the problem to the next administration?
No reason he can't do both. He'll bite the bullet, bail out the GSE's per plan, then let the next administration deal with the unintended consequences. All he's doing is now is stalling per GOP orders. NOBODY knows exactly how this will all play out once the bailouts happen, but ANY action he takes means more votes for Democrats in November. If Democrats make non-action an issue before the election, then he'll take his action to diffuse the issue before the election. Politics.
Detroit Dan writes:
"Any predictions on the date of the next crisis?".
August has a good record for major drops.
Reading the yahoo boards is a reality check on how dumb a good portion of Americans are.
I remember browsing the yahoo boards just a few weeks or days before the collapse of New Century. There was a guy on there saying he was gonna buy up a bunch of shares, because at the then-current price, the dividend yield was extremely attractive. People replied, "You idiot! How long do you think they will be paying a dividend?" And he replied something along the lines of "I don't think the board would cut the dividend and risk undermining investor confidence in the company." I am not making this up.
syvanen writes: ...Short of the US going bankrupt, where is the downside risk in these bonds?
::
Repayment, always repayment. So why buy?
US Treasury is a backstop -> zero cash absent USD printing, massive inflation. US Treasury (and agencies) operates virtually no revenue streams other than taxes, and we all know those are drying up, irrespective of POTUS-elect, over the next decade, minimum.
Similarly, IBs and reserve banks cannot report income to recover liabilities. Simple as that: all but "core banks" are broke, insolvent. FRB is swapping USD for defaulting corp coupons and commercial paper to bankroll enterprise cash flow --bank clients!-- while speculators capture overnight capital gains. Worse, IBs and reserve banks are either unwilling or unable to issue securities ("recapitalize"), corp obligations or booked income, of sufficient value to substitute MBS. Hence rising capital costs at issue and at coupon.
There is no prospectus on FN revenue generation, because these intermediaries simply cannot break the box. Gains to speculators have nothing to do with anything except redistributing profits already captured.
He (seriously not a conspiracy type) is actually considering the idea that they may be some sort of 'payback' from Russia.
It's just Russian hackers with more leisure time since their asset bubble has just started.
I am not making this up.
More recently, some shmuck tried to tell me that I should buy Fannie and/or Freddie because they were under 10 bucks and "the furniture has to be worth at least that".
I made the mistake of trying to explain when it comes to selling furniture, common shares are last in line to get paid. Lights were on, but nobody was home.
You know, because the cost of the free water behind the free dams has risen so dramatically.
Dunno much about TVA, but if it's anything like BPA, the problem is this: there isn't enough (almost) free power to meet the needs of the region, so the federal agency has to go to the market to buy power to meet that demand. As market prices increase, so do the bills of BPA's customers. I bet TVA is in the same situation.
peAkcredit writes:
Hank and his IB cronies are looking at the F&F crisis as an opportunity to transfer the mortgage market business to the banks. It's just the American way.
peAkcredit | 08.20.08 - 6:34 pm | #
I think you hit the nail on the head. Crony capitalism at its finest. The so-called invisible hand is the one stealing our wallet out of our pocket while we're busy watching the train wreck on HD TV that we bought from BestBuy on credit with no payments til January.
Would anyone else here be not the least bit surprised if Cox plays a slightly draconian hand either tomorrow or Friday, causing a predictable short covering event slash rally ... and thereby giving Hank at least another week before he has to pull off a weekend at Bernie's with the GSEs?
A Cox stick save wouldn't surprise me, but then again nothing would at this point. I'm not sure what effect it would really have, though, beyond a few 5 minute fat green candles on the XLF. Most of the zombie banks and builders are now in the hands of the day traders and da Boyz. They've seen this trick before, and they play both sides.
"Weekend at Bernie's" might be one scenario, but so would "Night of the Living Dead." Either way, Fannie and Freddie shareholders will have headed for the exits long before this film ends.
"The news agency reported that more than 300 brokers e-mailed Pimco and told the asset manager its executives may no longer be welcome at Merrill's offices"
Perhaps because someone swapped out the door mat which said "Welcome to Merrill" but now reads "Closed Call Treasury"
It won't matter this time around, Tyler.
Tyler K,
That's been the SOP for the last year. Think of last August. Watch the market fall 300+ points then magically rally back to unchanged. Then a huge rally Friday after Cox, Paulson, or Bernanke 'publicly' announce some other band aid for the broken leg.
You know, they'll call their favorite trading desks Thursday at 2 pm and tell' em to back up the truck.
Like I've said time and again, J6P's going to go into shock when his choices for purchasing a home entertainment center at Best Buy are "cash or layaway"?
This will not happen until China comes apart at the seams -- perhaps taking a few other Asian mercantilist nations along with it. The Asian vendor financing fraud is the cornerstone of this entire edifice of financial chicanery.
If J6P can't buy, unemployment in Asia will skyrocket, the Chinese citizenry will revolt and string up every corrupt crony capitalist they can lay their hands on, and as the nation descends into chaos exports will decline further, and there'll be even fewer dollars coming in with which to buy GSEs and Treasuries to subsidize J6P's purchases of the exports, sending the system into a death spiral.
There will be a dramatic diaspora of corrupt Chinese businessmen and officials to the US (or Canada), like that of Iranians after the Shah's overthrow. It seems that in anticipation of this, many of them have prepositioned a family member here.
This won't be a pretty sight.
The GSEs each have over $500 billion in unencumbered securities. They can repo their mortgage backed securities to obtain at least $250 billion of cash, even if you assume they will take a haircut of 50%.
Bear Stearns went down because it became insolvent. It used repurchase agreements to fund its daily operations. Fannie and Freddie don't currently do repos at all. I don't see any risk they will lose their solvency.
The biggest risk to the share price of FNM and FRE is that the Treasury/Fed would force the GSEs to take an infusion of equity capital, which would bring the stock price to zero.
Unless the Fed/Treasury forces such an equity infustion, the senior executives of Fannie and Freddie would definitely prefer to use repos to obtain cash and stay in business than to have equity holders completely wiped out (and their jobs lost!) by obtaining an equity infusion from the Fed/Treasury.
"Although Josh Rosner, of consulting and research house Graham-Fisher, argues that the minimum the pair need to raise is at least $40bn, he believes the realistic number is more like $100bn.
His estimates are based on the roughly $3,500bn in guaranteed books of business the two firms hold, and are based on past peak losses of approximately 1.3pc in the 2002-03 housing downturn"
Fannie Mae and Freddie Mac shares fall on fears of size of potential losses - Telegraph
anon at 4:46-
while I do agree that the pennant has failed...it means absolutely nothing in the time of massive intervention and printing press operations, sorry AUCTIONS.
It may be a way to suck a larger short side in and then turn it for yet another squeeze-induced rally.
Lather,rinse,repeat.
Ciao
MS
This admin. doesn't want F&F to fail in October 1 month before the election nor do they want to nationalize. They write 80% of current mortgages. Many headless chickens are flopping. I think the play is F&F will receive any money they may or may not need, not from Govt. directly at least. All parties are being coy as their share price plummets. Soon a knight in shining armor will arise. F&F share price doubles, triples or quadruples.
"Bear Stearns went down because it became insolvent."
The rest of them are as well (the remaining four) however BSC was not in any worse shape than the rest.
Paulson took out his dick, measured it and it was bigger than Cayne's. This is the payback for BSC's lack of participation in LTCM. That's why BSC was allowed to fail. LEH actually has a worse sheet then them ( I know what shit loans they wrote up to mid '07)and why are they still around?
Penis envy.....
Ciao
MS
Detroit Dan writes:
"Any predictions on the date of the next crisis?".
I still see the last 2 weeks of September after the Olympics and both conventions are all done.
"The more loudly law was talked about, the more unlawful things were done."
-- Anglo-Saxon Chronicle
obituary of William the Conqueror
...this is the payback for BSC's lack of participation in LTCM. That's why BSC was allowed to fail. LEH actually has a worse sheet then them...and why are they still around?
I realize "Big Picture" - with his usual level of inaccuracy - has published that Bear was the only major not to participate - but that is factually incorrect. The other company you mentioned above is another major who chose not to "help" with the LTCM bailout.
So I'm afraid your entire theory is blown out of the water, mate.
Is there a way to find out who owns one's mortgage debt?
It would be interesting to make an offer:
Hello, I owe your firm 250K on a currently 400K (By Zillow.com) rated house, however it is a very depressed area.
I would be willing to take this loan off your hands for 145,000 for full payment, and for you to report the loan paid as agreed, as it has been for over 5 years. As you can see we never were late with a payment, this offer simply gives you one less thing to worry about and helps you sleep at night.
Thanks for your consideration, etc..
Any ideas on how to find out?
"backed by the full faith and credit of the US gubbermint,"
I think the term should be "rubbermint."
If Obama is lucky and/or smart, he will keep his inept campaign management team in place through election day so that McCain will have to deal with the cold, hard reality in January. Let him be the 21st century Hoover.
lots of talk about F&F, but how about the L word?
hasn't been a lot of rain this year in TVA country thisvyear & it's easier to jack electric rates than ration water.
Besides, they can always buy spot nuke power from Florida.
Eesh, you'd have to be Ben Miller like to buy GSE debt, or treasury debt for that matter... unreal.
Broker,
You made me think of Slaughterhouse 5 where the bombers went in reverse. That would be a nice trick for the finance world right now...and less grey hair for me.
-lama
Here it is...
American planes, full of holes and wounded men and corpses took off backwards from an airfield in England. Over France, a few German fighter planes flew at them backwards, sucked bullets and shell fragments from some of the planes and crewmen. They did the same for wrecked American bombers on the ground and those planes flew up backwards to the formation.
The formation flew backwards over a German city that was in flames. The bombers opened their bomb bay doors, exerted a miraculous magnetism which shrunk the fires, gathered them into cylindrical steel containers, and lifted the containers into the bellies of the planes. The containers were stored neatly in racks. The Germans below had miraculous devices of their own, which were long metal tubes. They used them to suck more fragments frm the crewmen and planes. But there were still a few wounded Americans, though, and some of the bombers were in bad repair. Over France, though, German fighters came up again, made everything and everybody as good as new.
When the bombers got back to their base, the steel cylinders were taken from the racks and shipped back to the USA, where factories were operating night and day, dismantling the cylinders, separating the dangerous contents into minerals. Touchingly, it was mainly women who did this work. The minerals were then shipped to specialists in remote areas. It was their business to put them into the ground, to hide them cleverly, so they would never hurt anybody ever again.
The American fliers turned in their uniforms, became high school kids. And Hitler turned into a baby, Billy Pilgrim supposed. That wasn't in the movie. Billy was extrapolating. Everybody turned into a baby, and all humanity, without exception, conspired biologically to produce two perfect people named Adam and Eve, he supposed.
If Obama is lucky and/or smart, he will keep his inept campaign management team in place through election day so that McCain will have to deal with the cold, hard reality in January. Let him be the 21st century Hoover.
If that happens, it will prove that god is not dead, but instead, god hates us.
Naw, it just shows God has a great sense of humor.
"REBear writes:
Why don't FRE and FNM put all the bad loans in a separate entity and spin it off? Paulson can later nationalize the skunk."
That is actually a good question but in a different way. As near as I can tell Fannie doesn't have a huge book of bad loans (and I think Freddie is the same).
Out of trillions in Fannies loan book there is only a few hundred million in subprime (and they stopped taking any more long ago). And there is just over 10% it looks like in ALT-A (and they have likewise virtually stopped taking those as well).
The vast majority of their loans appear to be fairly high quality, fully performing, with low foreclosure rates and no real indication they will rise significantly.
They also have as someone noted a lot of liquidity - or ability to create liquidity. Not to mention a lot of cash income - think something like $3 million in Q1 2008 alone.
The biggest problem, and almost entire basis it seems for all the negative comments about their "solvency" are the billions in "fair value" accounting adjustments - where they are being required to write down fully performing loans that seem to have little indication they are ever likely to be a problem, that they intend to keep, to fire liquidation sale prices.
I can't seem to make sense why there is not more review and discussion of the strength of the loans in these companies - since the loans are the assets that make up the value?
Nigel Swaby wrote:
For the person who asked about Ginnie Mae - it is not publicly traded.
Yes, but GNMA bonds are readily available via GNMA bond funds like at Vanguard or Fidelity.
Fannie Mae Chief Executive Daniel Mudd said on National Public Radio that "Fannie Mae has more capital than it has ever had in its history" and it has not been offered help by U.S. Treasury officials.
What a bailout for the two mortgage giants will look like is unclear at the moment. According to Barron's, who issued a report this weekend for Fannie and Freddie, a possible structure would consist of the government purchasing massive quantities of preferred stock in both companies.
Preferred stocks are convertible investments that are often first in line to get paid off if a company goes bankrupt.
Quincy Krosby, chief investment strategist at The Hartford, said the government would likely use convertible stock because it has the highest chance of providing the necessary liquidity to Fannie and Freddie, while also providing the best chance of taxpayers getting their money back or even turning a profit.
220mph wrote: They also have as someone noted a lot of liquidity - or ability to create liquidity. Not to mention a lot of cash income - think something like $3 million in Q1 2008 alone.
Then, if I were you, I would be out there buying up as much their stock as I could. Sounds like the best thing since sliced bread.
diogenes
I just asked the question, to try and understand the relationship between the seeming strength of the assets (loans) vs the claims of insolvency and alleged need for a bailout
If the underlying loans are generally OK, and they have strong cash flow (I should have said appx $3 billion, not million, in Q1 2008) then how are they supposedly "insolvent" and in need of a bailout?
Again - just trying to get some insight
o key money,
the GNMA bonds you are referring to are bonds backed by single-family mortgages guaranteed by GNMA. They
are mortgage-backed securities. They are not, at least directly, corporate credits.
yt, crabs