Feds seize fannie and freddie

I saw that, and was going to open a thread.

I am wondering what impact this is gonna have on the stock market and the economy generally, and how much this is gonna affect the international markets?

Did I mention what weird names these companies have?

What is the history of that?

the plan may never be implemented, it may be that it was published to 1) light a fire under the current bosses and 2) to communicate to everyone that the feds will not let these two institutions fail. Neither parts of the above require doing the plan.

http://en.wikipedia.org/wiki/Federal_National_Mortgage_Association

The Federal National Mortgage Association (FNMA) (NYSE: FNM), commonly known as Fannie Mae, is a government sponsored enterprise (GSE) of the United States. It is a stockholder-owned corporation authorized to make loans and loan guarantees.

It is the leading market-maker in the U.S. secondary mortgage market, which helps to replenish the supply money for mortgages and enables money to be available for housing purchases. As of 2008, Fannie Mae and the Federal Home Loan Mortgage Corporation (Freddie Mac) own or guarantee about half of the U.S.'s $12 trillion mortgage market. As a result, the corporations were particularly affected by the economic downturn in late 2007 and early 2008. Although they guarantee or own only half of the mortgage market, because the subprime mortgage crisis has caused almost all other lending sources to pull out of the market, they are responsible for more than 80% of new mortgages being made in 2008.

The name "Fannie Mae" is a creative pronunciation of the company's name that has been adopted officially for ease of identification.

Fannie Mae was founded as a government agency in 1938 as part of Franklin Delano Roosevelt's New Deal to provide liquidity to the mortgage market. For the next 30 years, Fannie Mae held a virtual monopoly on the secondary mortgage market in the United States.

In 1968, to remove the activity of Fannie Mae from the annual balance sheet of the federal budget, it was converted into a private corporation.[8] Fannie Mae ceased to be the guarantor of government-issued mortgages, and that responsibility was transferred to the new Government National Mortgage Association (Ginnie Mae).



http://en.wikipedia.org/wiki/Federal_Home_Loan_Mortgage_Corporation

The Federal Home Loan Mortgage Corporation (FHLMC) (NYSE: FRE), commonly known as Freddie Mac, is a government sponsored enterprise (GSE) of the United States federal government. It is a stockholder-owned corporation authorized to make loans and loan guarantees. The FHLMC was created in 1970 to expand the secondary market for mortgages in the US. Along with other GSEs, Freddie Mac buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market. This secondary mortgage market increases the supply of money available for mortgages lending and increases the money available for new home purchases. The name "Freddie Mac" is a creative acronym of the company's full name that has been adopted officially for ease of identification (see "GSEs" below for other examples).

From 1938 to 1968, the secondary mortgage market in the United States was monopolized by the Federal National Mortgage Association (Fannie Mae), which was a government agency during that period. In 1968, to help balance the federal budget, part of Fannie Mae was converted to a private corporation. To provide competition in the secondary mortgage market, and to end Fannie Mae's monopoly, Congress chartered Freddie Mac as a private corporation.

Thankee...but that so doesn't explain the weird namee!

Anyway....for now, at least, the shareholders are buggered.

What's the fallout?

China goes the big squeeze
* David Hirst
* August 30, 2008
A high-ranking Chinese economist has put his nation's cards on the table in the global financial poker game by effectively telling the US to fix Freddie and Fannie … or else.

http://business.theage.com.au/business/china-goes-the-big-squeeze-20080829-45q8.html


Chinese pull-back dents Fannie, Freddie
* August 30, 2008
Fannie Mae and Freddie Mac fell after Bank of China Ltd., the nation's third-largest bank, said it pared its holdings of the mortgage-finance companies' debt as they faced growing losses and the potential need for a US government bailout.

...snip

Bank of China's portfolio of the companies' debt was reduced by 29% in the past two months, by about $US3.14 billion to $US7.5 billion as of August 25, the Beijing-based bank said in an earnings report. Holdings of mortgage-backed bonds guaranteed by Fannie and Freddie were cut by 22% to $US5.17 billion, the bank said, without elaborating on the paring.
http://business.theage.com.au/business/chinese-pullback-dents-fannie-freddie-20080830-45uo.html

cyclo said

FNMA (Federal National Mortgage Association) = FaNny MAy

The name "Freddie Mac" is a creative acronym of the company's full name that has been adopted officially for ease of identification

Cool.

Thank you for reading all that.

Another interesting info on bank failures; the 11th one that used to have McCain's son on their board. Sound familiar? LOL We are all familiar with that saying, like father, like son, and conservatives want McCain to "run" our country - into the ground.

I don't know what the effects will be. But it could be bad. There are a lot of shareholders whose shares will be worthless now. It will be much harder to get a mortgage then it used to. That won't help the housing crisis.

I mean, these organizations hold 5 trillion dollars of mortgages. And many of them are of questionable value. And we will be pumping cash into the organizations to keep them from folding.

...

Cycloptichorn

Hey, don't blame the Chinese for "gambling" their money (US debt) on US properties. They want it both ways; gamble, but the US ensure they don't lose.

But the US government is good at using taxpayer money to bail out incompetence and ensure that the future of this country will be left for our children and grandchildren to figure out.

Who can we blame? We have found the enemy, and it's us.

dlowan wrote :



well , what name would you give to an instituion with the letters "F M" ?
(oh , no - that would never do > GRIN !)
hbg

The announcement that the gov't would be taking over Fannie & Freddie is not a bluff. It will happen. Perhaps today or tomorrow, but certainly by mid-week. There really is no option left now.
The companies are scheduled to offer some $225 Billion in bonds in the next couple of weeks to replace debt that is maturing. It became obvious that, given the current stress, there would be few if any potential buyers for that debt. The Chinese said publicly that they were not interested. The impact of the gov't doing nothing at this point would be that the entire mortgage creation business would seize up.
Yes, the common share owners will get wiped out, to the tune of about $11 Billion based on Friday's share price. On top of that are the losses that folks took from what the shares were selling for a year or two ago. I forgot to look that up, but I suspect that the shares sold for around $30 each. So that would work out to another $40 Billion in losses from then until now.

it probably will happen, lets hope that trillion dollar bail out or what ever it is ends the practice of letting the financial gamers making huge personal profits at the expense of the tax payers. The saving and loan collapse did not do the trick, and now the next problem has become infinitely more expensive to dig out of.

Shades of the Great Depression have come knocking....wake up boys and girls, we've got a situation...

You can thank Presidents Reagan, Bush and Bush for excessive agency deregulation, which opened the door for the greedy to rip off the people. Clinton didn't do much to reverse their destruction of the safeguards. And Federal Reserve Chairman Alan Greenspan allowed it to happen, fan of Ayn Rand that he is. Bush 2 did the most damage with the help of Republicans to eliminate almost all congressional oversite when they controlled the three branches of our government. The Democrats should have raised holy hell more than they did even though they didn't have the votes to fight it.

I hope the people have finally learned that regulation is required to protect them from the greedy.

BBB

Taken from an article by the NYT:

hawkeye wrote :



far better to relax and have a snooze at this point . the ordinary investor can't do anything about it at this point - too late to bail out .
what's done is done - and no one really knows what's lurking around the corner .
or does anyone have any "surefire , can't miss" tips ?

JUST RELAX and let the waves roll over you !
hbg

Just be prepared for a very strong wave, because it will certainly drown some people.

I think the biggest problem here was that because of pressure from the right we decided to treat these two institutions as if they were private (read did not conduct oversight and control) but the investors and managers always assumed that they were public thus the taxpayer would pay for any losses. It became a gambling game, and the managers and investors pocketed their winnings, and the taxpayers now are forced to pay for the inevitable losses, just as the crooks knew we would.

This was a political problem, a caving in to the delusions of the right wing free market ideologues. The moderates and the left leaning are the ones who caved so I am not attacking the right for anything more than stupidity, of which we are all guilty.

I think, BBB, that the fault for the Fannie and Freddie's problems can be pretty evenly shared by both parties. There have been discussions for years about the nature of the charters the companies operate under: the privatization of profits (shareholders) and the socialization of losses (taxpayers). That's like sending Cicerone to Vegas and telling him he can keep his winnings and someone else will pay for his losses. There would be no reason for him to make prudent bets. Nothing changed, though, re the companies, and they made bad choices.
Alarms were raised about the sheer size of Fannie and Freddie. They clearly were becoming too big to fail. It would be far better to have a whole bunch of purely non-governmental companies competing. Again, talk but no change.