Instead of giving each company a big capital infusion up front, the government plans to make quarterly infusions as the companies' losses warrant, the sources said. This would be an attempt to minimize the initial cost of the rescue.
On September 5, 2008, the FDIC was named as Receiver for Silver State Bank, Henderson, Nevada by the Nevada Financial Institutions Division. All insured non-brokered deposits were transferred to the acquiring institution; for further information, please visit the FDIC web site: Silver State Bank (http://www.fdic.gov)
NYT saying the preferreds would also be wiped out. Looks like those buying the XLF made a bad bet.
"Under a conservatorship, most if not all of the remaining value of the common and preferred shares of Fannie and Freddie would be worth little or nothing..."
There has to be pain. Has to. Paulson made sure in the Bear deal that there was pain. He wanted the $2/share, only to be upended later on by bear shareholders threats to block the deal.
I would not be surprised if preferred shareholders and even subordinate debt holders are hurt a bit. Not senior debt holders.
Either way, its a bail out with ultimate inflationary ramifications down the road.
NYTimes - U.S. Plans Takeover of Fannie and Freddie
"The officials said that the executives were told that the government had been planning to announce the decision as early as Sunday, before the Asian markets reopen." (China rules!) U.S. Rescue Seen at Hand For Two Mortgage Giants - NY Times
Elvis,
I'll be very curious to see if the bit about the preferreds getting wiped out really turns out to be true. I'll be a little surprised if this crew was willing to do that to all their banker and "investor" friends.
I had heard that China lightened up on their holdings over the last weeks--did they get advance word, or was it just that obvious what was going to happen?
Phew! My 401k is entirely in PIMCO bond fund, as Fido doesn't give us many choices (and they've done well so far). This sounds like my retirement is safe ...
Gary Shilling opines that with some creative accounting the Treasury can keep this from affecting the federal balance sheet. Well, stretch it out a long, long time at least ... and we know politicians are great at creative accounting.
Actually this doesn't sound too bad. Even the commons shares don't get wiped out.
Under the plan, the federal government would place the firms in a legal state known as conservatorship, the sources said. The value of the company's common stock would be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, would be protected by the government.
Took my tin-foil hat off for a moment (needed colander for pasta), anyway, it occurred to me that I really don't care whether we get an enormous tax bill or not.
I'd really rather see folks who are insured get their money back from their local bank. I would prefer brokered (hot money deposits) that are un-insured take a large haircut and local un-insureds take a medium one, but, overall, they aren't the problem.
It's the principal-agent problem writ large and exemplified by bankers/lenders who: 1. aren't very good at what they do and 2. are just as venal as the next guy but have oodles more responsibility.
So:
Shareholders-zip
Boards-toast
Fees, parachutes, severance, etc. -reclaimed to pay off insured losses at FDIC
Hedge Funds and PE? It's your hindmost the devil shall take.
I was talking to a Realtor the other day about this possibility,and his response was "what's the big deal,people still need houses?".Some folks take 2 hours to watch 60 minutes,and that won't change.
CR,
The way I see it, either we bail 'em out through the FDIC or through the agency bailout process. One way or another, the government (aka future taxpayers) will cover the losses.
My guess is we cover the preferred because that looks less bad politically than an immediate jump in bank failures and writedowns. From a long term perspective, though, it's probably the wrong move.
Well, the line at Lefty's is going to be pretty long this weekend.
On the other hand, this is really going to shoot my Monday. I've been telling my union members to get their 403bs clear of anything associated with RE OR Financials. Not a time to gamble. They never listen, unless there's a big announcement, or the market takes a big dump.
The WaPo and NYT seem to disagree on the fate of the preferreds. I guess we'll find out sunday afternoon with the press release.
Bush/Paulson does not care about the country, but they do care about their legacies. Vanity should motivate them to: 1) bail everyone out so that they don't get portrayed as Hoover, or 2) bail no one out so that they are remembered for at least being true to their free market principles.
Given Bush's stubbornness with Iraq, he just may be crazy enough to do the right thing and flush out the rot in the system.
With the exception of several high profile periods in the past, such as the 1998 period when losses at a highly
leveraged hedge fund (Long Term Capital Management) created instability in financial markets, credit losses
from derivatives contracts are generally small.
As long as we continue the bailout's , no one can ever lose. Keep the Pie growing.
ades, obviously I wasn't counting on this mess. Really the debt should only be increased by the amount of the losses - not the entire debt. At least there are offsetting assets (most of the loans will be repaid).
It's hard to believe anyone still owns the common in Freddie and Fannie (above some low option value). I've thought for some time that this was good for the debt holders but terrible for the common stock holders. Oh well ...
I will be appalled if the preferred shares are gov't guaranteed. I can't believe that would be legal. What is the mechanism for this offer? How can you wipe out some of the equity without wiping out all of the equity (including preferred). Do we have any legal experts here?
Do you mean they could create an off balance sheet item?
I'm sure that will work out."
Kneel_before_Zod - yes that is correct. They were made private in the first place to keep their bloating numbers off the federal balance sheet. I betcha Shilling is right - essentially nothing changes with the conservatorship. It's mainly changing an implicit backing to an explicit one.
The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power.
The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that foreign currency.
Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short.
Interest rates, wages and prices are linked to a price index and the cumulative inflation rate over three years approaches, or exceeds, 100%.
I will be appalled if the preferred shares are gov't guaranteed. I can't believe that would be legal. What is the mechanism for this offer? How can you wipe out some of the equity without wiping out all of the equity (including preferred). Do we have any legal experts here?
Well, we don't know the plan. But it sounds like "dilute the hell out of the common while continuing to pay out preferred dividends," and there's nothing wrong with that.
Or is the treasury just saying that it will inject enough common equity to keep the company operating? In which case the common stock will eventually be worth pennies. Wouldn't the preferred equity receive a massive trim in this scenario too?
Why isn't anyone talking about the socialization of mortgage debt. ALL OF IT. Fannie, Freddie and the gov't agency Ginnie fund upwards of 90% of all mortgages being originated in 2008.
I don't understand the Bush Administration's motivation here. How do the republican's coincide their allegence to small gov't and free markets with this move that makes them the lender for 90% of all mortgages being originated today?
To avoid an immediate 33% increase in mortgage rates (required to entice Wall Street back into the game) the gov't will have to fund ~$4 billion dollars of new mortgages a day for the foreseable future.
Can someone explain to me how Fannie or Freddie limping forward or even failing is worse than that?
As it is, Ginnie has steadily increased market share to August's current level of 35% of all securitizations by lending cash-out refinances up to 95% LTV. The weighted average LTV of their 2008 book of business is 93%. Use Case-Shiller to put that in perspective and I don't think there's anyway not to come to the conclusion that 50% of their 2008 BOB is or soon will be underwater (couple that with their FICO floor of 580 and they look like a live grenade).
I know this is mostly a "gripe" forum for snide commentary but does anyone know what the hell gives here?
If we effectively nationalize fnm.fre, then why would'nt all borrowers recieve the exact same interest rate., regardless of location, price, credit history. if the taxpayer is backing 90% of the loans out there, they should be one rate.
it would end all the int.swaps programs in a hearbeat, is my only guess.
Now they can hide these two copses over in the corner out of sight and out of mind and the taxpayer will probably never get a true accounting picture of what it cost when this is all said and done which is going to be a hell of a lot more the 800 billion Hanky Panky was set up with.
confused writes:
"If we effectively nationalize fnm.fre, then why would'nt all borrowers recieve the exact same interest rate., regardless of location, price, credit history. if the taxpayer is backing 90% of the loans out there, they should be one rate."
Exactly....
All Ginnie Mae loans pay the exact same rate!
Well, just because the gov't is doing it, doesn't mean they are obligated to be stupid. I mean, they probably will be stupid, but they don't have to be with regard to rates, etc.
Having lived thru the 80s and closed fixed rate loans of up to 17 1/5 %, I fail to see why letting rates just go up isn't better than the crap we are seeing.
Since there's now explicit backing of these agency bonds, seems like their yield should drop right down to where treasuries are. Own a treasury vs own a Fred/Fann, what's the difference?
CR said: It's hard to believe anyone still owns the common in Freddie and Fannie (above some low option value).
Exactly! So why the @#$*&! are we (the taxpayers) bailing out stupid people?
Take common->zero. It could be worse; I knew more than one man near retirement in the mid-80s who went back to work after their oil well partnership (best to note that the word "limited" was omitted) made an irresistible capital call.
I don't mind learning lessons. I don't mind other people learning lessons. I sure hate to learn someone else's lesson on my dime.
I don't see how bailing out debt and preferred holders is a good thing when it was the credit markets that caused the whole mess. This was a bond bubble not a stock bubble.
examine a system started from scratch that provides taxpayer back mortgages to borrowers at one reatge, and you'll come to find a system with NO Growth over the population rate, right?
It bears watching how this impacts the dollar. Obviously this kind of "conservatorcrap" means a bit less to foreign debt holders than advertised. Something really got broken tonight folks, remember that it came with a whimper.
The interest rate spread of fannie and freddie debt from treausry debt will be affected by federal and state income tax treatment. Treasury debt is taxed at the federal level, but exempt from state income taxes. As I recall, Resolution Funding Corporation debt is taxed at both the federal and state level as interest income. Fannie and Freddie's debts could be treated like Resolution Trust debt. Their yields would have to be higher than Treasuries to compensate for the state and local taxes.
Llama can correct me if I got the tax treatments wrong. He's forgotten more about accounting than I ever hope to learn.
Fed grants exemption to Chinese govt-owned banks to own controlling interest in US companies. They're also getting exempted from Bank Holding Company Act reporting and capital requirements.
Fannie's and Freddie's (sr debt) should mega-tighten to treasuries on this. It will be a combination of Treasury rates going up and agency rates declining.
I'd bet $'s to doughnuts that the preferred holders don't get dinged at all. Too much bank capital tied up in these as CR alluded to in an earlier comment.
I wouldn't even be surprised if the common rallied hard Monday, as the short base is ginormous, assuming the common doesn't get totally wiped.
And lastly, mortgage rates should decline somewhat, as mortgages essentially become treasuries. I say somewhat, as 10 year Treasury yields will climb, somewhat offsetting mortgage tightening.
FNM and FRE both better have incredibly tightened lending standards. I will call my congressman and both my senators every day if now I (taxpayer) am directly funding mortgages to people who cannot afford them, or subsidizing artifically low rates.
(its (202) 224-3121 if you were wondering - congress switchboard)
This is huge stuff. No wonder Greenspan went to work for PIMPCO. A scam all the way. Tonite I challenge Mr. Bill Gross to a steel cage match with my money on the line. Anyone think he will accept????????
Default is also a relative term. We defaulted on WWII debt slowly through inflation. Same with 'Great Society' and Vietnam debt. Same with RTC and Brady bonds. Same with Exxon's north slope fines.
Time and inflation cure many ills but against savers. Perhaps this is why we are not a nation of savers?
Global competitive (subtle) devaluations is baked in the tarts.
This is a game that average Joe cannot play. Debt and the forgivness is his only'out'. Joe votes.
No Nippon solution for us. Americans want honest to goodness quick fix bailout solutions.
Fanron debt should trade like Treasury. That's why Bill Gross is celebrating big time.
As long as the Japanese, Chinese and Saudis don't have any place but US Treasury market to place their vendor financing life's a beach in Newport Beach!
Ross,
I hear you, but I still think the template might very well be Latin America or Russia. I believe both experienced severe inflation prior to defaults.
Now that we have an explicit guarantee of no loss in MBS's it would be kind of foolish to buy treasuries with those pitiful yields. How long before they reach parity?
"I will call my congressman and both my senators every day if now I (taxpayer) am directly funding mortgages to people who cannot afford them, or subsidizing artifically low rates."
Yes and that whore will laugh like hell right after he hangs up the phone.
Fed grants exemption to Chinese govt-owned banks to own controlling interest in US companies. They're also getting exempted from Bank Holding Company Act reporting and capital requirements.
Can't one of you guys be less metaphoric and just come out with a point by point doomsday list or something? Sheesh, we aren't all uber-economic nerds.
CR, the WaPo has changed the wording re: preferred stock from "would be" to "might be". NY Times hasn't changed its wording of preferred being wiped out. WSJ isn't making a call on this.
It'll be interested to see how this plays out. I think, politically, for a Republican administration - more than the common is going to have to take a haircut.
The value of the companies' common stock would be diluted but not wiped out; while the holdings of other securities, including company debt and preferred shares might be protected by the government.
Vets get a free house? Probably the one that the bank bankrupted them with while they were fighting the vanity "war". Weekend warriors - ripped off eight days a week.
And if my taxes are going up, then I'm going to need another rebate from the govt. Hear that Obama/McCain? Just send it where you sent the last one. Double it tho.
Well, that's another take on the issue I'd never thought of homedad. Namely, that because of mutual funds, the middle/ upper middle class can have a place at the trough like the looters of old!
Not saying you're a bad fellow (it was the doing of your "agent"), but, it does put another spin on the growing leverage of the masses...I guess?
Foreign CB's refusal to load up on FNM and FRE's MBS, or in the case of Russia unloading half of their holdings just before the Georgia conflict, and sticking to US Trsy purchase clearly send the messages to Paulson and US Govt. that "... we will provide the capitals, you will do the bailout..." The only sensible thing for Paulson and company to do is put on the taxpayer tab at reasonable rate. The alternative suggested by the Russian's action of dumping agency MBS is total global financial chaos. Gross simply saw the only possible end game for FNM and FRE and loaded up his portfolio with agency instruments.
Watch and be amazed that American succumbed to the barrage of fear mongering and re-elect the same selfish Republican, hiding behind Country-first mantra, to perpetuate the downfall of the almighty USA. Jas is increasingly right, unfortunately.
I almost pulled it all from PIMCO this morning, but the only other viable choice (given the markets and what I know about them) is a stable value fund. Which actually isn't a mutual fund, so Fido isn't obligated to provide little things like a Prospectus. Where is your money, who knows?
But my gut feeling was to stay with Bill & Co. They did good last year - 9%, maybe this year will be good too.
Pimco are a bunch of whores looking for the next 'John.'
I had respect for Gross in the past but they are so big that they must be considered in the same game as the 'Street.' Too big to flail.
You do not want to know the costs of this calamity. Talking in billions or trillions is abstract and disingenious. Talk about declining
standards of living and a society of diminished hope.
I'm certain I read somewhere on a newspaper site that the dividend will get frozen - that reduces the value of preferreds quite a bit..
Now, don't we have a convergence of new issue Treasuries and FRM,FRE bonds ? I mean, if they offer them at different yields who's going to buy the lower yield ones, presumably the Treasuries ? Conversely, if the yields are the same, why buy FRM, FRE bonds ?
And if my taxes are going up, then I'm going to need another rebate from the govt. Hear that Obama/McCain? Just send it where you sent the last one. Double it tho.
Oh! Oh! Oh!
Can I get double the ONE F**KING DOLLAR they sent me last time?
God I hate being rich. (Um, yeah. Two bedroom apartment with wife and kid, and a 7k used truck. Lavish, this Bay Area life.)
Sam writes:
Hey guys, this could have a happy ending. Just look at Britney she was placed in conservatorship and now she is back on track. Same thing, right?
Per the story they would be "insolvent if the are taken over and the accounting is correct". WHY ARE THE NUMBERS NOT CORRECT NOW? WHY IS NO ONE IN JAIL?
And what happens to existing Freasuries ? In the FRM/FRE form they have to more attractive now, so why own the Treasury form ? We should see people selling the Treasury version of Freasuries and buying the FRM/FRE version, equalizing the yield ?
Do we know the difference between what FRM/FRE bring in monthly and what they pay out in interest monthly - because now the Treasury has that monthly bleed surely ? I mean if there wasn't a monthly bleed, why would they need this conservatorship type of packaged BK ?
People who should go to prison: Bill Gross, Ben Bernanke, Hank Paulson, George Bush, Dick Cheney, Alan Greenspan and all members of Congress who have supported these reckless bailouts.
OK, help me out here guys. Is it even remotely possible that this is just a BS lie (like so many others we've heard over the past 2 years) to prop the markets up a bit longer?
At this point, that thought is the only hopeful straw I've got left.
Who will control this conservatorship? Will it be Bill Gross, himself? That would be pretty obvious. I know, how about using a Goldman Sachs executive.
Wow. Our list of who needs to serve prison time is exactly the same.
I was a bit more lenient with the Congress. Didn't think prison. Just get them out of office STAT. I mean immediate dismissal.
And I like the feeling of having the Halls of Capitol Hill nearly EMPTY- the amount of politicians would go down by way more than half. These people have caused too much damage to remain in office.
Yowza, nice insight dryfly. Paulson kills two birds with one bailout. Restore confidence in agency debt and stealth recapitalize the Fed at the same time in time for the inevitable fallout.
Nice little jolt to keep me awake Cali Quake. WaitinginPNW: I agree, there are many factors that went into the decision to announce today; RNC over, markets imploding, Bill's whining...Time to start the long drawn out nebulous rescue that pushes all toxic waste past January. The details will likely be bled out, non-specific, open ended just like the original potential rescue plan.
You've got it right. There's no difference between Treasury bonds and Fanron bonds. We also got a new breed of MBS - TMBS - the one guaranteed by the Fedpress.
Taxpayers now are effectively in the mortgage bidness and are the largest "owners" of the housing stock. They should just take the next step and get into the HELOC bidness with new appraisal rules where all houses are automatically repriced at twice its current value.
How's Merrill Lynch in on this? What the heck is the govt doing here....shouldn't congress, senate,and we as taxpayers get all relevant paperwork, financial modeling, notes, spreadsheets etc. and vote on best solution before we move forward?
How can these crooks get away with making 50 billion each last 5 years?
4shzl writes:
NYT over WaPo every time. I'll even give odds.
What odds can I get on a nothingburger?
(I'm not saying that's likely, but if the odds are long enough I might take a flyer--we've seen plenty of Friday night rumors turn to smoke when the details came out.)
While Hanky Pank is at it he should also take GM, Chrysler and Ford into "conservatorship" and continue with the ownership society by ensuring all Americans get at least one super guzzler with a free gas coupon for life. I'm sure Cerberus can enlist Bill Gross and GreenScam.
Are you kidding me? It was the Dems that started this whole "oh those poor homedebtors, we've got to save them or they'll be homeless" nonsense once the banks started getting all the crap loans they made returned to them a couple years ago.
Dodd, Hillary, Schumer and Frank immediately jumped out in front of this issue to help the banks. They pushed this sh*t week after week after week.
When the Fannie/Freddie bailout was tagged onto to the housing bill at the last minute, the thing was approved overwhelmingly by the Dems (229 yeas, 3 nays), compared to the Repubs 45 yeas, 145 nays).
This sh*t is seared in my brain as it is what caused me, after a lifetime of voting Dem, to make up my mind to never vote Dem again.
AFAIK, we've got 149 moral representatives. 145 are Repubs and 3 are Dems.
Sickeningly bad odds of finding a moral Democrat. Unfortunately.
Paulson doesn't have to announce any immediate haircut in common, preferred or debt. If the gov is going to "infuse capital" as necessary, and take a position ahead of the common and preferred, that would mean that those classes get diluted slowly over time as the gov puts in capital and establishes and bigger and bigger position. In this process, the common would be diluted first, eventually down to
PeakViagra writes:
How can we look at this from a different angle and make this sound like a nothingburger?
Depends on the details. What if the government agreed to commit quarterly capital infusions to cover losses as needed and guarantee dividends and debt payments, but the commitment was only valid up to some ridiculously inadequate amount?
I can think of lots of nothingburger variations, but I don't really think there's much point in speculating when all we've got is vague and inconsistent leaks of a plan still apparently in preparation.
Paulson got a blank check for 800B from Congress, and he just needs to find a creative way to distribute it to his Wall Street pals. I guess the taxpayers just got bazooka. And yet there is zilch accountability to date.
A rumor has appeared out of the black hole in the center of the Milky Way that Lefty's Liquors is making a
$Fourteen Trillion$ IPO on Monday
and will accept payment for his preferred stock of choice distillates in barrels of light sweet Arabian cruse, or rubles, or 2008 Olympics souvenirs from the Ming Dynasty or possibly in refillable bourbon bottles, if you have enough of them.
Hurricane Ike recapitulates General Ike who said "Beware the currents and
winds off the West Coast of Africa"
or was it "Beware the neocons and the deregulated military-industrial complex they will create after the 2000 elections".
Using current accounting practices, they are going to be showing $2 to $3 billion per quarter in losses (apiece) or less for a while and still be over minimum regulatory capital levels - for a while. Whatever you think of the current accounting practices, there isn't any compelling reason to change them now, especially for the government.
This is a nothingburger, as far as I see it. Paulson already guaranteed the senior debt.
All they do is let it play out, and put the minimum additional capital in to keep them above the minimum regulatory capital levels.
If the current business is profitable at today's rates/fees, then the only real change is that there is certainty regarding where new capital is going to come from.
We will have to see more, but I would imagine that the treasury wants to do as little as possible, and that would mean putting up a few billion in new capital that the companies need to keep over regulatory minimums.
Well, if you were a renter prior to this, you're not now.
I guess this is the ultimate expansion of the ownership society.
I wonder how much 'autonomy' Bush & Cheney have given Paulsen to just 'do what needs to be done'. I wonder if Paulsen even asked for 'permission' or pulled the trigger 'rogue trader-like'?
Hey wise ones. This is probably the one and only time I will post, having been a longtime lurker. I hope Tanta, CR and you will forgive me for a political OT, but it's late and no vermin or goat recipes are up yet.
CR has been held up as a beacon on an Alaskan politics blog today on how to treat lurkers.(Yes, pot here, kettle, well...you know the rest) I am hoping I can persuade you to perhaps go over there and pose some economics and finance questions which need to be considered.
The blog is mudflats and you can find it from there.
P.S. Thanks to all of you, I did NOT buy a condo last summer.
a lotta people here are bitchin and accussing and ranting and angry... me too
but in the end we will shut up, do what we are told and take it
cause the government now has private contractors as mercenaries
and they WILL use what ever force they are told to use including extreme force, against citizens, if we act out
if we think we have a first amendment rights to assembly guess again, at the dnc and rnc conventions most arrested were charged with unlawful assembly
so thats down the shitter too with the warrantless searches, coerced confessions and torture...4th, 5th, and 8th amendments and more rights are on the chopping block
crispy&cole writes:
Boeing strike is on...not good news for the Dow
crispy&cole | 09.06.08 - 12:43 am | #
I was in Wichita a couple weeks ago & Raytheon was out too... radio talk was saying Boeing was going to go out FOR SURE... mgmt knew it too, their radio rep said they expected to give the machinists a pretty hefty raise but it would take a strike to pacify the 'all the different interests'... i.e. union rank-n-file AND stockholders. If either union leadership OR exec mgmt caved too soon they'd get the ax so make it look like 'tough bargaining' and take tough stance. Risk is these can get a life of their own if dragged out too long.
Right now Boeing is hurting due to supply chain issues NOT labor shortages so a short strike won't crush bottom line immediately - give time to get supply chain caught up.
Im with Ziggurat, to some extent. This is the trickle out theory, foot dragging at its best. They manage the losses over a period of time, and the gov knows before what they are on the hook for, since with current accounting standards, it's all make believe. Pure manipulation, given the current trend in home prices, and movement to level 3 assets. This stuff will come to market over a decade, and guess what? This is exactly how we become Japan? Why? Because only a few people acknowledge and accept that the lending system is shutting down, much the way that a certain CJM died in the frozen bits of Alaska. (see "Into The Wild") It's not a pretty death, and it's not romantic.
Here's an inspired pick for on-the-job training for chief administrator/conservator for the Federal Housing Finance Agency when they've taken over FNM and FRE:
Sarah Palin needs a temp job until Nov (or after if AK throws her out for abuse of power). And she learns well at the feet of 'the master'. She's teleprompter-trained, and will blame anyone that the script says she should.
I am having reverse deja-vu. All I can think of is Paulson and his cronies and what they have done to our financial system. To echo the Charles Heston line when he realizes that humans have wiped out civilization with nuclear weapons:
UP TO? The CBO said $25 billion was the expected value for the cost in 2009 and 2010--an average over scenarios that included no use of the authority at all before it expired in 2009 (estimated at a better than 50% chance).
That means the espected value for the cost was more than $50 billion if the authority was used (how much more is impossible to say from the press releases). I don't recall any CBO estimate of the upper bound on potential costs, but it's clear that it's a lot more than $25 billion.
But somehow that estimate of the average has turned into an absolute upper bound, as far as the AP is concerned.
We might as well add major grocery store chains to the list of taxpayer bailouts. When push comes to shove, food's way more important than houses and cars.
The Grocery Stores are getting totally desperate.
The inserts and coupons for deals got insane whacky this week.
They are giving at least $25.00 worth of FREE food away (8 coupons worth 3 or more $$$ each) at one store. Fish, meat, bread, etc. it's all there. And they're not the "Buy $3 worth, get another $3 worth free" kind. It's just flat out "come on in to our store and get $3 worth of cheese, fish, bread, etc. free".
Others have almost equally insane deals.
I've watched since a year ago August when that sociopath Bernanke starting hammering rates, food inflation going up and the grocery stores trying to hold down prices for months and months so they began cutting in many other areas.
Like saving $$ on Flyers: Fewer colors and the colors they used much less brilliant, paper quality took a dump in one fell swoop.
Bags: The plastic got so thin they were worthless for carrying anything beyond a bag of mushrooms without ripping. The sudden "Go Green!" campaign, bring your own bags.
ETC.
Then finally they began to let the inflation start trickelling thru to food items. But when it went too far, people started buying less.
So they began with these pretty good ocassional loss leader sale items.
And now this, FREE FOOD! Just to get people to come into your store. It's nuts. I've never seen anything like it. Not even in the 70's.
When I got the free food coupons in the mail I thought,....hmmm...maybe TPTB are finally going to let this clusterf**k deflate - free food is pretty cheap afterall.
And that made me so happy!
And now I get home to this sh*t news about Fannie/Freddie.
The grocery stores are hurting, and have been all year. It's just getting worse and worse.
There is no pre-set dilution of the common or preferred. In other words, neither is "wiped out" in advance.
The value of each will depend on how much capital is eventually injected in the form of preferreds. The operative word is eventually. The injections will occur over many quarters, and will presumably equal quarterly losses.
So dilution depends on future losses, which are both unknowable in terms of timing, severity, and accounting treatment.
Some observations:
1) Paulson will only be around for two of those quarters.
2) Future administrations can modify or just renege on the commitment.
3) Therefore, this is far from a guarantee of F&F's debt.
So if you're an Asian Central Bank, does this make you happy? You own hundreds of billions of debt of bankrupt companies. The implicit guarantee is not being made explicit.
Seems to me the thing to do is one-up Bill Gross. Dump the Agencies until Hank comes back with a guarantee in writing.
Until then, for the purposes of Asian bureacratic, non-economic holders of this paper, this is Nothingburger.
The way I see it is the government can not let deflation take hold. If we inflate our way out of this debt, the best thing to own is gonna be a house with a nice big 30 year mortgage. Cause ultimately you won't have to pay it back in dollars that are worth anything.
My parents had thier mortgage get reduced to a joke in the 70s by inflation, why not me? And a pony also.
Anonymous 12:57 writes:
I tell you, Treasury will buy mortgages directly from Fannie as the next step.
Anon, get with the program. You'll be getting your mortgage directly from the Fed. They'll put it on your FEDCARD. No need for multiple Visa, MC, AMEX, or ATM cards. You can even drive with it! You won't even need cash anymore, it's so 19th century you know. One card to bind them all.
David Pearson writes:
Zack and Ziggurat have it right.
There is no pre-set dilution of the common or preferred. In other words, neither is "wiped out" in advance.
This seems right to me, too, but you're writing this as if you're absolutely certain. Are you?
I'd put heavy odds on the press having this wrong, but we've still got articles out there claiming there's going to be an explicit guarantee of debt and, maybe, preferred. If anybody sees anything with clear details of the alleged plan I hope they'll post a link.
You mean ordinarily educated American people, working for decreasingly valuable ash money as protectors/fighters/soldiers of fortune, who likely have vulnerable homes, assets and families?
If your scenario starts on somebody's "orders", it can't be sustained for long. Think about it.
Not even 1,000,000 Robocops could intimidate 300 million for very long; Robo gotta recharge somewhere, sometime, right?
I see a rewinding/reassembly of citizen's rights, no matter who is elected, and no matter what rhetoric is heard from the candidates.
JMHO
1) Paulson will only be around for two of those quarters.
2) Future administrations can modify or just renege on the commitment.
3) Therefore, this is far from a guarantee of F&F's debt.
Doesn't Treasury's authority expire at the end of 2009? A future administration could easily let this commitment drop then without actually reneging on the commitment. Politically it's a lot easier to let a deadline pass than to actually take and explicit action.
One other thing to consider: the political implications of eventual nationalization (and I think that's what it will take to placate the Central Bank Agency holders).
Think: millions of foreclosures in the pipeline. Congress hearing from constituents. Who owns Fannie and Freddie? Congress. Just legislate a foreclosure moratorium. Problem solved. No losses, no budget hit, no angry constituents, no press headlines about the government taking your house.
This is where we are headed, folks. Massive forbearance. Japan 2.0.
There's only one problem. CR says the added debt to the government is just the losses on the REO. Yes, but only if the government allows itself access to the collateral. Only if the government throws people out of their homes. The fact is, there will be no access.
By the way, I know all of you will appreciate this quote form the McCain acceptance speech last night:
"I fight for Americans. I fight for you. I fight for Bill and Sue Nebe from Farmington Hills, Michigan, who lost their real estate investments in the bad housing market."
They did not lose thier house. They are both realtors. They lost their (speculative) investments. If you notice, "investments" is plural.
Is that really the best he could do for a sympathetic example in his speech? I guess he sympathizes with people who had many houses and lost some of them. Really funny.
Oh, and I suppose the new media "conservative" is the traditional "neocon". Sorry folks those are the political blogs I pay attention to... and they've not been worth the electrons lately...
True, we don't have the details. But the core of the press reports seems "right". They will inject as needed -- just the type of gutless, postpone-the-pain move typical of Paulson's Treasury. If that's the case, then dilution is uncertain. OF course its possible that they will guarantee the preferreds up front. Tough to do this without also guaranteeing the Agencies.
As for making the Agency guarantee explicit, I think they would have floated that first thing. If you're going to bail out the Asian CB's, you want to at least make sure they know about your generosity. To the extent this was communicated in phone calls, I think the CB's themselves would have leaked it to the press.
Put yourself in the position of the PBOC. They bought $350b in implicitly guaranteed Agencies. They must be under tremendous pressure to prove to their bosses that this was a prudent decision. The minute you find out that it was -- that the guarantee is made explicit -- you want to shout it from the rooftops.
You mean ordinarily educated American people, working for decreasingly valuable (c)ash money as protectors/fighters/soldiers of fortune, who likely have vulnerable homes, assets and families?
e allen guess what
the us navy did a study many years ago
they learned that us military personnel would not take up arms against the civilian population in cases of civil disobedience and even non violent disorder
the mercenaries i speak of are private corporations that employ the most radical element of our military and / or foreign nationals.
as for your comment about 300 million...to that i say 300 million sheeple
I believe that the key is the guarantee to the FCBs. There weren't enough purchases of agencies in past few weeks.
There is no way the system can survive without FCB purchases. The FCB want the reassurance by an explicit guarantee. I don't think they will accept anything less before they venture in again.
You read the wrong blogs, YLSP. DKos, HuffPo, ObWi, MyDD, and OpenLeft all have stories/diaries on the GSE takeovers. TPM probably will tomorrow; they don't work late nights. The DailyKos diary has 623 comments on a Friday night.
YLSP writes:
What news of this on political blogs?
Perhaps you should widen your blog readership. Dailykos.com has a major post on the Freddie Fannie failure, and at this moment, has 624 comments on it.
"At least there are offsetting assets (most of the loans will be repaid)."
I'll bet you didnt take into consideration the mood of Joe. If I am going to be forced to pay for everyone elses dip shit mortgage, then why in the hell should I keep paying my own? Joe is already fed up with the welfare state, and this trumps anything the politicians dreamed up in the past. Screw it.
OMG Yalt, Bernanke coming out with the statement "Deflation expectations remain contained" would make me SO!!!!!!! HAPPY!!!!!!!!!!!!!!!!!!
M-F, this is not the seventies. We had very little inflation leading into that period. Therefore, TPTB assumed a certain amount of inflation was "doable". IOW, some people would be thrown under the bus by inflation, but most would be left standing.
Keep in mind, people bought homes at 1-2 X income in the 50's and 60's. Higher Ed was cheap, heck in CA. the state Univ. were FREE for Californians. Even into the early 80's, you could work in the summer and earn enough to pay a full year at many state schools. No need for a loan.
In the 60's, doctors made house calls, even to families of modest means because those families could afford it!
The amount people thrown out on the street due to inability to pay for a roof over their head was absolutely miniscule. Those 50 cent a night hotel rooms still existed.
In other words, homelessness was rare. (I'm using the old definition of "homelessness" - the one where you're sleeping under the Interstate - Not the new Democratic definition of "homelessness" - foreclosed so poor baby has to rent an apt- Shudder!
Our society has now been ruined by decades of growing inflation. More and more homeless, more and more inescapable debt.
As a people, we've developed a lottery mentality as the only way to escape/deal with inflation.
For the rich it means gambling in stocks, etc.
For the middle class it meant gambling on housing.
For the poor it means lottery tickets at a $ a pop.
Gambling and the lottery was not even legal in most states in the 70's. Now every single state has a STATE lottery!! Because of inflation, states need gambling now to support the costs of running themselves.
In other words, we have gone beyond being able to "fix" this problem with more inflation. If we try that, untold numbers of people will be starving and living under bridges.
As a people, we've become experts at ignoring the extreme poverty that inflation has caused for those on the lower rungs. But if the inflation keeps up, more and more people will falling into and we won't be able to ignore them anymore.
Re: The plan, effectively a government bailout, was outlined in separate meetings that the chief executives were summoned to attend on Friday at the office of the companies new regulator. The executives were told that under the plan, they and their boards would be replaced, and their shareholders virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.
Not the new Democratic definition of "homelessness" - foreclosed so poor baby has to rent an apt- Shudder!
But you are obviously in support of the "poor" Repub executives who cleaned out billions through their rat lines and now need to be saved to go on to their merry way. One of the key enablers of this complete mess is Alan Greenspan, a Repub hack of the first sort.
The last eight years have been marked by such incompetence and lack of ethics and morality, it is hard to comprehend the full extent of it.
No kidding, US military personnel would not like their peacefully protesting (issues such as taxes, immigration, US debt etc, not merely war issues) relatives at home roughed up by other US military personnel "under orders".
Those arrested at conventions will lawyer up, plead innocent, go toward a trial date and gov't prosecutors will find a way to drop charges rather than have repeated headlines embarassing all four "we work for you" candidates. JMHO.
Got names, addresses, number of employees, tables of organization and equipment? for these mercenary corporations?
Or a link?
We all know a bit about Blackwater in Iraq, what others? Any known as Cheney's Chumps?
And I disagree about all 300 million being sheeple, just look at this thread regarding Fannie and Freddie and ultimate culpability. J6P, his family and his friends like this mess less and less everyday. This mess includes all the financial sickness
pertinent to this blog. Not that there aren't quite a few oblivious to everything but Hollywood trivial pursuits and/or TV soaps, giveaways and contrived contests. I reckon those are not the working folks watching their savings and retirement vaporize in front of their eyes.
Thanks for your interest in this "matter", it is the crux of the next decade in USA, >>>> the reversal of the erosion of rights> the taking of responsibility for actions
While I mostly concur with your assessment of the lottery mentality that's taken hold in this nation, I also agree with RE's assessment of the culpability of the republican party in this nonsense.
Upthread you claimed that there are 149 moral representatives. That, of course, is claptrap, and I'm sure you know it. Flamebait, I'd say. Those same 149'ers have their own sets of earmarks, special perks, lobbyist pals, etc., for issues beyond the bailout.
Your stance that the idiotic and possibly criminal response by Congress - the now realized in one form bailout - is sufficient for you to switch party allegiances, is also bait, given that you acknowledge that there has been about 4 decades of malfeasance at the highest levels of government. Let's see - D 60 64, R 68 72, D 76, R 80 84 88, D 92 96, R 00 04. 20 years of democratic presidents, 28 of republicans. And somehow this specific incident trumps all prior shenanigans?
Hardly. Latest in line, yes. Grotesque, certainly. Predictably stupid. I detest the bailout. But it's not sufficient to turn a lifelong Dem into a McCain hugging republican. Therefor, your claim is bullshit.
Why subject the rest of your otherwise fairly reasonable thesis with such a claim?
I'm just thinking about the least that could be done to maintain the status quo.
That would be to "inject" a few billion/quarter as needed and keep everything going as is.
The main complaint about the previous Paulson plan was that it was short on details. If this lays out how the money will be injected, where in the capital structure, etc. then the hope is that clarity will calm things down. For example, spell out what happens to the preferred. Not much chance of the treasury deciding to blow up the banks by trashing the preferred, but people want to know.
If the current business at 2 to 3 times the fees with much tighter underwriting is profitable, then a mechanism to backfill as needed with Government funds would be highly reassuring. If the current business is still underpriced, then there is no way out.
But, the "less is more" approach has lots of advantages.
"The latest figures show a cumulative loss of 605,000 US jobs since the start of 2008, highlighting the woes of the world's largest economy from a horrific housing slump and credit squeeze."
kingfrog - My take is this is really about saving the credit default swaps written on Fannie and Freddie debt. A default by F&F could very possibly set off a chain reaction that could take down the global financial system.
I read a bit of Greenspan's, The Age Of Turbulence.
In this, he talks about deflation on page, 291:
" ... financial intermediation so vital to any large developed economy virtually dried up. Deflationary forces took hold. It was not until the long decline in real estate prices bottomed out in 2006 that reasonable judgments of bank solvency were possible.
This was after 13 years (1990 to 2005) i.e, it took Japan 13 years to re-value the fraud from banking.
He also says the deflation issue in Japan was not economics but culture, i.e, a society in denial, which is what we have with The Bush Coup and Friends of Mozilla..
Will Hank Paul, be able to divert the congressional approved funds to Lehman, Merrill, Goldman, etc., via Fannie & Freddie after converting FRE & FNM into a conservatorship ?
awgee writes:
My take is this is really about saving the credit default swaps written on Fannie and Freddie debt.
so if freddie and fannie hold 5 trillion in mortgages and take a 20% hair cut on their portfolios then the taxpayer is on the hook for 1 trillion dollars
but if there are derivatives involved, ie this is a hedge fund, then we could be on the hook for much much more
ive been thinking a lot lately about what a citizen could do that is non-violent and legal, and a big pain in the --- to get the gov attention about how angry we are.
two ideas come to mind
everybody takes hundreds of dollars cash out of the banks the same day
or
find out what the legal lowest speed limit is on the interstate and occupy all lanes and drive that limit, say 45 mph and clog the system
or some other idea...but it has to be non-violent, and legal
First act of The mcCain/Palin Coup will be to forgive The Iraq War debt and lower gas prices to twenty five cents and give all homeless republicans new cars.
I recommend the latest ContraryInvestor.com (free monthly newsletter), as it is VERY pertinent to this subject. It is titled "Fun With Funding", and is about the implications of the Federal Government expanding its balance sheet to make up for the contraction of private balance sheets.
In short, who's gonna pay for all this in a country where we have vastly insufficient domestic savings? We've still got government budget shortfalls, wars, FDIC bailouts and maybe even automaker bailouts yet to come!
Can we get funding for all this with current low Treasury rates??? I doubt it, especially if there's a global recession and commodity crash... Where do ya think all the treasury buying (in excess of what we can afford internally) has been coming from?
Holy crap...I come home from a night out with my wife and this happens. At least they are canning the execs and the boards of directors. The NYT piece has this angle:
"Charles Calomiris, a professor of economics at Columbia Business School, said delaying a rescue would only increase the risks and costs.
The last thing you want to do is give a distressed borrower more time, because when people are in distress they tend to take a lot of risks, he said. You dont want zombie institutions floating around with time on their hands.
That seems a reasonable statement to me.
David Pearson, as always your comments are excellent. I don't see mass forbearance as an option, though. I for one would be on the phone yelling at my Congresspeople to oppose.
Firstest
Lets put the U.S. in conservatorship.
whatever!
Are those bigwigs going to be forced to give their bonuses back?
Think that'll end up costing >$25 billion? Wasn't that the government's "worst case" as of a few weeks ago?
Ho-ly cow!
From WaPo:
Instead of giving each company a big capital infusion up front, the government plans to make quarterly infusions as the companies' losses warrant, the sources said. This would be an attempt to minimize the initial cost of the rescue.
Or delay the news beyond the election.
Bank Closing - Silver State Bank, Henderson, NV
On September 5, 2008, the FDIC was named as Receiver for Silver State Bank, Henderson, Nevada by the Nevada Financial Institutions Division. All insured non-brokered deposits were transferred to the acquiring institution; for further information, please visit the FDIC web site: Silver State Bank (http://www.fdic.gov)
What color is yourz?
Doh! Now I see the story.
NYT saying the preferreds would also be wiped out. Looks like those buying the XLF made a bad bet.
"Under a conservatorship, most if not all of the remaining value of the common and preferred shares of Fannie and Freddie would be worth little or nothing..."
"This would be an attempt to minimize the initial cost of the rescue."
And maximize the ultimate cost by plowing limitless quantities of government cash into failing institutions.
Bend over and lube up boys, this is going to hurt!
Is Bill "BailmeOut" Gross out painting the town red?
There has to be pain. Has to. Paulson made sure in the Bear deal that there was pain. He wanted the $2/share, only to be upended later on by bear shareholders threats to block the deal.
I would not be surprised if preferred shareholders and even subordinate debt holders are hurt a bit. Not senior debt holders.
Either way, its a bail out with ultimate inflationary ramifications down the road.
"Conseveratorship" Isn't that what happens when old aunt Matilda is too mentally feeble to manage her own affairs and becomes incontinent?
At least the preferreds will be wiped out. I'm still angry about this crap.
Wow, that wasn't very far removed from "Fannie and Freddie don't need any help."
Well, Fannie and Freddie have certainly become incontinent.
Ah, the ownership society. Fared no better than the Great Society. Next...
NYTimes - U.S. Plans Takeover of Fannie and Freddie
"The officials said that the executives were told that the government had been planning to announce the decision as early as Sunday, before the Asian markets reopen." (China rules!)
U.S. Rescue Seen at Hand For Two Mortgage Giants - NY Times
HOLY SHITBURGER
Elvis,
I'll be very curious to see if the bit about the preferreds getting wiped out really turns out to be true. I'll be a little surprised if this crew was willing to do that to all their banker and "investor" friends.
I'm starting to miss the Nixon years.
Please change the names to Lance and Lola as part of the rebranding.
Time to bring meaning to "Too Big to Bail".
How will this prove inflationary in the long run?
good insurer/bad insurer
good bank/bad bank
good GSE/ bad GSE.
its so simple.....mmmmmm....liquidity is my favorite flavor.
Sarah, just sell 'em on E Bay.
So this weekend the national debt will go up by $5T. Isn't that right?
@Ask why
When the gubment's commitments go from 9 trillion to 14 trillion over night.
That's bad...mmmmkay.
Short....Bucky....
James B, the preferred getting wiped out would keep the FDIC really busy!
Best Wishes
If it was Cindy's son, the bank may have made it.
HOLY WHATTASHITBURGER!
This is going to a tough one to process.
Many local banks are shitting in their pants right now as they read this...WOW!
Jas might be right
I had heard that China lightened up on their holdings over the last weeks--did they get advance word, or was it just that obvious what was going to happen?
Fat boy(bankers) get the hamburger....we get what comes out of the other side.
Right, the preferreds are part of banking capital. So now lots more banks are insolvent?
But we were ignoring the insolvency anyhow, right?
Phew! My 401k is entirely in PIMCO bond fund, as Fido doesn't give us many choices (and they've done well so far). This sounds like my retirement is safe ...
Pref stock is apparently guaranteed by the taxpayer (per Washington Post)
i guess hanks bazooka wasnt as big as he thought it was
or maybe there was no bazooka in his pocket at all... just his prick
I hope the management will be sacked as well.
Gary Shilling opines that with some creative accounting the Treasury can keep this from affecting the federal balance sheet. Well, stretch it out a long, long time at least ... and we know politicians are great at creative accounting.
Hard to believe, but Iraq won't be the biggest screw up of the current administratio
Wasn't the preferred already, you know, pretty much worthless?
Hahaha first of many.
HALOWARSOWNAGE - Index to comment on these piles
Dr Deflation...
Do you mean they could create an off balance sheet item?
I'm sure that will work out.
Actually this doesn't sound too bad. Even the commons shares don't get wiped out.
Under the plan, the federal government would place the firms in a legal state known as conservatorship, the sources said. The value of the company's common stock would be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, would be protected by the government.
(From WaPo)
Too bad for the taxpayer, though!
I wonder what China threatened?
How can anyone believe anything that comes out of the mouth of these guys?
Well, is the preferred getting wiped out or not?
Took my tin-foil hat off for a moment (needed colander for pasta), anyway, it occurred to me that I really don't care whether we get an enormous tax bill or not.
I'd really rather see folks who are insured get their money back from their local bank. I would prefer brokered (hot money deposits) that are un-insured take a large haircut and local un-insureds take a medium one, but, overall, they aren't the problem.
It's the principal-agent problem writ large and exemplified by bankers/lenders who: 1. aren't very good at what they do and 2. are just as venal as the next guy but have oodles more responsibility.
So:
Shareholders-zip
Boards-toast
Fees, parachutes, severance, etc. -reclaimed to pay off insured losses at FDIC
Hedge Funds and PE? It's your hindmost the devil shall take.
Sorry, shoulda said:
Hedge Funds and PE? It's THEIR hindmost the devil shall take.
What happens if Richard Syron doesn't get the memo? (Remember he's got a memo problem- see Tanta's post for more info)
lawyerliz writes:
Well, is the preferred getting wiped out or not?
lawyerliz | 09.05.08 - 10:00 pm | #
Hurricanes are making someone a little pushy.
Now THAT's more like it!
So what are the new pink sheet names for the common?
if bernanke, cox, paulson and all the rest had not been bull-shitting themselves along with the rest of us with nonesense like
"MLEC"
you remember... the
"master liquidity enhancement conduit"
(sounds obscene doest it... "enhancement conduit"
...then maybe this financial crisis might have been mitigated if not avoided
i beginning to accept that those here with the most dire prognostications are closer to reality
I was talking to a Realtor the other day about this possibility,and his response was "what's the big deal,people still need houses?".Some folks take 2 hours to watch 60 minutes,and that won't change.
Kudlow will explain everything Monday.
As for as for thread music...
YouTube -
Zod likes his RATM.
CR,
The way I see it, either we bail 'em out through the FDIC or through the agency bailout process. One way or another, the government (aka future taxpayers) will cover the losses.
My guess is we cover the preferred because that looks less bad politically than an immediate jump in bank failures and writedowns. From a long term perspective, though, it's probably the wrong move.
...Super SIV...
Well, the line at Lefty's is going to be pretty long this weekend.
On the other hand, this is really going to shoot my Monday. I've been telling my union members to get their 403bs clear of anything associated with RE OR Financials. Not a time to gamble. They never listen, unless there's a big announcement, or the market takes a big dump.
See you in line.
The low pressure is squeezing the brain cells out of my ears.
So, do they still do home loans? If the don't, who will?
FHA?
Did Bill Gross just blackmail the US Government?
How will McInsane manage not to raise taxes? If he wins of course.
What does this do to 401(k) accounts that had the Gov. Securities choice? Mine was 40% Freddie and the Mae.
Rut Roh!
moo goo
its a circle
taxpayers are going to get clobbered
and
government services from roads to parks to social security to the military will all be degraded
The notional value of derivatives held by U.S. commercial banks increased $14.7 trillion, or 9 percent, to
$180.3 trillion in the first quarter.
Previous thread i refered to the bis qtrly report... that was an error.
it's in the OCC report.
great reading for the fearless
http://www.occ.treas.gov/ftp/release/2008-74a.pdf
Since the taxpayers will own half the country's real estate, perhaps we should open some type of public time share program for vacant foreclosures.
Elvis writes:
Please change the names to Lance and Lola as part of the rebranding.
LOL!
.......
I know! Every Iraq/Afaganistan/Iran Vet gets a free house!
CR it looks like you were once again too optimistic...
We just blew thru your 10 Trillion Dollar Man prediction.
As I said before I get scared when you start looking like the optimist...
........
Its not just a VA Home Loan! It's a loan for life!
Ok, I can't stand it any more: what does rut roh mean? I googled it and found a weird reference to Scooby Doo.
mock turtle writes:
i guess hanks bazooka wasnt as big as he thought it was
or maybe there was no bazooka in his pocket at all... just his prick
LOL x2
We're getting funnier as sh*t gets more f'ed up....
.......
If the conservatorship is true, I dont see how they won't wipe out the common.
The preferred is a different story. That would cause some pain. I dont see them wiping out these guys. Some pain, yes, but not total destruction.
It seems that we need to know the exact details first, before planning a trade here or figuring this out.
If preferred does get wiped out with common, any rally that comes as a result will be short lived. If not, I see a big rally coming in stocks, gold.
I wonder if we will get a rate cut with this announcement?
LL,
Thats what it means!
its like "oh shit scobby"
....
Please change the names to Lance and Lola as part of the rebranding.
Ike & Tina might be more timely.
The WaPo and NYT seem to disagree on the fate of the preferreds. I guess we'll find out sunday afternoon with the press release.
Bush/Paulson does not care about the country, but they do care about their legacies. Vanity should motivate them to: 1) bail everyone out so that they don't get portrayed as Hoover, or 2) bail no one out so that they are remembered for at least being true to their free market principles.
Given Bush's stubbornness with Iraq, he just may be crazy enough to do the right thing and flush out the rot in the system.
And this is my favorite passage of all time...
With the exception of several high profile periods in the past, such as the 1998 period when losses at a highly
leveraged hedge fund (Long Term Capital Management) created instability in financial markets, credit losses
from derivatives contracts are generally small.
As long as we continue the bailout's , no one can ever lose. Keep the Pie growing.
ades, obviously I wasn't counting on this mess. Really the debt should only be increased by the amount of the losses - not the entire debt. At least there are offsetting assets (most of the loans will be repaid).
It's hard to believe anyone still owns the common in Freddie and Fannie (above some low option value). I've thought for some time that this was good for the debt holders but terrible for the common stock holders. Oh well ...
Best Wishes.
Thanks, nades.
WAPO
Fannie Mae, Freddie Mac to be Put Under Federal Control, Sources Say
U.S. Nears Rescue Plan For Fannie And Freddie - washingtonpost.com
Former Regulator: Move On Freddie, Fannie Now
Former Regulator: Move On Freddie, Fannie Now - WashBiz Blog - A blog about businesses in the Washington, D.C., metropolitan region, written by The Washington Post's Dan Beyers and Terri Rupar
Chinese: Interesting Times.
Ll is kiddin about rut roh, right?
I will be appalled if the preferred shares are gov't guaranteed. I can't believe that would be legal. What is the mechanism for this offer? How can you wipe out some of the equity without wiping out all of the equity (including preferred). Do we have any legal experts here?
"Kneel_before_Zod writes:
Dr Deflation...
Do you mean they could create an off balance sheet item?
I'm sure that will work out."
Kneel_before_Zod - yes that is correct. They were made private in the first place to keep their bloating numbers off the federal balance sheet. I betcha Shilling is right - essentially nothing changes with the conservatorship. It's mainly changing an implicit backing to an explicit one.
Nope. I only started blogging last fall. I didn't know what lol meant.
Mudd shows up to the meeting, without knowing the agenda, accompanied by his privately retained attornies?
rofl and sobbing
Memo to Joe 6 Pack on hyperinflation:
Is this truly where we are headed?
I guess the question is, if the preferred shares don't pay any dividends, what are they worth?
I, for one, wouldn't want to own a CD that didn't pay any interest.
I will be appalled if the preferred shares are gov't guaranteed. I can't believe that would be legal. What is the mechanism for this offer? How can you wipe out some of the equity without wiping out all of the equity (including preferred). Do we have any legal experts here?
Well, we don't know the plan. But it sounds like "dilute the hell out of the common while continuing to pay out preferred dividends," and there's nothing wrong with that.
Legally, at least.
One of those guys was on the Diane Reim show (sp?) on NPR within the last 4 weeks, saying everything was just peachy.
Or is the treasury just saying that it will inject enough common equity to keep the company operating? In which case the common stock will eventually be worth pennies. Wouldn't the preferred equity receive a massive trim in this scenario too?
My dear bloggers, we just got a ~ 3 trillion dollars mortgage from Fannie and Freddie - via U.S. Gov. May God bless the GSEs!
Why isn't anyone talking about the socialization of mortgage debt. ALL OF IT. Fannie, Freddie and the gov't agency Ginnie fund upwards of 90% of all mortgages being originated in 2008.
I don't understand the Bush Administration's motivation here. How do the republican's coincide their allegence to small gov't and free markets with this move that makes them the lender for 90% of all mortgages being originated today?
To avoid an immediate 33% increase in mortgage rates (required to entice Wall Street back into the game) the gov't will have to fund ~$4 billion dollars of new mortgages a day for the foreseable future.
Can someone explain to me how Fannie or Freddie limping forward or even failing is worse than that?
As it is, Ginnie has steadily increased market share to August's current level of 35% of all securitizations by lending cash-out refinances up to 95% LTV. The weighted average LTV of their 2008 book of business is 93%. Use Case-Shiller to put that in perspective and I don't think there's anyway not to come to the conclusion that 50% of their 2008 BOB is or soon will be underwater (couple that with their FICO floor of 580 and they look like a live grenade).
I know this is mostly a "gripe" forum for snide commentary but does anyone know what the hell gives here?
rut roh = uh oh... in dog language
Funny Mudd brought his lawyers. He was probably thinking he was about to be arrested!
At least I can get a little laugh knowing more of my tax money is about to go down the drain.
Time to get a beer. What time does Lefty's open tomorrow?
lawyerliz writes:
One of those guys was on the Diane Reim show (sp?) on NPR within the last 4 weeks, saying everything was just peachy."
but you could tell by his voice-intonations that he was lying
I'd like to ask for the , i dunno, 5th time....
If we effectively nationalize fnm.fre, then why would'nt all borrowers recieve the exact same interest rate., regardless of location, price, credit history. if the taxpayer is backing 90% of the loans out there, they should be one rate.
it would end all the int.swaps programs in a hearbeat, is my only guess.
from kingfrog
"I know this is mostly a "gripe" forum for snide commentary but does anyone know what the hell gives here?"
grease up
you just answered your own question, this is just a gripe blog, nothing to see here, move along now.
This is just weekend at Bernie's XIV.
And if the world wasn't so damn thick(China) we would have had rates correct, price REALLY fall, the defaults fly, more uniform deflation.
Instead the PTB have managed to pervert this mess into the worst of all possible scenarios. And for what?
Now they can hide these two copses over in the corner out of sight and out of mind and the taxpayer will probably never get a true accounting picture of what it cost when this is all said and done which is going to be a hell of a lot more the 800 billion Hanky Panky was set up with.
Screw paying taxes I quit!
but you could tell by his voice-intonations that he was lying
maybe not, maybe he was pacing his speech to Diane's, and it came across shady.
confused-
good question... almost seams reasonable...
........
Doesn't this mean that rates are going up ? Shouldn't that make house sales fall further.
confused writes:
"If we effectively nationalize fnm.fre, then why would'nt all borrowers recieve the exact same interest rate., regardless of location, price, credit history. if the taxpayer is backing 90% of the loans out there, they should be one rate."
Exactly....
All Ginnie Mae loans pay the exact same rate!
kingfrog
behave or we'll have hankybernanke give you a kiss and turn you into a toad
Well, just because the gov't is doing it, doesn't mean they are obligated to be stupid. I mean, they probably will be stupid, but they don't have to be with regard to rates, etc.
Having lived thru the 80s and closed fixed rate loans of up to 17 1/5 %, I fail to see why letting rates just go up isn't better than the crap we are seeing.
broker-
I hear ya ... can't wait for Tanta's Take on this.
Oops, mean 17 1/2.
Nitey nite everybody.
Ok Ll, no worries...
how bout 420 friendly, you got that one yet? After this deal, i think we'll all need a rip or two.
Can someone explain to me how Fannie or Freddie limping forward or even failing is worse than that?
how its better?
better for whom
this administration is carrying a baton thats turned out to be a stick of kaboom
they want to pass it off to the next administration before the poop pops
get it?
Since there's now explicit backing of these agency bonds, seems like their yield should drop right down to where treasuries are. Own a treasury vs own a Fred/Fann, what's the difference?
"Conservatorship" has a much nicer ring to it than "communism".
Not bad.
Must...resist...snark....
CR said:
It's hard to believe anyone still owns the common in Freddie and Fannie (above some low option value).
Exactly! So why the @#$*&! are we (the taxpayers) bailing out stupid people?
Take common->zero. It could be worse; I knew more than one man near retirement in the mid-80s who went back to work after their oil well partnership (best to note that the word "limited" was omitted) made an irresistible capital call.
I don't mind learning lessons. I don't mind other people learning lessons. I sure hate to learn someone else's lesson on my dime.
You can comment on the bottom of this SF Gate article:
Link Biden: Protect taxpayers in mortgage rescue
Then again, Doc, if our creditors think about it a bit, the 10-year yield might rise to match the nationalized GSE paper.
I don't see how bailing out debt and preferred holders is a good thing when it was the credit markets that caused the whole mess. This was a bond bubble not a stock bubble.
Mock Turtle, you behave or we will have the red queen turn you into soup!
As owners, do we get to look at the books?
I am still young enough that I hope I can piss on their graves.
The devil will be in the details. We all knew it was coming.
National House Insurance will not cure my gout. I need a brain transplant and And and . Dispicable!
examine a system started from scratch that provides taxpayer back mortgages to borrowers at one reatge, and you'll come to find a system with NO Growth over the population rate, right?
another point... no more PMI, right?
another sub biz in the crappola
Fannie and Freddie MBS are now Tsy securities with prepayment risk.
Nice little windfall for Mr. Gross and others in the know.
LOL = Laying on Lava
If, IF their paper does not trade to treasuries, is this the first indication that the markets fear a default?
Seems obvious to me. How many bips imply default?
where are the F%$# arrests?
Lots of money was siphened out of these cos over the last several years and a number of executives walked away filthy rich!
Hyperinflation coming, anyone have an opinion?
It bears watching how this impacts the dollar. Obviously this kind of "conservatorcrap" means a bit less to foreign debt holders than advertised. Something really got broken tonight folks, remember that it came with a whimper.
The interest rate spread of fannie and freddie debt from treausry debt will be affected by federal and state income tax treatment. Treasury debt is taxed at the federal level, but exempt from state income taxes. As I recall, Resolution Funding Corporation debt is taxed at both the federal and state level as interest income. Fannie and Freddie's debts could be treated like Resolution Trust debt. Their yields would have to be higher than Treasuries to compensate for the state and local taxes.
Llama can correct me if I got the tax treatments wrong. He's forgotten more about accounting than I ever hope to learn.
barry wrote
Nice little windfall for Mr. Gross and others in the know.
Yes, it pays to be at the head of the line
Ask Why,
Hyperinflation is a relative term. It will not be uncontrolled.
Expect an "English" experience from the 70's.
Inflation in the teens and confiscatory tax rates. Wealth taxes come next coupled with capital flight.
My remaining pesos will grow wings.
Well, there's always the possibility of default.
Fed grants exemption to Chinese govt-owned banks to own controlling interest in US companies. They're also getting exempted from Bank Holding Company Act reporting and capital requirements.
http://www.federalreserve.gov/boarddocs/legalint/BHC_ChangeInControl/2008/20080805.pdf
Who's the real master?
Thank you Ross.
Fannie's and Freddie's (sr debt) should mega-tighten to treasuries on this. It will be a combination of Treasury rates going up and agency rates declining.
I'd bet $'s to doughnuts that the preferred holders don't get dinged at all. Too much bank capital tied up in these as CR alluded to in an earlier comment.
I wouldn't even be surprised if the common rallied hard Monday, as the short base is ginormous, assuming the common doesn't get totally wiped.
And lastly, mortgage rates should decline somewhat, as mortgages essentially become treasuries. I say somewhat, as 10 year Treasury yields will climb, somewhat offsetting mortgage tightening.
Who's the real master?
PitchforkDealer
The one who owns the gold.
We have squandered our birthright and are about to become sharecroppers in our own land.
This is Fn nuts
FNM and FRE both better have incredibly tightened lending standards. I will call my congressman and both my senators every day if now I (taxpayer) am directly funding mortgages to people who cannot afford them, or subsidizing artifically low rates.
(its (202) 224-3121 if you were wondering - congress switchboard)
This is huge stuff. No wonder Greenspan went to work for PIMPCO. A scam all the way. Tonite I challenge Mr. Bill Gross to a steel cage match with my money on the line. Anyone think he will accept????????
Hey MarkS
Default is also a relative term. We defaulted on WWII debt slowly through inflation. Same with 'Great Society' and Vietnam debt. Same with RTC and Brady bonds. Same with Exxon's north slope fines.
Time and inflation cure many ills but against savers. Perhaps this is why we are not a nation of savers?
Global competitive (subtle) devaluations is baked in the tarts.
This is a game that average Joe cannot play. Debt and the forgivness is his only'out'. Joe votes.
No Nippon solution for us. Americans want honest to goodness quick fix bailout solutions.
Guys, chill out.
Individually, I am pissed-off to the core. But as part of society, I am preparing myself for this day for past couple of years.
The mass is the stupidest among all stupids. Here the mass is tax payers.
So, yes every losses would be dumped on tax payers. I would encourage all brilliant and inteligent people to dump all their losses on the stupiest.
Axim: One who is supidest among all stupidest is also the one who is brilliant and intelligent over all brilliant and intelligent.
The tax-payers will be bailed out by defaulting on this.
Say hooray to all those CBs, savers, 401ks, pension funds, and any one who is expecting money from US tax payers.
Wake-up, you aren't getting a penny from US tax payers.
Joe 6 Pack also riots.
Fanron debt should trade like Treasury. That's why Bill Gross is celebrating big time.
As long as the Japanese, Chinese and Saudis don't have any place but US Treasury market to place their vendor financing life's a beach in Newport Beach!
Ross,
I hear you, but I still think the template might very well be Latin America or Russia. I believe both experienced severe inflation prior to defaults.
back to silver it is the
Now that we have an explicit guarantee of no loss in MBS's it would be kind of foolish to buy treasuries with those pitiful yields. How long before they reach parity?
SALE ON VASELINE
"I will call my congressman and both my senators every day if now I (taxpayer) am directly funding mortgages to people who cannot afford them, or subsidizing artifically low rates."
Yes and that whore will laugh like hell right after he hangs up the phone.
Hey guys, this could have a happy ending. Just look at Britney she was placed in conservatorship and now she is back on track. Same thing, right?
"Who's the real master?"
They have the money, all we have is a lousy printing press.
PitchforkDealer | 09.05.08 - 10:56 pm | #
Fed grants exemption to Chinese govt-owned banks to own controlling interest in US companies. They're also getting exempted from Bank Holding Company Act reporting and capital requirements.
Who's the real master?
As per ( Estragon | 06.11.08 )
That should be
Hu's your daddy now
Sarah Palin can put the whole thing on eBay and get us our money back.
Jim Sinclair wins his bet now.
Can't one of you guys be less metaphoric and just come out with a point by point doomsday list or something? Sheesh, we aren't all uber-economic nerds.
So, If Billy Gross is so connected and powerful, brake up Pimco!
Our regulators need to get back to the task of regulating. MSFT is no monopoly. WHAT?... Get a grip.
Business margins have been high because of a lack of compitition. Airlines, a true utility, have been destroyed through deregulation.
Utilities should be regulated and allowed a rate of return on capital to attract the capital necessary to provide services.
It may take 30 years to regain normalcy but by then I hope I shall be dead.
America is great. Our leadership sucks. Flush the suckers. Find some altruists that will govern in spite of money, not because of it.
After the stock market crash, I am moving from tax avoidance to tax evasion.
F--- these idiots, bailing out Gross and the Chinese.
The ownership society, indeed. So... we can all quit paying our mortgages now, because we already own our houses by paying our taxes?
Dr Deflation:
Yeah, I've got a bunch tied up in Pimco Total Return. Bill Gross is a happy man.
Smart, too. regardless of the pimping.
Nova writes:
I know! Every Iraq/Afaganistan/Iran Vet gets a free house!
Nova | 09.05.08 - 10:10 pm | #
LOL! Someone is looking ahead.
The ownership society, indeed. So... we can all quit paying our mortgages now
I'm thinking I can write my own mortgage now. Closing costs: zero. I like that.
LOL = lots of luck
CR, the WaPo has changed the wording re: preferred stock from "would be" to "might be". NY Times hasn't changed its wording of preferred being wiped out. WSJ isn't making a call on this.
It'll be interested to see how this plays out. I think, politically, for a Republican administration - more than the common is going to have to take a haircut.
The value of the companies' common stock would be diluted but not wiped out; while the holdings of other securities, including company debt and preferred shares might be protected by the government.
Vets get a free house? Probably the one that the bank bankrupted them with while they were fighting the vanity "war". Weekend warriors - ripped off eight days a week.
NYT over WaPo every time. I'll even give odds.
And if my taxes are going up, then I'm going to need another rebate from the govt. Hear that Obama/McCain? Just send it where you sent the last one. Double it tho.
160 posts and 244 online on a Friday night...
its official, market rallies on the news.
lawyerliz writes:
Nope. I only started blogging last fall. I didn't know what lol meant.
"Ruh roh"? IDK that nobody like knew what that meant...
ROFL, really, REOFLMAO.
TTFN. POS.
Yeah, I have a teenager.
Well, that's another take on the issue I'd never thought of homedad. Namely, that because of mutual funds, the middle/ upper middle class can have a place at the trough like the looters of old!
Not saying you're a bad fellow (it was the doing of your "agent"), but, it does put another spin on the growing leverage of the masses...I guess?
Foreign CB's refusal to load up on FNM and FRE's MBS, or in the case of Russia unloading half of their holdings just before the Georgia conflict, and sticking to US Trsy purchase clearly send the messages to Paulson and US Govt. that "... we will provide the capitals, you will do the bailout..." The only sensible thing for Paulson and company to do is put on the taxpayer tab at reasonable rate. The alternative suggested by the Russian's action of dumping agency MBS is total global financial chaos. Gross simply saw the only possible end game for FNM and FRE and loaded up his portfolio with agency instruments.
Watch and be amazed that American succumbed to the barrage of fear mongering and re-elect the same selfish Republican, hiding behind Country-first mantra, to perpetuate the downfall of the almighty USA. Jas is increasingly right, unfortunately.
homedad43,
I almost pulled it all from PIMCO this morning, but the only other viable choice (given the markets and what I know about them) is a stable value fund. Which actually isn't a mutual fund, so Fido isn't obligated to provide little things like a Prospectus. Where is your money, who knows?
But my gut feeling was to stay with Bill & Co. They did good last year - 9%, maybe this year will be good too.
Pimco are a bunch of whores looking for the next 'John.'
I had respect for Gross in the past but they are so big that they must be considered in the same game as the 'Street.' Too big to flail.
You do not want to know the costs of this calamity. Talking in billions or trillions is abstract and disingenious. Talk about declining
standards of living and a society of diminished hope.
Hope is the only binder. Lotos are not hope.
I'm certain I read somewhere on a newspaper site that the dividend will get frozen - that reduces the value of preferreds quite a bit..
Now, don't we have a convergence of new issue Treasuries and FRM,FRE bonds ? I mean, if they offer them at different yields who's going to buy the lower yield ones, presumably the Treasuries ? Conversely, if the yields are the same, why buy FRM, FRE bonds ?
We've just ended up with Freasuries haven't we ?
More in the next post. But this is NUTS !
-K
How come I have this funny, fuzzy feeling that Hank Paulson and his friends will do all right.
And if my taxes are going up, then I'm going to need another rebate from the govt. Hear that Obama/McCain? Just send it where you sent the last one. Double it tho.
Oh! Oh! Oh!
Can I get double the ONE F**KING DOLLAR they sent me last time?
God I hate being rich. (Um, yeah. Two bedroom apartment with wife and kid, and a 7k used truck. Lavish, this Bay Area life.)
Cheers,
prat
Sam writes:
Hey guys, this could have a happy ending. Just look at Britney she was placed in conservatorship and now she is back on track. Same thing, right?
Sam | 09.05.08 - 11:19 pm | #
Yeah, but Fannie's a pig in a bikini.
Per the story they would be "insolvent if the are taken over and the accounting is correct". WHY ARE THE NUMBERS NOT CORRECT NOW? WHY IS NO ONE IN JAIL?
And what happens to existing Freasuries ? In the FRM/FRE form they have to more attractive now, so why own the Treasury form ? We should see people selling the Treasury version of Freasuries and buying the FRM/FRE version, equalizing the yield ?
Do we know the difference between what FRM/FRE bring in monthly and what they pay out in interest monthly - because now the Treasury has that monthly bleed surely ? I mean if there wasn't a monthly bleed, why would they need this conservatorship type of packaged BK ?
-K
Dr Deflation:
Exact same thing here. Went online and almost pulled the trigger, and then I walked through the matter.
Kept it in.
People who should go to prison: Bill Gross, Ben Bernanke, Hank Paulson, George Bush, Dick Cheney, Alan Greenspan and all members of Congress who have supported these reckless bailouts.
Looks like MER is in on the meetings...yeah they are gonna screw the taxpayers
OK, help me out here guys. Is it even remotely possible that this is just a BS lie (like so many others we've heard over the past 2 years) to prop the markets up a bit longer?
At this point, that thought is the only hopeful straw I've got left.
Who will control this conservatorship? Will it be Bill Gross, himself? That would be pretty obvious. I know, how about using a Goldman Sachs executive.
I think Gross told them I am not buying anymore of your bull shit paper unless you guarantee I wont lose money...FRE FNM and Hanky P all panicked!
Is there a listing of the major stockholders, both common and preferred, in Fannie Mae and Freddie Mac?
It was republicans that led these bailouts. republicans have sponsored bailouts and are the true communists.
oh no ... bay area
USGS site updates in 5 minutes? Nice little rumour there, what's your darn book!
barry writes:
Fannie and Freddie MBS are now Tsy securities with prepayment risk.
And all that agency debt exchanged for treasuries at the TAF & other fed windows... all held by the Fed and now all 'equivalent' to treasuries.
It wasn't just the GSEs that got bailed out tonight. Benny got a reload.
So does this mean that Dow is going to 8k? Or does this mean dollar is going to fold in half?
404 Not Found
How big a quake? Serious?
F Bill Gross-
Wow. Our list of who needs to serve prison time is exactly the same.
I was a bit more lenient with the Congress. Didn't think prison. Just get them out of office STAT. I mean immediate dismissal.
And I like the feeling of having the Halls of Capitol Hill nearly EMPTY- the amount of politicians would go down by way more than half. These people have caused too much damage to remain in office.
We would be far better off without them.
4.2, but it was right under m e, so no big's
4.1! I got it!
was centered under me, but was rollin good , so was worried if it was centered elsewhere...
alamo, ca
Queue up "aftershock panic" mode... "Was this the pre-shock before the big one!!"
the first rumblings of the F/F bailout.
Yowza, nice insight dryfly. Paulson kills two birds with one bailout. Restore confidence in agency debt and stealth recapitalize the Fed at the same time in time for the inevitable fallout.
Nice little jolt to keep me awake Cali Quake. WaitinginPNW: I agree, there are many factors that went into the decision to announce today; RNC over, markets imploding, Bill's whining...Time to start the long drawn out nebulous rescue that pushes all toxic waste past January. The details will likely be bled out, non-specific, open ended just like the original potential rescue plan.
SK
You've got it right. There's no difference between Treasury bonds and Fanron bonds. We also got a new breed of MBS - TMBS - the one guaranteed by the Fedpress.
Taxpayers now are effectively in the mortgage bidness and are the largest "owners" of the housing stock. They should just take the next step and get into the HELOC bidness with new appraisal rules where all houses are automatically repriced at twice its current value.
We should then see a nice rally with Dow 30K.
How's Merrill Lynch in on this? What the heck is the govt doing here....shouldn't congress, senate,and we as taxpayers get all relevant paperwork, financial modeling, notes, spreadsheets etc. and vote on best solution before we move forward?
How can these crooks get away with making 50 billion each last 5 years?
what's going on here?
4shzl writes:
NYT over WaPo every time. I'll even give odds.
What odds can I get on a nothingburger?
(I'm not saying that's likely, but if the odds are long enough I might take a flyer--we've seen plenty of Friday night rumors turn to smoke when the details came out.)
How can these crooks get away with making 50 billion each last 5 years?
I think Jas will tell you he's been right the past 15 months...
cd writes:
How's Merrill Lynch in on this? What the heck is the govt doing here....
Taking care of its constituency.
How can we look at this from a different angle and make this sound like a nothingburger?
Is there a neocon in the house?
"what's going on here?
You just got shot in the ass with a bazooka.
While Hanky Pank is at it he should also take GM, Chrysler and Ford into "conservatorship" and continue with the ownership society by ensuring all Americans get at least one super guzzler with a free gas coupon for life. I'm sure Cerberus can enlist Bill Gross and GreenScam.
You dont want zombie institutions floating around with time on their hands.
Great last line from the NYT article.
The American Financial System should turn out as extras for the next George Romero film.
It's after midnight eastern, after 9 pacific, and there are nearly 200 online?
What was that line from Bueller? Go home!
Oh, wait...
Never Forget-
Are you kidding me? It was the Dems that started this whole "oh those poor homedebtors, we've got to save them or they'll be homeless" nonsense once the banks started getting all the crap loans they made returned to them a couple years ago.
Dodd, Hillary, Schumer and Frank immediately jumped out in front of this issue to help the banks. They pushed this sh*t week after week after week.
When the Fannie/Freddie bailout was tagged onto to the housing bill at the last minute, the thing was approved overwhelmingly by the Dems (229 yeas, 3 nays), compared to the Repubs 45 yeas, 145 nays).
This sh*t is seared in my brain as it is what caused me, after a lifetime of voting Dem, to make up my mind to never vote Dem again.
AFAIK, we've got 149 moral representatives. 145 are Repubs and 3 are Dems.
Sickeningly bad odds of finding a moral Democrat. Unfortunately.
Paulson doesn't have to announce any immediate haircut in common, preferred or debt. If the gov is going to "infuse capital" as necessary, and take a position ahead of the common and preferred, that would mean that those classes get diluted slowly over time as the gov puts in capital and establishes and bigger and bigger position. In this process, the common would be diluted first, eventually down to
All your mortages are belong to us!
I'm a closet neo-con... don't tell anyone....
Booyaaaahahahhahahhaha
spu's up fifty monday mornin!
my sep1330c's may get back to even!
quake - 14 miles away in berkeley and didn't feel a thing.
"How can we look at this from a different angle and make this sound like a nothingburger?"
There are known nothingburgers, unknown nothingburgers, and unknown unnothingburgers.
-D. Rumsfeld
Dryfly:
Interesting observation re TAF.
WEre you born this cynical or do you have some sort of cynicism drills that you do while driving from site to site?
If so, write a book and sell it. I'd buy it.
"It wasn't just the GSEs that got bailed out tonight. Benny got a reload."
Only question now is how long before they burn threw that 800 Billion?
Per the NYT, the language was that preferred was treated about the same as common.
If so, what's that do to the regional and small banks holding all of the pfd stock?
Can I get one of these conservator-ship thingies?
They sound nice
PeakViagra writes:
How can we look at this from a different angle and make this sound like a nothingburger?
Depends on the details. What if the government agreed to commit quarterly capital infusions to cover losses as needed and guarantee dividends and debt payments, but the commitment was only valid up to some ridiculously inadequate amount?
I can think of lots of nothingburger variations, but I don't really think there's much point in speculating when all we've got is vague and inconsistent leaks of a plan still apparently in preparation.
Gotta love it.
Well, if you were a renter prior to this, you're not now.
Way to go Hankie. This will solve everything, I'm sure.
WaPo has changed the wording of the article regarding preferred shares and debt:
"would be protected" -> "might be protected"
The uncertainty builds...
Paulson got a blank check for 800B from Congress, and he just needs to find a creative way to distribute it to his Wall Street pals. I guess the taxpayers just got bazooka. And yet there is zilch accountability to date.
A rumor has appeared out of the black hole in the center of the Milky Way that Lefty's Liquors is making a
$Fourteen Trillion$ IPO on Monday
and will accept payment for his preferred stock of choice distillates in barrels of light sweet Arabian cruse, or rubles, or 2008 Olympics souvenirs from the Ming Dynasty or possibly in refillable bourbon bottles, if you have enough of them.
Hurricane Ike recapitulates General Ike who said "Beware the currents and
winds off the West Coast of Africa"
or was it "Beware the neocons and the deregulated military-industrial complex they will create after the 2000 elections".
Medals of Freedom all around, George.
Is this the beginning of the end of the post-industrialized service economy in the US? What is the next model?
Boeing strike is on...not good news for the Dow
I think Zack has the idea.
Using current accounting practices, they are going to be showing $2 to $3 billion per quarter in losses (apiece) or less for a while and still be over minimum regulatory capital levels - for a while. Whatever you think of the current accounting practices, there isn't any compelling reason to change them now, especially for the government.
This is a nothingburger, as far as I see it. Paulson already guaranteed the senior debt.
All they do is let it play out, and put the minimum additional capital in to keep them above the minimum regulatory capital levels.
If the current business is profitable at today's rates/fees, then the only real change is that there is certainty regarding where new capital is going to come from.
We will have to see more, but I would imagine that the treasury wants to do as little as possible, and that would mean putting up a few billion in new capital that the companies need to keep over regulatory minimums.
Well, if you were a renter prior to this, you're not now.
I guess this is the ultimate expansion of the ownership society.
I wonder how much 'autonomy' Bush & Cheney have given Paulsen to just 'do what needs to be done'. I wonder if Paulsen even asked for 'permission' or pulled the trigger 'rogue trader-like'?
Hey wise ones. This is probably the one and only time I will post, having been a longtime lurker. I hope Tanta, CR and you will forgive me for a political OT, but it's late and no vermin or goat recipes are up yet.
CR has been held up as a beacon on an Alaskan politics blog today on how to treat lurkers.(Yes, pot here, kettle, well...you know the rest) I am hoping I can persuade you to perhaps go over there and pose some economics and finance questions which need to be considered.
The blog is mudflats and you can find it from there.
P.S. Thanks to all of you, I did NOT buy a condo last summer.
a lotta people here are bitchin and accussing and ranting and angry... me too
but in the end we will shut up, do what we are told and take it
cause the government now has private contractors as mercenaries
and they WILL use what ever force they are told to use including extreme force, against citizens, if we act out
if we think we have a first amendment rights to assembly guess again, at the dnc and rnc conventions most arrested were charged with unlawful assembly
so thats down the shitter too with the warrantless searches, coerced confessions and torture...4th, 5th, and 8th amendments and more rights are on the chopping block
we exist for the benefit of the state
crispy&cole writes:
Boeing strike is on...not good news for the Dow
crispy&cole | 09.06.08 - 12:43 am | #
I was in Wichita a couple weeks ago & Raytheon was out too... radio talk was saying Boeing was going to go out FOR SURE... mgmt knew it too, their radio rep said they expected to give the machinists a pretty hefty raise but it would take a strike to pacify the 'all the different interests'... i.e. union rank-n-file AND stockholders. If either union leadership OR exec mgmt caved too soon they'd get the ax so make it look like 'tough bargaining' and take tough stance. Risk is these can get a life of their own if dragged out too long.
Right now Boeing is hurting due to supply chain issues NOT labor shortages so a short strike won't crush bottom line immediately - give time to get supply chain caught up.
JMHO.
Im with Ziggurat, to some extent. This is the trickle out theory, foot dragging at its best. They manage the losses over a period of time, and the gov knows before what they are on the hook for, since with current accounting standards, it's all make believe. Pure manipulation, given the current trend in home prices, and movement to level 3 assets. This stuff will come to market over a decade, and guess what? This is exactly how we become Japan? Why? Because only a few people acknowledge and accept that the lending system is shutting down, much the way that a certain CJM died in the frozen bits of Alaska. (see "Into The Wild") It's not a pretty death, and it's not romantic.
and BTW, dryfly, it is so interesting to hear the types of stories you tell here. Glad you've hung around. I miss Banker. Any space in the dome?
Here's an inspired pick for on-the-job training for chief administrator/conservator for the Federal Housing Finance Agency when they've taken over FNM and FRE:
Sarah Palin needs a temp job until Nov (or after if AK throws her out for abuse of power). And she learns well at the feet of 'the master'. She's teleprompter-trained, and will blame anyone that the script says she should.
Her hubby is also a good enforcer....
I tell you, Treasury will buy mortgages directly from Fannie as the next step
This is my pick of the week for media reporting accuracy:
Fannie, Freddie may avoid U.S. bailout
| Reuters
its amazing, these 2 institutions are too big to save and too big to let go
What about that 30% thing from OFHEO? Is accounting off the table too?
If the GSEs have no value, will the dollar go way up now?
Hey how convenient they waited till the day AFTER the RNC.
Just a co-inky-dink I suppose
I am having reverse deja-vu. All I can think of is Paulson and his cronies and what they have done to our financial system. To echo the Charles Heston line when he realizes that humans have wiped out civilization with nuclear weapons:
"Damn you! Damn you all to hell"
Um, trolls, not lurkers. It's kind of intimidating to post here. Creeping back to the shadows...with relief.
Damnit who talked about the IPO?
My head hurts.
Good nite Gracie
Here's an example of why newspaper articles aren't to be trusted until we get some details. From the AP release:
A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office.
Yahoo! 404 - Page Not Found
UP TO? The CBO said $25 billion was the expected value for the cost in 2009 and 2010--an average over scenarios that included no use of the authority at all before it expired in 2009 (estimated at a better than 50% chance).
That means the espected value for the cost was more than $50 billion if the authority was used (how much more is impossible to say from the press releases). I don't recall any CBO estimate of the upper bound on potential costs, but it's clear that it's a lot more than $25 billion.
But somehow that estimate of the average has turned into an absolute upper bound, as far as the AP is concerned.
sheffield | 09.06.08 - 1:02 am |
don't be intimidated dude, it's the intertoobz. postings are anonymous
We might as well add major grocery store chains to the list of taxpayer bailouts. When push comes to shove, food's way more important than houses and cars.
The Grocery Stores are getting totally desperate.
The inserts and coupons for deals got insane whacky this week.
They are giving at least $25.00 worth of FREE food away (8 coupons worth 3 or more $$$ each) at one store. Fish, meat, bread, etc. it's all there. And they're not the "Buy $3 worth, get another $3 worth free" kind. It's just flat out "come on in to our store and get $3 worth of cheese, fish, bread, etc. free".
Others have almost equally insane deals.
I've watched since a year ago August when that sociopath Bernanke starting hammering rates, food inflation going up and the grocery stores trying to hold down prices for months and months so they began cutting in many other areas.
Like saving $$ on Flyers: Fewer colors and the colors they used much less brilliant, paper quality took a dump in one fell swoop.
Bags: The plastic got so thin they were worthless for carrying anything beyond a bag of mushrooms without ripping. The sudden "Go Green!" campaign, bring your own bags.
ETC.
Then finally they began to let the inflation start trickelling thru to food items. But when it went too far, people started buying less.
So they began with these pretty good ocassional loss leader sale items.
And now this, FREE FOOD! Just to get people to come into your store. It's nuts. I've never seen anything like it. Not even in the 70's.
When I got the free food coupons in the mail I thought,....hmmm...maybe TPTB are finally going to let this clusterf**k deflate - free food is pretty cheap afterall.
And that made me so happy!
And now I get home to this sh*t news about Fannie/Freddie.
The grocery stores are hurting, and have been all year. It's just getting worse and worse.
Anon,
Got me..I felt it too..or was that an earthquake? I know the bazooka is going to be a lot worse.
So it was an earthquake..
Yalt:
Details, details.
Whatever the number, it's got more zeroes than my college calculus grades report.
It's official. We're the new junkies and our dealers, the chinese/Russians, will string us along to keep us under their thumb.
England, Argentina, whatever.
I've been saying it for months to whoever asks if I prefer O to Mc: doesn't matter since my taxes are going to go up.
What was Bluto's line?
It Just Doesn't Matter!
It Just Doesn't Matter!
It Just Doesn't Matter!
Yalt:
Details, details.
Whatever the number, it's got more zeroes than my college calculus grades report.
It's official. We're the new junkies and our dealers, the chinese/Russians, will string us along to keep us under their thumb.
England, Argentina, whatever.
I've been saying it for months to whoever asks if I prefer O to Mc: doesn't matter since my taxes are going to go up.
What was Bluto's line?
It Just Doesn't Matter!
It Just Doesn't Matter!
It Just Doesn't Matter!
4.0
Zack and Ziggurat have it right.
There is no pre-set dilution of the common or preferred. In other words, neither is "wiped out" in advance.
The value of each will depend on how much capital is eventually injected in the form of preferreds. The operative word is eventually. The injections will occur over many quarters, and will presumably equal quarterly losses.
So dilution depends on future losses, which are both unknowable in terms of timing, severity, and accounting treatment.
Some observations:
1) Paulson will only be around for two of those quarters.
2) Future administrations can modify or just renege on the commitment.
3) Therefore, this is far from a guarantee of F&F's debt.
So if you're an Asian Central Bank, does this make you happy? You own hundreds of billions of debt of bankrupt companies. The implicit guarantee is not being made explicit.
Seems to me the thing to do is one-up Bill Gross. Dump the Agencies until Hank comes back with a guarantee in writing.
Until then, for the purposes of Asian bureacratic, non-economic holders of this paper, this is Nothingburger.
Uncle Billy Goes to Washington writes:
4.0
Uncle Billy Goes to Washington
So the earth really did move?
I just thought that I was having a happy ending after being massaged by this blog all evening.
Boeing strike should be good news for the Dow, Crispy.
Wall Street will interpret it as "wages are going up= inflation is going up = Dow is going up".
You have to think like a criminal.
Deflation expectations remain contained.
Kudlow said that WRITEUPS start in 2H. Where are my writeups ?
The way I see it is the government can not let deflation take hold. If we inflate our way out of this debt, the best thing to own is gonna be a house with a nice big 30 year mortgage. Cause ultimately you won't have to pay it back in dollars that are worth anything.
My parents had thier mortgage get reduced to a joke in the 70s by inflation, why not me? And a pony also.
Anonymous 12:57 writes:
I tell you, Treasury will buy mortgages directly from Fannie as the next step.
Anon, get with the program. You'll be getting your mortgage directly from the Fed. They'll put it on your FEDCARD. No need for multiple Visa, MC, AMEX, or ATM cards. You can even drive with it! You won't even need cash anymore, it's so 19th century you know. One card to bind them all.
/snark
Nor Car writes:
Hey how convenient they waited till the day AFTER the RNC.
Just a co-inky-dink I suppose
Nor Car | 09.06.08 - 1:01 am | #
This timing doesn't help McPalin - rains on their post-RNC honeymoon bounce.
David Pearson writes:
Zack and Ziggurat have it right.
There is no pre-set dilution of the common or preferred. In other words, neither is "wiped out" in advance.
This seems right to me, too, but you're writing this as if you're absolutely certain. Are you?
I'd put heavy odds on the press having this wrong, but we've still got articles out there claiming there's going to be an explicit guarantee of debt and, maybe, preferred. If anybody sees anything with clear details of the alleged plan I hope they'll post a link.
mt,
Private mercenaries?
You mean ordinarily educated American people, working for decreasingly valuable ash money as protectors/fighters/soldiers of fortune, who likely have vulnerable homes, assets and families?
If your scenario starts on somebody's "orders", it can't be sustained for long. Think about it.
Not even 1,000,000 Robocops could intimidate 300 million for very long; Robo gotta recharge somewhere, sometime, right?
I see a rewinding/reassembly of citizen's rights, no matter who is elected, and no matter what rhetoric is heard from the candidates.
JMHO
Some observations:
1) Paulson will only be around for two of those quarters.
2) Future administrations can modify or just renege on the commitment.
3) Therefore, this is far from a guarantee of F&F's debt.
Doesn't Treasury's authority expire at the end of 2009? A future administration could easily let this commitment drop then without actually reneging on the commitment. Politically it's a lot easier to let a deadline pass than to actually take and explicit action.
One other thing to consider: the political implications of eventual nationalization (and I think that's what it will take to placate the Central Bank Agency holders).
Think: millions of foreclosures in the pipeline. Congress hearing from constituents. Who owns Fannie and Freddie? Congress. Just legislate a foreclosure moratorium. Problem solved. No losses, no budget hit, no angry constituents, no press headlines about the government taking your house.
This is where we are headed, folks. Massive forbearance. Japan 2.0.
There's only one problem. CR says the added debt to the government is just the losses on the REO. Yes, but only if the government allows itself access to the collateral. Only if the government throws people out of their homes. The fact is, there will be no access.
Can Hank Paulson, redirect the congressional funds to lehman, Merrill, Goldman, JP Morgan via Fannie and Freddie ?
What news of this on political blogs?
Drudge: Hurricane
HotAir: Palin-mania
Malkin: Palin, UsWeekly, Oprah, Code Pink
FreeRepublic: Nothing
LittleGreenFootballs: Palin, Science, Obama, RNC
PowerlineBlog: Palin, RNC, Election
RedState: Obama, McCain, Obama, whatever
LocalSportsTeam "Anything Goes Forum": Thread a spectacular failure...
There's a reason this comes out Friday night!
By the way, I know all of you will appreciate this quote form the McCain acceptance speech last night:
"I fight for Americans. I fight for you. I fight for Bill and Sue Nebe from Farmington Hills, Michigan, who lost their real estate investments in the bad housing market."
They did not lose thier house. They are both realtors. They lost their (speculative) investments. If you notice, "investments" is plural.
Here is their website: Southeast Michigan Homes
Is that really the best he could do for a sympathetic example in his speech? I guess he sympathizes with people who had many houses and lost some of them. Really funny.
Oh, and I suppose the new media "conservative" is the traditional "neocon". Sorry folks those are the political blogs I pay attention to... and they've not been worth the electrons lately...
Yalt,
True, we don't have the details. But the core of the press reports seems "right". They will inject as needed -- just the type of gutless, postpone-the-pain move typical of Paulson's Treasury. If that's the case, then dilution is uncertain. OF course its possible that they will guarantee the preferreds up front. Tough to do this without also guaranteeing the Agencies.
As for making the Agency guarantee explicit, I think they would have floated that first thing. If you're going to bail out the Asian CB's, you want to at least make sure they know about your generosity. To the extent this was communicated in phone calls, I think the CB's themselves would have leaked it to the press.
Put yourself in the position of the PBOC. They bought $350b in implicitly guaranteed Agencies. They must be under tremendous pressure to prove to their bosses that this was a prudent decision. The minute you find out that it was -- that the guarantee is made explicit -- you want to shout it from the rooftops.
Look for US Government debt obligations to be put on Watchlist for a possible downgrade by rating agencies, imo.
Sayonara.
Ethan Allen writes:
mt,
Private mercenaries?
You mean ordinarily educated American people, working for decreasingly valuable (c)ash money as protectors/fighters/soldiers of fortune, who likely have vulnerable homes, assets and families?
e allen guess what
the us navy did a study many years ago
they learned that us military personnel would not take up arms against the civilian population in cases of civil disobedience and even non violent disorder
the mercenaries i speak of are private corporations that employ the most radical element of our military and / or foreign nationals.
as for your comment about 300 million...to that i say 300 million sheeple
I believe that the key is the guarantee to the FCBs. There weren't enough purchases of agencies in past few weeks.
There is no way the system can survive without FCB purchases. The FCB want the reassurance by an explicit guarantee. I don't think they will accept anything less before they venture in again.
The administration is in abox.
You read the wrong blogs, YLSP. DKos, HuffPo, ObWi, MyDD, and OpenLeft all have stories/diaries on the GSE takeovers. TPM probably will tomorrow; they don't work late nights. The DailyKos diary has 623 comments on a Friday night.
YLSP writes:
What news of this on political blogs?
Perhaps you should widen your blog readership. Dailykos.com has a major post on the Freddie Fannie failure, and at this moment, has 624 comments on it.
Just sayin'
Daily Kos: BREAKING: NYT: Fed to Seize Freddie Mac & Fannie Mae (UPDATED)
Funny... I find myself humming a different song by the Band
"The Night They Drove Ol' Dixie Down"
Drinks on me!
Banana Republico!
"At least there are offsetting assets (most of the loans will be repaid)."
I'll bet you didnt take into consideration the mood of Joe. If I am going to be forced to pay for everyone elses dip shit mortgage, then why in the hell should I keep paying my own? Joe is already fed up with the welfare state, and this trumps anything the politicians dreamed up in the past. Screw it.
anon writes:
Is this the beginning of the end of the post-industrialized service economy in the US? What is the next model?"
"First prize is a Cadillac. Second prize is a set of steak knives. Third prize is 'you're fired'."
The end of the Post-Industrial FIRE economy is kind of like that.
OMG Yalt, Bernanke coming out with the statement "Deflation expectations remain contained" would make me SO!!!!!!! HAPPY!!!!!!!!!!!!!!!!!!
M-F, this is not the seventies. We had very little inflation leading into that period. Therefore, TPTB assumed a certain amount of inflation was "doable". IOW, some people would be thrown under the bus by inflation, but most would be left standing.
Keep in mind, people bought homes at 1-2 X income in the 50's and 60's. Higher Ed was cheap, heck in CA. the state Univ. were FREE for Californians. Even into the early 80's, you could work in the summer and earn enough to pay a full year at many state schools. No need for a loan.
In the 60's, doctors made house calls, even to families of modest means because those families could afford it!
The amount people thrown out on the street due to inability to pay for a roof over their head was absolutely miniscule. Those 50 cent a night hotel rooms still existed.
In other words, homelessness was rare. (I'm using the old definition of "homelessness" - the one where you're sleeping under the Interstate - Not the new Democratic definition of "homelessness" - foreclosed so poor baby has to rent an apt- Shudder!
Our society has now been ruined by decades of growing inflation. More and more homeless, more and more inescapable debt.
As a people, we've developed a lottery mentality as the only way to escape/deal with inflation.
For the rich it means gambling in stocks, etc.
For the middle class it meant gambling on housing.
For the poor it means lottery tickets at a $ a pop.
Gambling and the lottery was not even legal in most states in the 70's. Now every single state has a STATE lottery!! Because of inflation, states need gambling now to support the costs of running themselves.
In other words, we have gone beyond being able to "fix" this problem with more inflation. If we try that, untold numbers of people will be starving and living under bridges.
As a people, we've become experts at ignoring the extreme poverty that inflation has caused for those on the lower rungs. But if the inflation keeps up, more and more people will falling into and we won't be able to ignore them anymore.
Re: The plan, effectively a government bailout, was outlined in separate meetings that the chief executives were summoned to attend on Friday at the office of the companies new regulator. The executives were told that under the plan, they and their boards would be replaced, and their shareholders virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.
ac writes:
"Conservatorship" has a much nicer ring to it than "communism".
Not bad.
~~~~~~~~~~~~~~~~~~~~yeah, it's more capitalistic...
Not the new Democratic definition of "homelessness" - foreclosed so poor baby has to rent an apt- Shudder!
But you are obviously in support of the "poor" Repub executives who cleaned out billions through their rat lines and now need to be saved to go on to their merry way. One of the key enablers of this complete mess is Alan Greenspan, a Repub hack of the first sort.
The last eight years have been marked by such incompetence and lack of ethics and morality, it is hard to comprehend the full extent of it.
And you still dare to spew your ridiculous crap.
mt,
No kidding, US military personnel would not like their peacefully protesting (issues such as taxes, immigration, US debt etc, not merely war issues) relatives at home roughed up by other US military personnel "under orders".
Those arrested at conventions will lawyer up, plead innocent, go toward a trial date and gov't prosecutors will find a way to drop charges rather than have repeated headlines embarassing all four "we work for you" candidates. JMHO.
Got names, addresses, number of employees, tables of organization and equipment? for these mercenary corporations?
Or a link?
We all know a bit about Blackwater in Iraq, what others? Any known as Cheney's Chumps?
And I disagree about all 300 million being sheeple, just look at this thread regarding Fannie and Freddie and ultimate culpability. J6P, his family and his friends like this mess less and less everyday. This mess includes all the financial sickness
pertinent to this blog. Not that there aren't quite a few oblivious to everything but Hollywood trivial pursuits and/or TV soaps, giveaways and contrived contests. I reckon those are not the working folks watching their savings and retirement vaporize in front of their eyes.
Thanks for your interest in this "matter", it is the crux of the next decade in USA, >>>> the reversal of the erosion of rights> the taking of responsibility for actions
McKane's VP says that we are all going to H E double hockey sticks!
H
E
Hockey Stick
Hockey Stick
YEAH BABY!
Wonder who the dumbsh*t was who did the reseach for the McCain speech.
You'd think in Michigan, of all places, they could have found at least one person who lost their home for a legitimate reason like job loss, medical.
Oh that's right, you don't need a tragedy to illicit sympathy for losing a home anymore. Tragically Stupid or Tragically Greedy is good enough.
WWWIII here we come! we're on track for extinction for 2012.
waiting,
While I mostly concur with your assessment of the lottery mentality that's taken hold in this nation, I also agree with RE's assessment of the culpability of the republican party in this nonsense.
Upthread you claimed that there are 149 moral representatives. That, of course, is claptrap, and I'm sure you know it. Flamebait, I'd say. Those same 149'ers have their own sets of earmarks, special perks, lobbyist pals, etc., for issues beyond the bailout.
Your stance that the idiotic and possibly criminal response by Congress - the now realized in one form bailout - is sufficient for you to switch party allegiances, is also bait, given that you acknowledge that there has been about 4 decades of malfeasance at the highest levels of government. Let's see - D 60 64, R 68 72, D 76, R 80 84 88, D 92 96, R 00 04. 20 years of democratic presidents, 28 of republicans. And somehow this specific incident trumps all prior shenanigans?
Hardly. Latest in line, yes. Grotesque, certainly. Predictably stupid. I detest the bailout. But it's not sufficient to turn a lifelong Dem into a McCain hugging republican. Therefor, your claim is bullshit.
Why subject the rest of your otherwise fairly reasonable thesis with such a claim?
Yalt....
Obviously, I am just guessing.
I'm just thinking about the least that could be done to maintain the status quo.
That would be to "inject" a few billion/quarter as needed and keep everything going as is.
The main complaint about the previous Paulson plan was that it was short on details. If this lays out how the money will be injected, where in the capital structure, etc. then the hope is that clarity will calm things down. For example, spell out what happens to the preferred. Not much chance of the treasury deciding to blow up the banks by trashing the preferred, but people want to know.
If the current business at 2 to 3 times the fees with much tighter underwriting is profitable, then a mechanism to backfill as needed with Government funds would be highly reassuring. If the current business is still underpriced, then there is no way out.
But, the "less is more" approach has lots of advantages.
does this mean we have to give the rebate check back?
i read the monthly figure earlier here at CR
this article cites a cumulative figure for the calendar year so far.
AFP: US jobless rate jump sparks fresh recession fears
"The latest figures show a cumulative loss of 605,000 US jobs since the start of 2008, highlighting the woes of the world's largest economy from a horrific housing slump and credit squeeze."
kingfrog - My take is this is really about saving the credit default swaps written on Fannie and Freddie debt. A default by F&F could very possibly set off a chain reaction that could take down the global financial system.
I read a bit of Greenspan's, The Age Of Turbulence.
In this, he talks about deflation on page, 291:
" ... financial intermediation so vital to any large developed economy virtually dried up. Deflationary forces took hold. It was not until the long decline in real estate prices bottomed out in 2006 that reasonable judgments of bank solvency were possible.
He also says the deflation issue in Japan was not economics but culture, i.e, a society in denial, which is what we have with The Bush Coup and Friends of Mozilla..
Will Hank Paul, be able to divert the congressional approved funds to Lehman, Merrill, Goldman, etc., via Fannie & Freddie after converting FRE & FNM into a conservatorship ?
I am in charge and I will make sure all my Goldman Sachs friends will make plenty of money.
mt writes:
does this mean we have to give the rebate check back?
Here's a solid gripe from an angry renter... I was renting a home, but (after 3 years) was booted by my landlord who decided he needed to sell.
My government rebate check was sent right when I was moving. I must now fill out forms and go through IRS beurocracy to get it back.
I swear, I'm ready to stage my own mini-tax-revolt. If they bail out any shareholders of FNM-FRE, I will.
awgee writes:
My take is this is really about saving the credit default swaps written on Fannie and Freddie debt.
so if freddie and fannie hold 5 trillion in mortgages and take a 20% hair cut on their portfolios then the taxpayer is on the hook for 1 trillion dollars
but if there are derivatives involved, ie this is a hedge fund, then we could be on the hook for much much more
is that right awgee
short ourage
im with you
ive been thinking a lot lately about what a citizen could do that is non-violent and legal, and a big pain in the --- to get the gov attention about how angry we are.
two ideas come to mind
or
or some other idea...but it has to be non-violent, and legal
mock turtle
First act of The mcCain/Palin Coup will be to forgive The Iraq War debt and lower gas prices to twenty five cents and give all homeless republicans new cars.
I recommend the latest ContraryInvestor.com (free monthly newsletter), as it is VERY pertinent to this subject. It is titled "Fun With Funding", and is about the implications of the Federal Government expanding its balance sheet to make up for the contraction of private balance sheets.
In short, who's gonna pay for all this in a country where we have vastly insufficient domestic savings? We've still got government budget shortfalls, wars, FDIC bailouts and maybe even automaker bailouts yet to come!
Can we get funding for all this with current low Treasury rates??? I doubt it, especially if there's a global recession and commodity crash... Where do ya think all the treasury buying (in excess of what we can afford internally) has been coming from?
Link:
Market Observations
Holy crap...I come home from a night out with my wife and this happens. At least they are canning the execs and the boards of directors. The NYT piece has this angle:
"Charles Calomiris, a professor of economics at Columbia Business School, said delaying a rescue would only increase the risks and costs.
The last thing you want to do is give a distressed borrower more time, because when people are in distress they tend to take a lot of risks, he said. You dont want zombie institutions floating around with time on their hands.
That seems a reasonable statement to me.
David Pearson, as always your comments are excellent. I don't see mass forbearance as an option, though. I for one would be on the phone yelling at my Congresspeople to oppose.
Did 'they' let it happen or make it happen?