Feds seize fannie and freddie

So it looks like the takeover took place at about 1 pm ET. I have been reading through the media reports. One thing that caught my eye from CNN: common stock shareholders will, not unexpededly, get wiped out, but DIVIDENDS ON PREFERRED STOCK will be eliminated. Two banks have big investments there. Two already troubled banks. The trickle down effect there could be bad.

the stocks long ago tanked, had been riding around 70 a share and on Friday were $7 and $5, with a combined $10 billion market cap. I am sure the financial crooks are fine with the trade-off, a last $10 billion stock loss in exchange for the taxpayer paying off the $1 trillion or what ever it is in gambling losses.

There is a problem long term, in paying off the $1 trillion, we taxpayer's don't have it. Also, there were some major losses on stock for those who bought at $70 a share, and combined with the final rubbout of share value it might be hard for the government to successfully convince investors to invest in quasi public institutions down the road. The game of taking government institutions and pretending that they are private, even if congress no longer actively supervises them thus allowing the crooks full latitude to play, might now be over.

You forgot Clinton you asshole. He kept Greenspan on and Clinton needs to share some of the blame.

One would think there would be more Conservatives complaining about our nationalization of the mortgage industry. This is without a doubt one of the most socialist moves by our government in years. Where are the 'free market' arguments?

Cycloptichorn

And who kept Greenspan on after Bush became president? DUH!

Here's some history on Greenspan:

THE Democrats will blame the Republicans. And the Republi cans will blame the Democrats.

And this time, they will both be right.

Each of the political parties shares responsibility for the troubles at Fannie Mae and Freddie Mac, two government-sponsored organizations that needed to be bailed out this weekend by - who else? - the taxpayers.

The latest housing bubble started back in the Clinton administration, when Washington suddenly got the brilliant notion that all Americans should be able to buy houses.

No, let me change that.

Our elected officials concluded that everyone deserved to own a house regardless of whether they could actually afford one.

That's quite different from the old promise that people in this country should have a roof over their heads.

In the old days, that roof was often in a rented apartment.

And if you suddenly found that your financial circumstances had deteriorated, then you could just pack your bags and tote them over to a cheaper place.

Under the revised system, the have-nots suddenly became haves, not through merit but thanks to the dictates of politicians and cheap money from the Federal Reserve that found its way into people's pockets through Fannie and Freddie loans.

You can understand why such an idea would be attractive to both parties. If you make people believe they can afford a house, then they might also believe their standard of living is improving. It's the shortcut to affluence.

Now, taxpayers will feel their back pockets smarting if the housing market doesn't suddenly stage a miraculous recovery and Fannie and Freddie bills end up with no expiration date.

This isn't the way it was supposed to happen.

The federal government established Fannie Mae in 1938. (Freddie Mac would come later, in 1970.)

The idea was simple: Fannie would buy mortgages from banks, so that banks could go out and lend more money.

Nobody really knew what a "government-sponsored" organization was. But deep down, everyone had a feeling that Uncle Sam would ride to the rescue if Fannie Mae's and Freddie Mac's problems became bad enough.

The real trouble began in 1999 when Franklin Delano Raines, former budget director for Bill Clinton, took over as chairman of Fannie.

Only Raines knows why he pushed so hard to expand the number of mortgages and the size of those loans that Fannie could hold.

But at the end of the Clinton administration and into the Bush presidency, Fannie Mae and its sister organization, Freddie Mac, ended up owning trillions of dollars of mortgages.

From 2002 to 2004 alone, for instance, Fannie Mae had increased by 10 percent the size of the loans it could purchase from banks.

None of this could have happened without the acquiescence of the Federal Reserve, whose chairman, Alan Greenspan, was not only willing to keep interest rates abnormally low but who also became a cheerleader for the housing bubble.

Should the government have bailed out Fannie Mae and Freddie Mac? No, and yes.

No, it should never have gotten to this point. These government-sponsored organizations should have been stopped a long time ago.

And, yes, there was no alternative.

[email protected]

http://www.nypost.com/seven/09082008/business/politicians_did_this_128018.htm

It's very funny how when presented with facts, you now want to share responsibility. ROFL

That's is because I can be objective.

Unlike you.

Prices for the Common Shares of F&F fell to $1 or less today. It looks like thhe owners of those shares will get wiped out unded the Treasury's plan. The NYSE sends a little note to listed companies whose stock goes to a dollar that they have a set period of time to get the price back up. If they can't do it, the shares are delisted from the exchange and the certificates (if we still had stock certificates) would have more value as wallpaper.
The next level of investor is the existing preferred stockholder. The price of those shares fell pretty dramatically today as it became clear that those folks are not going to be getting and dividends for the forseeable future. The ripple effect could be bad as some of the big investors in the preferred are some major regional banks. Shares of Gateway Financial and Midwest Bank Holdings fell by about 25% each because of their exposure.
The Treasury's plan is to buy some $5 billion in F&F's mortgage backed securities and turn them over for administering to private companies. In addition F&F will have to sell off to other invests a certain % of their portfolio of loans each year to shrink the companies down.
The U.S. will invest a $100 billion in super-preferred stock of F&F. The dividend will be set at 10% and will be cumulative (if I heard this correctly). The divend and the "exit strategy" of F&F eventually retiring those shares will come from the sale of the mortgage portfolio. That structure pretty much ensures that the woners of the existing shares will get nothing for a long time.
How long is a long time? Treasury Secretary Henry Paulson sail a couple or three years if the economy turns around. I am thinking at least twice that.
Please let me know if this is useful to you. Perhaps yall know all of this already or perhaps you would prefer to just hurl insults at each other.

The real story behind the Fannie, Freddie take over. ---BBB

Fannie, Freddie taken over partly to ease foreign nerves
By Kevin G. Hall | McClatchy Newspapers
9/8/08

WASHINGTON " When Treasury Secretary Henry Paulson announced the weekend seizure of mortgage-finance giants Fannie Mae and Freddie Mac, he cited the need to stabilize nervous financial markets and bolster the slumping housing market.

What he didn't say publicly is that foreigners, among other big institutional investors, had lost confidence in one of the most vital and plain-vanilla U.S. investments. In a sense, they were losing confidence in the world's largest economy, and he needed to reverse matters.

"That's the unstated objective," said Vincent Reinhart, a former chief economist of the Federal Reserve's rate-setting Open Market Committee.

That underscores how interdependent U.S. finance has become with the global marketplace. Although they underwrote much of America's growth in the early 19th century, in more recent times foreigners hadn't been large holders of U.S. agency debt until about 1999, and the trend grew through much of President Bush's term in parallel with the nation's housing boom.

Foreigners hold an estimated 20 percent of Fannie and Freddie debt, commonly called agency debt. Since that debt is backed by U.S. mortgages, keeping foreigners buying this debt is vital if the housing market is to recover.

The long-term securities that Fannie and Freddie offer have long been considered among the safest of investments. That's partly because they enjoyed the implicit support of the U.S. government, which chartered both privately owned profit-seeking businesses. Investors have long believed that the U.S. government wouldn't let the two fail.

In fact, legislation that Bush signed into law July 30 kept Fannie and Freddie in their historical form but allowed the Treasury to provide a financial backstop if necessary.

That was a nod to investors, but it failed to quell fears, thus prompting the weekend's action putting Fannie and Freddie into conservatorship, a form of bankruptcy protection that keeps them intact.

"What they did over the weekend was good for debt holders. The firms will still be there, and there is protection for the debt holders," said Reinhart, a scholar at the American Enterprise Institute, a conservative research center.

The housing crisis contaminated financial markets in August 2007, but it took almost another year before investor doubts about Fannie and Freddie exploded. By July it appeared that foreigners, among others, had lost trust and sold their Fannies and Freddies or refused to buy more.

That amounted to a buyer's strike, even as yields on these bonds were more than double what they'd been a year earlier.

"When foreign governments became noticeably worried about their investments in Fannie Mae and Freddie Mac, there was no choice but for Paulson and the government to act quickly to restore confidence in the U.S. markets," Sen. Charles Schumer, D-N.Y., the chairman of the Joint Economic Committee of Congress, said in a statement to McClatchy.

Interviewed Monday on CNBC, Paulson said he was concerned about foreigners and other investors selling their Fannie and Freddie investments, "no doubt about that."

The most recent numbers available from the Treasury Department date only to June, but by then the trend was clear. China, the biggest foreign holder of agency debt, purchased $14.8 billion in May but just $9.6 billion in June. Japan purchased $4.47 billion in May but bought $770 million in June. Canada purchased almost $2.6 billion in agency debt in May but trimmed it to $208 million in June.

The trend was troubling, because Fannies and Freddies traditionally have been a haven where foreign investors flock when financial markets are volatile. In August 2001, foreign investors purchased about $12 billion in agency debt. In October 2001, the month after 9-11, they purchased $27.2 billion worth.

"I presume that people like (Federal Reserve Chairman) Ben Bernanke have been having serious conversations with central bankers around the world," said Sen. Christopher Dodd, D-Conn., the chairman of the Senate Banking Committee.

By this summer, there were signs that foreign investors were bailing out. On Aug. 28, London's Financial Times reported that the Bank of China had sold $4.6 billion in Fannies and Freddies. That same day, the financial news wire Bloomberg reported that Japanese investment funds were selling off their agency debt.

The success of Paulson's takeover may depend on foreigners' willingness to return to purchasing Fannies and Freddies.

"When you look at the big picture, it just hits you between the eyes. You've got $5 trillion in debt and guarantees, and a lot of that is held outside the United States," said Brian Bethune, the chief U.S. economist for forecaster Global Insight in Lexington, Mass.

Bethune likened the unraveling financial situation over the past year to tremors that precede an even bigger earthquake, "and at some point the whole system could melt down. I think that's why they had to move."

If some rational participants of this forum wish to know how pitiable the condition that prevails in USA
I beg to draw attention to this lengthy article.

Learning from others will not diminish the analytical faculty.
Here it is with my specific quote from the text.

Behind The Costly Fannie/Freddie Mortgage Bailout: A Silent Dependence On Foreign Money, Not Just Oil
By Danny Schechter.

Last Friday, after the markets closed, The US government announced plans to take over the troubled mortgage giants Fannie Mae and Freddie Mac. This happened when their share price collapsed, in part because they had trouble issuing debt to fund their operations. This bailout may cost taxpayers more than the Iraq War. (In other words, forget all tax cuts now. This is going to be expensive!)

Close to collapse, these institutions were kept alive in part through foreign investments. As everyone knew, they were too big to fail not only in terms of their domestic impact but because their failure would undermine global confidence in the U.S. economy - i.e. stop the inflow of big bucks. Watch what happens: foreign investors will be protected one way or the other even as American shareholders take a bath. The question is: What will happen to American homeowners? So far they have been the last to be helped.

Confidence is already in short supply. When Wall Street plummets, world markets take a dive. AP reported last week: “Asian stock markets plunged Friday in the wake of a sell-off on Wall Street amid mounting concerns about a slump the U.S. economy and its impact on the global economy… No Asian market was spared from the carnage…”

China is affected too. The Central Bank there is short of capital. Why? The New York Times reported: “China’s central bank is in a bind. It has been on a buying binge in the United States over the last seven years, snapping up roughly $1 trillion worth of Treasury bonds and mortgage-backed debt issued by Fannie Mae and Freddie Mac. Now the central bank needs an infusion of capital.”

Welcome to a growing GLOBAL crisis as the Busheviks turn to socialism to save capitalism while China turns to capitalism to save socialism.

Greed and financial mismanagement, aided and abetted by a lack of regulation and media scrutiny, has not only forced our banks to write down billions, but is “blowing back” into the worlds of wealthy lenders in other countries who, in wanting to emulate our booms, are at risk of sharing our busts.

Case in point: The Gulf. Writer Peter Cooper notes in Emirates Business 24.7 that the Gulf States are now being impacted by the collapse of key sectors of our economy.

“What will this slowdown or recession in the world mean on the other side of the world for the Gulf States,” he asks. “Is this the foot coming off the accelerator of the global economy?“

Alas, the political parties are still avoiding these issues. One writer who analyzed the convention speeches of the four major office seekers, found that none of them mentioned the words, banks, financial crisis, Federal Reserve Bank or the collapse of Fannie and Freddy. Total references by Obama, Biden, McCain and Palin: 0.

http://www.mediachannel.org/wordpress/2008/09/08/behind-the-costly-fanniefreddie-mortgage-bailout-a-silent-dependence-on-foreign-money-not-just-oil/

The US is quick to criticise European governments for not adhering to US free market capitalism. But when US free market capitalists screw it up through profligate and unsustainable lending...the US government steps in and NATIONALISES the mortgage industry to protect it from their own folly. At a cost to the US tax payer of $1,600,000,000,000. Give or take a few zeros. So the US is the most SOCIALISED financial system in the world. America has the cheek to lecture the rest of the world about how economies should be run, then when the American economy gets into trouble they are not prepared to take the medicine they prescribe for everyone else. It turns the right wing free marketeers into a laughing stock.

Mark Levin is calling for criminal investigations on this one.

This is a financial scandal which totally dwarfs anything else in our nations history and it's mainly if not entirely demokkkrats involved, so that the media is simply not interested. That is, while they scour Alaska for evidence of Sarah Palin having any unpaid parking tickets.

In what way were the Democrats mainly if not entirely responsible for the sub prime loan fiasco and the nationalization of F and F?

may i humbly pour for my contradiction.
It is not dems or reps.
Your system is worse than the communist system( I am a die hard communist) your country has allowed a system which is NON CHRISTIAN and banal.
A fellow who vegitate in your country should seek 2 or 3 jobs to feed the innocent kids while the criminals( CEOs) leave their jobs with sack full of TOILET PATERS.