american taxpayer writes:
We can all die a pauper now.
american taxpayer | 09.07.08 - 11:18 am | #

dp writes:
Since this difficult period for the GSEs began, I have clearly stated three critical objectives: providing stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers...

ummmmm...In what order?
dp | Homepage | 09.07.08 - 11:19 am | #

lawyerliz writes:
Let us all become followers of St. Francis of Assisi--poverty is good.
lawyerliz | 09.07.08 - 11:19 am | #

bob mologna writes:
I just watched this statement on SkyTV (Ireland). I've rarely seen such trepidation and fear from a gov't representative. I'm feeling quite concerned...
bob mologna | 09.07.08 - 11:19 am | #

travis writes:
Anyone notice how shaky both Paulson and Lockhart appeared on TV? This does not bode well.
travis | 09.07.08 - 11:20 am | #

Ministry of Truth writes:
Yeah!!! A new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks
Ministry of Truth | Homepage | 09.07.08 - 11:21 am | #

Jack writes:
socialism is good for you. now smile and give your share.
Jack | 09.07.08 - 11:23 am | #

David Pearson writes:
No explicit guarantee offered to foreign Central Banks. Nothing on the order of "this debt is a U.S. government obligation." Soothing words, promises of future injections, but that's it.

I don't think its enough long term. Agencies will rally tomorrow but I don't think the PBOC will be holding $350b worth in twelve month's time. Treasury can alleviate the issue by buying MBS and reducing the funding needs of F&F, but that does little for bureaucrats that expected the implicit guarantee to become explicit.
David Pearson | 09.07.08 - 11:23 am | #

Gareth G writes:
Common and preferred dividends wiped out, but subordinate debt is protected.
Gareth G | 09.07.08 - 11:24 am | #

Ministry of Truth writes:
The GSEs get a "Time Out"

Priceless!!!
Ministry of Truth | Homepage | 09.07.08 - 11:24 am | #

dr munch writes:
What am I missing? I see nothing here.
dr munch | 09.07.08 - 11:25 am | #

bob mologna writes:
They keep refering to it here in Ireland as "the largest bailout in America's history". Shouldn't this read "the largest bailout EVER"?
bob mologna | 09.07.08 - 11:26 am | #

freddyinp'town writes:
Notwithstanding its usual cheerleading, CNBC never works on Sunday.

As Wall Street sits on the edge of its seat, the network is now running a hair-restoration infomercial. Bloomberg Television is airing the presser live.

This was also the case on Bear Stearns Sunday and during every other bombshell weekend since the credit crisis began.

CNBC is entertainment (if that's your idea of fun). It's not journalism. It sucks.
freddyinp'town | 09.07.08 - 11:26 am | #

Guest writes:
No dollars specified in the printed remarks, no numbers of any kind in the release
Guest | 09.07.08 - 11:26 am | #

malabar writes:
Yes, the same Joe Lockhart that was the previous regulator that allowed Fannie and Freddie to become a "regulated" hedge fund that leveraged up 80:1 to buy all the crap MBS paper from Wall Street still remains the "new" regulator. Of course no criminal investigations of management or the regulators for creating the "systemic risk" and walking away with millions in bonuses and options gains.

Only in the USA do the folks that were responsible for the mess continue to gain more power and positions of authority.
malabar | 09.07.08 - 11:26 am | #

Max writes:
"the largest bailout EVER"?

I think the Marshall Plan was bigger.
Max | Homepage | 09.07.08 - 11:27 am | #

homedad43 writes:
LLiz:

Not sure that I agree with the St Francis comment.

In 'net speak, "Poverty is Good" is PIG.

LOL.

Really, ROFL.

TTFN. Heading out to Lefty's for Gin and Vaseline.
homedad43 | Homepage | 09.07.08 - 11:28 am | #

Left Coast Tom writes:
The agencies encourage depository institutions to contact their primary federal regulator if they believe that losses on their holdings of Fannie Mae or Freddie Mac common or preferred shares, whether realized or unrealized, are likely to reduce their regulatory capital below "well capitalized."

What if their capital is already below "well capitalized"?
Left Coast Tom | 09.07.08 - 11:29 am | #

bob mologna writes:
"Max writes:
"the largest bailout EVER"?

I think the Marshall Plan was bigger."

Ah, irony. Or faint praise at best.
bob mologna | 09.07.08 - 11:29 am | #

PonziMonetizaCoruptiCapatlism writes:
Therefore, the primary mission of these enterprises now will be to proactively work to increase the availability of mortgage finance

i/o neg am is back!
PonziMonetizaCoruptiCapatlism | 09.07.08 - 11:30 am | #

studfed writes:
Typical stupid government bailout. Just let them fail. Who care?
studfed | 09.07.08 - 11:30 am | #

Rob Dawg writes:
With this agreement, Treasury receives senior preferred equity shares and warrants that protect taxpayers. Additionally, under the terms of the agreement, common and preferred shareholders bear losses ahead of the new government senior preferred shares.

Super senior apparently. This is an explicit assurance that both the common stock and the stock previously known as preferred will be wiped out.

But it was the comment immediately after this that bugged my eyes out:

These Preferred Stock Purchase Agreements were made necessary by the ambiguities in the GSE Congressional charters, which have been perceived to indicate government support for agency debt and guaranteed MBS.

I call BS. Every single document ever printed at any time under any circumstance has explicitly and in no uncertain terms stated flat out that GSEs were not government guaranteed. Just because Bill Gross received assurances over trout dinners at luxury fish camps does not mean the taxpayer is on the hook over a non-existent ambiguity.
Rob Dawg | Homepage | 09.07.08 - 11:32 am | #

Cynical Yes writes:
Ah, the markets will get waterboarded. Good luck and god bless.
Cynical Yes | 09.07.08 - 11:32 am | #

jesse writes:
"the primary mission of these enterprises now will be to proactively work to increase the availability of mortgage finance"

What was the mission before?
jesse | 09.07.08 - 11:33 am | #

words writes:
the GSEs will modestly increase their MBS portfolios


these guys don't know the meaning of Modest...
words | 09.07.08 - 11:34 am | #

Max writes:
Treasury is initiating a temporary program to purchase GSE MBS.

Here's the real bailout. Taxpayers will now directly support the housing market.
Max | Homepage | 09.07.08 - 11:34 am | #

lawyerliz writes:
It could've been worse. Eventually supposed to go into run off. I wonder who they think is going to take over?

A bone only thrown to the Chinese.

And explicitly kicked down the road to the next administration.
lawyerliz | 09.07.08 - 11:35 am | #

Alo writes:
Across this wide open, vulnerable nation, attorneys are buzzing like crickets on an end-of-summer night.
Alo | 09.07.08 - 11:35 am | #

GillianX writes:
I think that they think the GSE's business will eventually be taken over by a covered bond market as in Europe and so there will be no need for any GSEs?
GillianX | 09.07.08 - 11:37 am | #

Vega writes:
"These agreements provide significant protections for the taxpayer, in the form of senior preferred stock
with a liquidation preference, an upfront $1 billion issuance of senior preferred stock with a 10% coupon
from each GSE, quarterly dividend payments, warrants representing an ownership stake of 79.9% in
each GSE going forward, and a quarterly fee starting in 2010."

Does this mean that the value of common stock dropped by 79.9%?
Vega | 09.07.08 - 11:37 am | #

Rob Dawg writes:
Treasury is initiating a temporary program to purchase GSE MBS.

US troops are still on temporary station in Germany while the impacts off of WW-II are allowed to run off.
Rob Dawg | Homepage | 09.07.08 - 11:37 am | #

MarktoMarket writes:
As a taxpayer, I hope that the Morgan Stanley Report is made public for all to see....or leaked
MarktoMarket | 09.07.08 - 11:37 am | #

El Cliffo writes:
This is not capitalism. This is a bunch of preppies cooking up a scheme in the bar car on the commute back home to Greenwich.
El Cliffo | 09.07.08 - 11:40 am | #

Joe Bama writes:
"I call BS. Every single document ever printed at any time under any circumstance has explicitly and in no uncertain terms stated flat out that GSEs were not government guaranteed."

But, Government Sponsored, which has certain ambiguities. Perhaps instead of calling BS you can call do-over?
Joe Bama | 09.07.08 - 11:40 am | #

John Lee writes:
"Nothing about our actions today in any way reflects a changed view of the housing correction or of the strength of other U.S. financial institutions."

Meaning, don't infer from this "another" bailout that we are brinking on systemic collapse. We saved the day again!

Buy houses, durables, boats, RVs, SUVs now before being priced out.
John Lee | 09.07.08 - 11:41 am | #

BJS writes:
I think this is one of the very few cases where 'moral hazard' is out the window. Treasury and the Fed need to do everything possible, taxpayer costs be damed, to get the crap off the collective books of the GSE's so that the markets can start functioning properly again. Obviously the GSE's regulator needs a few steroids injections and that needs to be a part of this. But overall there will be plenty of time for finger pointing later. Adding..i do own stock in fannie, which i'm now using as toliet paper.
BJS | 09.07.08 - 11:41 am | #

REBear writes:
Then, to address systemic risk, in 2010 their portfolios will begin to be gradually reduced at the rate of 10 percent per year, largely through natural run off, eventually stabilizing at a lower, less risky size.

I guess starting 2010 it will be difficult to buy good 3A, US guranteed bonds.
My realtor in 2006 said builders are no longer building.
REBear | 09.07.08 - 11:41 am | #

crispy&cole writes:
The comments about 2010 runoff are a joke. He knows he will be gone and this will never happen

Also, lobby to stop immediately. LMFAO!!
crispy&cole | Homepage | 09.07.08 - 11:42 am | #

GSE Guy writes:
B Mologna: I agree. At the beginning of his part Jim Lockhart seemed to be genuinely nervous and concerned. Toward the end he got into a groove and finished with more confidence.
GSE Guy | 09.07.08 - 11:42 am | #

JimPortlandOR writes:
Looks like the whole set of actions was done to obfuscate whether this is a taxpayer-funded bailout of banks, investors and CHINA - essential before the elections for Bush/McCain.

The can has been kicked as far down the alley as thought to be needed.

Now the market gets to decide if this just sh*t or Bushsh*t.
JimPortlandOR | 09.07.08 - 11:42 am | #

drdebt writes:
It's a great country that keeps rewarding failure. -

I'll put my dollars to your pennies that the cost of this debacle never makes it to the US budget, just like the cost of the follies in Iraq. We're truly living in a fantasy world.
drdebt | 09.07.08 - 11:42 am | #

RayOnTheFarm writes:
only a limited number of smaller institutions have holdings that are significant compared to their capital

Oh.. so UST, OTS, FRB, FDIC, et al, have already run the numbers to see who is about to get crushed ? Might an interesting time to look at the call reports. I wonder if this is a line item thing that would stand up and scream ?
RayOnTheFarm | 09.07.08 - 11:43 am | #

John Lee writes:
"Functioning properly again"

hahahahah

Yes and I'll go back to my young wife whose cheated on me multiple times. Sea change in psychology. These "saves" are scaring the crap out of even the most naive fencesitter.
John Lee | 09.07.08 - 11:43 am | #

crispy&cole writes:
They just clarified the guarantee on debt...now they are leaving the common and preferred open, so in a year or less they will get the same guarantee
crispy&cole | Homepage | 09.07.08 - 11:43 am | #

lawn grass writes:
"But it was the comment immediately after this that bugged my eyes out:

These Preferred Stock Purchase Agreements were made necessary by the ambiguities in the GSE Congressional charters, which have been perceived to indicate government support for agency debt and guaranteed MBS.

I call BS. Every single document ever printed at any time under any circumstance has explicitly and in no uncertain terms stated flat out that GSEs were not government guaranteed. Just because Bill Gross received assurances over trout dinners at luxury fish camps does not mean the taxpayer is on the hook over a non-existent ambiguity"

I would think that someone somewhere had figured out the GSE entities were not the US government.

Did anyone ask? What was the answer? I suppose I could look it up on the internet.

But then hooocodanode.
lawn grass | 09.07.08 - 11:45 am | #

stuart writes:
Wow. Paulson and the others looked scared $hitless!!! Kicked the can down the road for the next administration to solve. Time-out! That says how bad it is.
stuart | 09.07.08 - 11:45 am | #

dr munch writes:
Where is the rally monkey? How does this pop the market? We now go below the previous lows, until a 50 basis point cut on a Sunday night when the leaves start turning colors.
dr munch | 09.07.08 - 11:45 am | #

brian writes:
{MarktoMarket writes:
As a taxpayer, I hope that the Morgan Stanley Report is made public for all to see....or leaked]

That was a $95,000 consulting contract. Covered a week in the DC Hilton and the reading of a couple quartely audits.
brian | 09.07.08 - 11:46 am | #

jimmy starkenhoff writes:
JimPortlandOR, we could have a financial meltdown and there is a very good chance McCain would still be elected simply because the values voters in the heartland are more interested in preventing their 16 year old to hear the word "condom".
jimmy starkenhoff | 09.07.08 - 11:46 am | #

WAWAWA writes:
from ABC News.

"Officials announced that the executives of both institutions had been replaced. Herb Allison, a former vice chairman of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac."

I can not find any video of paulson's news. If you guys have a video footage , please post it.
WAWAWA | Homepage | 09.07.08 - 11:47 am | #

Noah Rosenblatt writes:
SO WHERE DOES THE FOLLOWING OPEN TOMORROW?

FNM?
FRE?
GOLD?
DOW?

My guess!

FNM --> $3
FRE --> $1.75
GOLD ---> $845
DOW ---> Up 200

Thoughts??????
Noah Rosenblatt | Homepage | 09.07.08 - 11:47 am | #

John Lee writes:
508 visitors? I have a dark monday foreboding.
John Lee | 09.07.08 - 11:47 am | #

Alo writes:
BJS, how does a market ever function properly if it rewards failure?
Alo | 09.07.08 - 11:47 am | #

ratefink writes:
"The agencies encourage depository institutions to contact their primary federal regulator if they believe that losses on their holdings of Fannie Mae or Freddie Mac common or preferred shares, whether realized or unrealized, are likely to reduce their regulatory capital below 'well capitalized.'"


One ringy dingy, two ringy dingy. . .

Good Morning. You have reached the offices of the Federal Depository Insurance Corporation. All of our agents are busy servicing other customers. Please stay on the line, so that we can give you the same individual care and service as soon as we become available.

Due to the heavy nature of the response to our latest promotion, your expected wait time is (1/20/2009 minus todaydate) thank you for your patience

Sound of switching, then Mantovanni version of "Money makes the world go around"
ratefink | 09.07.08 - 11:47 am | #

RayOnTheFarm writes:
Haloscan says 493... on a Sunday... before noon. What time does Lefty's open ? Do they have lots of inventory ?
RayOnTheFarm | 09.07.08 - 11:47 am | #

crispy&cole writes:
I loved the comment about small banks calling if this will impact you and we can "work it out" for you...WTF does that mean, this whole thing is amazing

They should have just out Bill Gross up their to announce the plan, at least I would know who was screwing us
crispy&cole | Homepage | 09.07.08 - 11:48 am | #

wally writes:
Comrade Paulson speaks, but it is all so complicated. Why not just pull out the bazooka and demand our money?
wally | 09.07.08 - 11:48 am | #

sidd writes:
US$200 billion ?

Treasury Senior Preferred Stock Agreement,
First page, 'Terms of the Agreements' first point

"The agreements are contacts between the Departmant of the Treasury and each GSE, They are indefinite in duration and have a capacity of $100 billion each..."
sidd | 09.07.08 - 11:48 am | #

Max writes:
Time-out!

He pretty much laid this on the feet of Congress. He's playing the role of the adult. Basically this whole plan is a stop-gap so congress can decide what it wants to do.

So when was the last time Congress took on a complex issue like this with effect? I know, I can't remember either...
Max | Homepage | 09.07.08 - 11:48 am | #

stuart writes:
Noah, but what about treasuries..... I can't see how they do anything but a kamikze dive. Not good for bucky either. Highly inflationary.
stuart | 09.07.08 - 11:49 am | #

AlphaBeta writes:
Flat out broke government is going to bailout these two giants with money taken from flat out broke US consumers which will borrow money from flat out broke US government?

Do I smell proverbial cow here?! Just keep selling it back and forth!
AlphaBeta | 09.07.08 - 11:49 am | #

dr munch writes:
Repeat from prior thread: Market goes through lows, then a 50 basis point cut on a Sunday night this fall.
dr munch | 09.07.08 - 11:50 am | #

MarkS writes:
LOL, ratefink.
MarkS | 09.07.08 - 11:50 am | #

GillianX writes:
FNM and FRE should most definitely open down and out. The common and preferred is basically worthless. Also banks, insurance cos, pensions, that hold preferred and common are hurting - some more regional banks to announce bankruptcy. Could be beneficial for some banks as debt will recover, so some losses on preferred can be offset by gains on sub and senior debt. Overall good for debt and takes out uncertainty, but symptomatic of extremely large problems that will take a long while still to work out.
GillianX | 09.07.08 - 11:50 am | #

John Lee writes:
Paulson--"I have long said that the housing correction poses the biggest risk to our economy. It is a drag on our economic growth, and at the heart of the turmoil and stress for our financial markets and financial institutions. Our economy and our markets will not recover until the bulk of this housing correction is behind us. Fannie Mae and Freddie Mac are critical to turning the corner on housing."

Sisyphus had a great runup, but one slip...can he really stop with any and every effort the now inevitable?
John Lee | 09.07.08 - 11:51 am | #

crispy&cole writes:
I am a bear, but I think the market rallies big time on this..
crispy&cole | Homepage | 09.07.08 - 11:51 am | #

Milkman writes:
"We are fully aware that the deck chairs are in the wrong configuration. Therefore, to protect the passengers and crew, we will rearrange the chairs. In this new configuration, the ship will stop sinking and we will all live happily ever after."

[Then Hank gets into one of the lifeboats and paddles away.]
Milkman | 09.07.08 - 11:51 am | #

Noah Rosenblatt writes:
Bring on the rally baby so I can short short short!!
Noah Rosenblatt | Homepage | 09.07.08 - 11:51 am | #

EZRider writes:
Dear FED:

Now, hasn't this whole process been much easier then recognizing the R/E bubble 3 years ago and popping then?

EZ
EZRider | 09.07.08 - 11:52 am | #

brian writes:
[Good Morning. You have reached the offices of the Federal Depository Insurance Corporation. All of our agents are busy servicing other customers. Please stay on the line, so that we can give you the same individual care and service as soon as we become available.]

No, first you select Press # for which language you speak>
brian | 09.07.08 - 11:52 am | #

DR writes:
"I'll put my dollars to your pennies that the cost of this debacle never makes it to the US budget, just like the cost of the follies in Iraq. We're truly living in a fantasy world.
drdebt | 09.07.08 - 11:42 am | # "

There's always the Social Security Trust fund to raid. Then in 10 years the US gov can call the fund insolvent.
DR | 09.07.08 - 11:53 am | #

Anonymous writes:
I'm CONfident.
Anonymous | 09.07.08 - 11:53 am | #

JimPortlandOR writes:
[Then Hank gets into one of the lifeboats and paddles away.]

Heli-Ben has supplied black copters for Paulson and Crew so they don't need the lifeboats washed overboard.
JimPortlandOR | 09.07.08 - 11:53 am | #

Yet Another Canadian Cynic writes:
The FNM and FRE (common) possibilities mentioned above are way high. The common for both is going to 50 cents tomorrow. The preferred shares will trade down to 25 cents on the dollar, perhaps less.

But Bill Gross and the People's Bank of China have made out like bandits.
Yet Another Canadian Cynic | 09.07.08 - 11:53 am | #

Noah Rosenblatt writes:
heres what this basically does:

a) removal of systemic risk
b) lessens uncertainty
c) spreads tighten
d) brings in new money to buy distressed assets
e) steepens the curve

financials lead the rally, until they realize how messed up things really are. But traders will 'feel' like this is the cure all.
Noah Rosenblatt | Homepage | 09.07.08 - 11:53 am | #

drdebt writes:
"Comrade Paulson" - hey I like that.

Next up, while they're waiting for their truffles, "Hey, let's buy-out, err I mean bailout WAMU...and Downey, too."

If buying defaulting MBS for the Treasury is such a potential goldmine, hey let's load up with WAMU and the other losers. Maybe Angelo Mozillo can sell Paulson some of his CFC stock while they're at it.
drdebt | 09.07.08 - 11:54 am | #

crispy&cole writes:
No mention of compliance with SEC reporting standards here... that to me means the common is worth zero. Not like they were reporting facts on their Q' and K's anyway
crispy&cole | Homepage | 09.07.08 - 11:54 am | #

John Lee writes:
Lotta Monday morning traders are going to be as shaky and sweaty as Paulson and Lockhart.
John Lee | 09.07.08 - 11:54 am | #

ooh-la-la writes:
Ray:"Haloscan says 493... on a Sunday... before noon. What time does Lefty's open ? Do they have lots of inventory ?"

542 now. I'll have a Beamish, thank you.
ooh-la-la | 09.07.08 - 11:54 am | #

Rob Dawg writes:
“The Debt Securities, together with interest thereon,
are not guaranteed by the United States and do not
constitute a debt or obligation of the United States
or of any agency or instrumentality thereof other
than Fannie Mae.”

Fannie Mae, “Universal Debt Facility Offering Circular,” January 22, 2002.
www.fanniemae.com/markets/debt/pdf/udf_012202.pdf? p=Debt+Securities.
Rob Dawg | Homepage | 09.07.08 - 11:54 am | #

dp writes:
Haloscan says 493... on a Sunday... before noon. What time does Lefty's open ? Do they have lots of inventory ?

Well, Kick-off is in an hour.
dp | Homepage | 09.07.08 - 11:55 am | #

EPD writes:
So do I just mail my partial payment for my Feb 06 house payment to 1600 Pennsylvannia Ave?
EPD | 09.07.08 - 11:55 am | #

Anonymous writes:
"Paulson--"I have long said that the housing correction poses the biggest risk to our economy."

Was that before or after you said everyting was contained.
Anonymous | 09.07.08 - 11:55 am | #

Periwinkle writes:
Wow, I have never seen so many visitors on line. CR, can you give us some stats?
Periwinkle | 09.07.08 - 11:55 am | #

Noah Rosenblatt writes:
JETS BABY! Favre or Fannie/Freddie bailout. I dont which one to be more excited about.

GO GOLD!
Noah Rosenblatt | Homepage | 09.07.08 - 11:55 am | #

Jack writes:
no, stocks may open tomorrow up on short covering, but they are going to zero. game over for stock holders!
Jack | 09.07.08 - 11:55 am | #

ratefink writes:
d) brings in new money to buy distressed assets

Here, let me give you this shiny new piece of paper, for that dirty old one. Look, it even has a pretty picture on it.

Or in the words of Bullwinkle, "This time for sure!"
ratefink | 09.07.08 - 11:56 am | #

Noah Rosenblatt writes:
"So do I just mail my partial payment for my Feb 06 house payment to 1600 Pennsylvannia Ave?"

LOL!
Noah Rosenblatt | Homepage | 09.07.08 - 11:56 am | #

Canadian hoser call writes:
Coooo-loo-coo-coo-cooo-coo-coo-coooo!
Coooo-loo-coo-coo-cooo-coo-coo-coooo!
Canadian hoser call | 09.07.08 - 11:56 am | #

DR writes:
"The two GSEs will need to roll over $225 billion of debt by the end of September..'

You wanna bet who is going to do the rollover? China, Japan, Russia or US Taxpayer....
DR | 09.07.08 - 11:56 am | #

ChickenLittle writes:
IF GOV'T NOW ADMITS FANNIE AND FREDDIE INSOLVENT......

What about every other financial institution that has been padding the books with inflated assets?
ChickenLittle | 09.07.08 - 11:56 am | #

Rob Dawg writes:
Haloscan is about to choke.

I think the highest was 771 visitors earlier this summer.
Rob Dawg | Homepage | 09.07.08 - 11:57 am | #

wally writes:
"...and there is a very good chance McCain would still be elected..."

Well, maybe. But the Dems have just been handed the Mother of All Campaign Issues: the biggest problems since the Great Depression. The economy is the mother lode of political mining. However, they have to find a way to package it so Joe 6 can catch the issue in a sound bite.
wally | 09.07.08 - 11:57 am | #

ratefink writes:
EPD,

Cut out the middle man and mail it to the Chinese.
ratefink | 09.07.08 - 11:58 am | #

Fair Economist writes:
Treasury is initiating a temporary program to purchase GSE MBS.

Here's the real bailout. Taxpayers will now directly support the housing market.

We already are, via the implicit guarantee of Agency debt. The fact that the foreign central banks could force the takeover show the guarantee is ironclad in spite of all previous denials. For the Treasury to buy GSE MBS directly actually makes good financial sense, because the gov borrows the money at T-bill rates, not Agency rates.
Fair Economist | 09.07.08 - 11:58 am | #

Joe Six Pack writes:
I remember when pension funds were saying they had limited exposure. Doesn't this kinda change that theme?
Joe Six Pack | 09.07.08 - 11:58 am | #

John Lee writes:
Countrywide/BAC
BSC/JPM
Big 3 autos
Airlines
FNM/FRE
Why stop there?

This will be an equity infusion to the other deeply distressed banks via short covering rally...but can it be sustained? Who's next in queue? LEH, WB, DSL?
John Lee | 09.07.08 - 11:59 am | #

ratefink writes:
I remember when pension funds were saying they had limited exposure.

Limited to what's in your wallet.
ratefink | 09.07.08 - 11:59 am | #

Rob Dawg writes:
The second step Treasury is taking today is the establishment of a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.

And just how many windows are they gonna open on this submarine?
Rob Dawg | Homepage | 09.07.08 - 12:00 pm | #

RayOnTheFarm writes:
If bucky goes to hell in a handbasket... whats that going to do the price of crude ?
RayOnTheFarm | 09.07.08 - 12:00 pm | #

Alo writes:
Herb Allison's Enron connection? A profile I just found. Gulp.

http://www.economicprincipals.co....09.28/ 293.html
Alo | 09.07.08 - 12:01 pm | #

JimPortlandOR writes:
Capitol One: what's in your wallet?

NADA - FNM/FRE common/preferred
JimPortlandOR | 09.07.08 - 12:01 pm | #

Dallama writes:
Isn't it a little odd, F&F get into trouble but the talk is that they will pull through. The dollar rebounds for questionable reasons and THEN we find the "books were not correct" and now we get a new dollar tanking event. Seems so well planned. If the dollar was at its lows and this happened we be looking at serious problems but they took the time to pump it by fudging the books.
Dallama | 09.07.08 - 12:01 pm | #

foolonthehill writes:
Best news of the day from WaPo

The Treasury Department, which is taking an equity stake in the two firms, said there was no reason to expect that taxpayers would have to shoulder losses.

No mention of Fed risk at all from NYT
foolonthehill | 09.07.08 - 12:01 pm | #

John Lee writes:
Not to worry, RD, those windows are screened.
John Lee | 09.07.08 - 12:01 pm | #

energyecon writes:
I called FDIC but all I can get is in Mandarin...
energyecon | Homepage | 09.07.08 - 12:01 pm | #

El Cliffo writes:
Now GM, Ford and Chrysler want their bailouts, too!

"General Motors Corp., Ford Motor Co. and Chrysler LLC will be launching a campaign in the coming days to secure at least 25 billion dollars in federal loans to help get past the current economic malaise.

"This isn't a bail out," said Greg Martin, Washington spokesman for GM. . ."
El Cliffo | 09.07.08 - 12:02 pm | #

drdebt writes:
energycon, Kudos! That was gr8
drdebt | 09.07.08 - 12:02 pm | #

maynardgkeynes writes:
No mention of the serious antitrust issues here, which would give standing to equity or debt holders to challenge the acquisition under the Clayton act as a restraint of trade. No one could doubt that authorities would have blocked a merger of Fannie and Freddie as private companies. The antitrust argument would run that two dominant competitors have now been taken under single control, ie, that the Treasury has taken over control of two former competitors, which will have the effect of totally eliminating competition between them. Congress could have included an explicit exemption in the rescue bill, but because it did not, the clear intent that is that this acquisition is subject to the antitrust laws. Thus, I expect that as with Bear Stearns, equity holders will have to be bought off with a significant share price, or granted an injunction to block the takeover.
maynardgkeynes | 09.07.08 - 12:02 pm | #

Rick writes:
Foreign CB's were refused to roll over their GSE paper last week.
Why would they roll over their US Treasuries from now?
Wouldn't it be much better to investment this huge amount of money straight into their own economies?
Rick | 09.07.08 - 12:03 pm | #

stuart writes:
"Isn't it a little odd, F&F get into trouble but the talk is that they will pull through. The dollar rebounds for questionable reasons and THEN we find the "books were not correct" and now we get a new dollar tanking event. Seems so well planned. If the dollar was at its lows and this happened we be looking at serious problems but they took the time to pump it by fudging the books."

Exactly. Funny how that seems to happen all the time. We all know or strongly suspect Citi, WaMu, Lehman and most others are cooking their books too. Monetization of debt will be the new fad. Good luck to either McCain or Obama. They're going to need it.
stuart | 09.07.08 - 12:03 pm | #

JimPortlandOR writes:
Any self-respecting world financial markets would drop the US$ as the de-facto reserve currency (and adopt a basket of other currencies).
JimPortlandOR | 09.07.08 - 12:04 pm | #

Troy writes:
I wonder who they think is going to take over?

Why should the People's Bank of China invest hundreds of billions in debt securities when it has more control just setting up a new commercial front for its operations.

China holds $500B in treasuries -- on a 10:1 leverage basis that's $5T in working capital to lend out.

With the GSEs out of the picture and all the banks choking on their bad beds 2003-2006, that leaves daylight for the Peoples Bank of New America.

You want a loan, they've got the money to lend!

They don't do warehouse lines, you're dealing directly with the money.

Ad if a branch's loan vintage goes south the branch gets a visit from the mobile justice van and the branch has to hire new LOs.
Troy | 09.07.08 - 12:05 pm | #

stuart writes:
Here's a factoid. The US is dependent entirely upon foreign investment to keep it's ship afloat, particularly the Chinese, Japanese, and OPEC. We just stuck a stick into the eye of the Chinese. Ben, crank up those helicopters.
stuart | 09.07.08 - 12:05 pm | #

alex writes:
Hey Ben! Keep those dollars coming their going to need them. Oh, have we reached the bottom yet in the housing/financial/consumer/commodity markets..
alex | 09.07.08 - 12:06 pm | #

lama writes:
El Cliffo,
Bullseye. We can run down the S&P500. They're all too big to allow them to fail.
But before that, let's keep the price of RE up high enough to finish off domestic manufacturing. That's all old economy stuff with no growth or something like that I heard on CNBC.
lama | 09.07.08 - 12:06 pm | #

Late to table writes:
Well when the news broke the market reversed, if news still has not been hashed enough,,then monday market will runnnn..could be a money making event.
Late to table | 09.07.08 - 12:07 pm | #

Troy writes:
We just stuck a stick into the eye of the Chinese.

No. Chinese owned debt not equities. Chinese are apparently holding the long end of the stick here.
Troy | 09.07.08 - 12:07 pm | #

John Lee writes:
You don't think the big Chinese players are going to start an equity liquidation monday? If so, rally pigs get slaughtered. BTW, Hang Seng and Shanghai not doin' too well.
John Lee | 09.07.08 - 12:07 pm | #

Mike in Long Island writes:
In the release from the treasury it sounds like 80% dilution for the common.

Am I interpreting that right or??

Oh for reference the top holders or FRE and FNM can be found here:

FNM holders

and
FRE holders
Mike in Long Island | 09.07.08 - 12:07 pm | #

Andy writes:
Only time will tell if this works. Monday should be a very interesting day on the markets.

The one really good and decisive action that the government took was to replace the companies senior leadership and announce the appointment of 2 new and external CEO’s effective immediately.
Andy | Homepage | 09.07.08 - 12:08 pm | #

Alo writes:
Yep the Allison-Enron thing seems to be true (link is just one of many I found). Way to saddle the taxpayer and slap them in the face at the same time.

http://articles.latimes.com/ 2002...merrill30xjul30
Alo | 09.07.08 - 12:08 pm | #

drdebt writes:
I forget if it was Comrade Paulson or Comrade Lockhart who confirmed that F&F are no longer 'for-profit' corporations. So then he puts the :) on it by exclaiming that the US could actually make money on this deal!

Plus, I just saw on one of the cable tv "news" shows some idiot putting his little happy face on this disaster, saying how the bottom is near and housing / financials will all skip happily and profitably off into the sunset. -

Is it no wonder that Harry Potter is such a huge success, people just wanna believe in magic.
drdebt | 09.07.08 - 12:11 pm | #

Troy writes:
Why would they roll over their US Treasuries from now?

Japan's holdings have declined from 622B to 583B YOY, that's pushing 10%.
Troy | 09.07.08 - 12:11 pm | #

John Lee writes:
My interpretation of this bailout. Any Too-Big-To-Fail banks might be gov't backstopped by conservatorship. But that wipes out equity holders. Large stake-holders MUST begin immediate liquidation before it evaporates.
John Lee | 09.07.08 - 12:11 pm | #

capital-restoration plans writes:
... regulators were "prepared to work with these institutions to develop capital-restoration plans."

The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
capital-restoration plans | 09.07.08 - 12:12 pm | #

Gareth G writes:
If the market is to make a big run Monday I would have expected the better than tepid action we saw Friday. Someone would have gotten a heads up on the pending details of the deal and taken their positions. That's the way crony capitalism works.

If anything this deal makes an official announcement to the world that the US financial crisis is very bad indeed. There is no room for denial anymore. Does this instill confidence in markets that depend so much on foreign capital?
Gareth G | 09.07.08 - 12:13 pm | #

Fair Economist writes:
"The agencies encourage depository institutions to contact their primary federal regulator if they believe that losses on their holdings of Fannie Mae or Freddie Mac common or preferred shares, whether realized or unrealized, are likely to reduce their regulatory capital below 'well capitalized.'"

So they're expecting:

"Hello FDIC? This is John Smith, President of Second Podunk bank. Due to the Fannie and Freddie interventions, our capital has dropped significantly and we are now undercapitalized. Would you please come shut us down and lock me out of my office?"

Yeah, right. That just broke my "Oh Please"-ometer. What it really means is a promise they won't be shutting down insolvent banks for the rest of the Bush administration if there's any way to avoid it - they will intentionally look the other way if capital is inadequate.
Fair Economist | 09.07.08 - 12:13 pm | #

A Dark & Stormy Night writes:
Ah, Fhoney & Fraudie got their ponies today, and we have to clean-up after them...

This is only the start of Paulson's Bail-Of-The-Month Club. Smaller banks need not apply for club membership as they are Too Small To Bail, and are thus Doomed To Fail. But step right on up to the taxpayer trough if you are Lehman, Wachovia, Citi, or BOFA.
A Dark & Stormy Night | 09.07.08 - 12:14 pm | #

x-man writes:
agreed Gareth

also, this bailout was announced 7 weeks ago

these are just the details

a lot of it is already priced in
x-man | 09.07.08 - 12:14 pm | #

prairiedog writes:
So where does it say that PIMCO and foreign investors are off the hook? Where is a statement about bonds....???
prairiedog | 09.07.08 - 12:14 pm | #

JimPortlandOR writes:
Oh, oh, Atrios has linked to CR (wondering "Who eats how much sh*t")

No wonder the click here to refresh doesn't respond.
JimPortlandOR | 09.07.08 - 12:14 pm | #

Losty writes:
Question for you..

Why does Mike In Long Island's Yahoo links show major holders of the common, and nothing on the preferred..

If the preferred are toast, or down big too, I'd like to know who owns THEM, the common have been a call option for a while..
Losty | 09.07.08 - 12:14 pm | #

FFDIC writes:
Received these responses from a 25 year pizza party employee related to the below blogger comments I had sent for comment:

"The last comment is completely noxious. Performing bank loans can be sold ... but at what price??? Not to mention that many banks have mounting losses at worse, or lagging profits, on their own portfolio. They may not have the capital to buy portfolios of loans. But many of the participants are asking to buy the lead in the loans they're involved in.

Integrity couldn't be "valued" by [FDIC's Franchise Marketing Dept. based in Dallas]franchise marketing before it failed; i.e., only cd-secured and overdraft protection accounts went to Regions, who had an option on $130 million of performing loans -- yesterday they advised us they aren't exercising the option to buy. Very conservative lenders they are. When you look at this humongous portfolio of land, A&D, construction commercial RE loans you know why they didn't want them -- even the performing ones. The real estate market -- residential and commercial -- is dropping fast.

I don't think Silver State had time to be marketed either. Did you know John McCain's son was a director until recently? Sound familiar? Remember Neal Bush and Silverado Savings ... Seidman sued his ass off while daddy was president."

1) My first email sent for comment:
___________________________________

"From a blogger at Naked Capitalism.com

Today's failure of the amusingly named Integrity Bank of Alpharetta, GA, confirms two very ugly trends: once again, FDIC was only able to pass cash and cash-equivalents to the assuming bank, and the FDIC's loss estimate is extremely high ($250M - $350M on $1.1B of assets). I don't have hard numbers handy but I seem to recall that receivership losses in the range of 25% - 35% were unusual in the commercial bank failures of the late 80's. I could be wrong, but the numbers this year are extremely high. FDIC's expected losses certainly make me wonder what on earth the bank examiners were doing for the last year besides critiquing the bank's coffee and color scheme."

2)My other email sent for comment:
__________________________________
"Now to this week's FDIC prepack, Silver State Bank of Henderson, Nevada:

As of June 30, 2008, Silver State Bank had total assets of $2.0 billion and total deposits of $1.7 billion. Nevada State Bank agreed to purchase the insured deposits for a premium of 1.3 percent....

Silver State Bank also had approximately $700 million in brokered deposits that are not part of today's transaction. The FDIC will pay the brokers directly for the amount of their insured funds....

In addition to assuming the failed bank's insured deposits, Nevada State Bank will purchase a small amount of assets comprised of cash and securities. The FDIC will retain the remaining assets for later disposition.

The transaction is the least costly resolution option, and the FDIC estimates that the cost to its Deposit Insurance Fund is between $450 and $550 million.

The losses are stunning. and proportionately almost identical to the levels last week. a range of 22.5% to 27.5%. One wonders why the same loss estimate ranges are being applied to banks in two different states. Regardless, the estimates raise questions as to how these banks could have gotten in such bad shape without anyone taking notice.

And Steve A called our attention to another worrisome aspect (boldface ours):

FDIC ...has again retained all assets except cash and ``certain securities'' (i.e. govies). There appears to be no market for performing bank loans.."
FFDIC | 09.07.08 - 12:14 pm | #

capital-restoration plans writes:
Oh crap, I need to sit in the sun> Here we go again, making laws up on the fly,,

§ 4622. Capital restoration plans

http://www4.law.cornell.edu/usco...22----000- .html

ach capital restoration plan submitted under this subchapter shall set forth a feasible plan for restoring the core capital of the enterprise subject to the plan to an amount not less than the minimum capital level for the enterprise and for restoring the total capital of the enterprise to an amount not less than the risk-based capital level for the enterprise. Each capital restoration plan shall—
(1) specify the level of capital the enterprise will achieve and maintain;
capital-restoration plans | 09.07.08 - 12:16 pm | #

John Lee writes:
"already priced in"

Bwahahahahah

that explains the low volatility of late.
John Lee | 09.07.08 - 12:16 pm | #

Troy writes:
hmm, Japan has been in run-off mode since Aug 2004, when its holdings peaked at $720B.

In 2003 Japan's holdings shot up from $385 to $545, a pace that continued until topping out August 2004.

The cynical side of me suggests that this loading up was not unrelated to the 2004 elections.
Troy | 09.07.08 - 12:16 pm | #

Bogus writes:
Of course, election spin can work a variety of ways...

1994 - Newt took over.

2006 - Nancy and Harry took over
Bogus | 09.07.08 - 12:17 pm | #

LALA writes:
I will go back to my orginal comment from yesterday.

All this does for the housing market is make sure that people with good credit who want a 30 year mortgage will be able to get it.
My question is which people are going to be buying these houses?
Foreclosures and delinquencies are at 29 year highs. Unemployment just hit a 5 year high. There is wage deflation. The average middle class us house hold has negative savings and $10,000 in credit card debt. And this downturn is just getting going.

I think we can play the blame game, cry about china being protected before the USA, and bitch about the effect on the us taxpayer.

In my opinion what we really need to recognize that instead of anything being contained the situation is getting worse. Paulson looked like he had not sleptt in 72 hours. He is counting down the seconds until he can run for this shit show (see MTP from bejing where he said he is gone in 5 months). He knows this is a stop gap measure. Look everything he has done just gets us to Jan 2009. At that poin the discount window and a number of other measures are set to expire.

So the market may rally tomorrow but really this shit show is just getting going.
LALA | 09.07.08 - 12:17 pm | #

x-man writes:
its called august John Lee
x-man | 09.07.08 - 12:17 pm | #

capital-restoration plans writes:
Precedents:

Enforcement authorities. Financial regulators are responsible for ensuring that the institutions they supervise operate in a safe and sound fashion. To that end, each regulator has an array of enforcement tools at its disposal, although statutory differences exist across regulators. The GAO (2001) provides a side-by-side comparison of the prompt corrective action (PCA) provisions and general enforcement authorities of the U.S. federal bank regulators, OFHEO, and the Finance Board. This comparison of regulatory enforcement authorities suggests that these authorities are weaker for the housing GSE regulators than for federal banking regulators.

With respect to PCA provisions, the Finance Board does not have statutory provisions that specify the actions that should be taken in the event that an individual FHLB becomes undercapitalized. The range of enforcement actions available to OFHEO is largely dependent on the capital classification of Fannie Mae or Freddie Mac.
capital-restoration plans | 09.07.08 - 12:18 pm | #

Anonymous writes:
WE WANT OUR FRAUD BACK!
Anonymous | 09.07.08 - 12:19 pm | #

Late to table writes:
Well i will wait for a nice bounce in the banks monday and sell into it try to get my share right away...did same thing when fre and fanny bounced,,i mean ya gotta love it..
Late to table | 09.07.08 - 12:20 pm | #

capital-restoration plans writes:
As previously disclosed, on December 21, 2004, OFHEO classified Fannie Mae as significantly undercapitalized as of September 30, 2004, which requires the Director of OFHEO’s approval before the payment of any dividend on Fannie Mae’s capital stock. The Board will continue to assess dividend payments for each quarter, and OFHEO has indicated that it will continue to review dividend payment requests for each quarter based upon the facts and conditions existing at the time.


OFHEO has approved our capital restoration plan.

We are working to control costs, including reducing dividends for shareholders, canceling plans for a major new office complex here in the District, and reducing our advertising.

We are fully complying with the agreements reached between OFHEO and Fannie Mae, and we have appointed an interim Chief Risk Officer and an interim Chief Financial Officer.

The Chairman of our Board, Steve Ashley, and I meet regularly with OFHEO to sort through issues as they arise, and throughout all levels of the company Fannie Mae employees are in daily contact with their counterparts at the agency.

Finally, Fannie Mae’s Board of Directors has commissioned an independent review of the issues raised by OFHEO’s special examination. Former U.S. Senator Warren Rudman is leading this review and we anticipate his full report later this year.
http://google.brand.edgar- online...V08iWH_6_cx7Iz7


Re: undercapitalized enterprise must have a capital restoration plan approved by OFHEO and may not make any capital distributions that could result in further slippage.40 For a significantly undercapitalized enterprise, a capital restoration plan and any capital distributions must be approved. In this category, restrictions may be placed on growth and certain activities, new capital may be required, and, should the capital restoration plan not be approved or followed, OFHEO is authorized to appoint a conservator to take over operations. For a critically undercapitalized enterprise, OFHEO is required to appoint a conservator unless such an appointment would have an adverse impact on financial markets or is not in the public interest.
capital-restoration plans | 09.07.08 - 12:21 pm | #

Troy writes:
Sure hope Capital Research Global Investors got their $2.3 BILLION out of FNM when they had the chance, cuz otherwise it would suck to have all these rich people lose their shirt.
Troy | 09.07.08 - 12:21 pm | #

Mike in Long Island writes:
Losty,

The preferreds trade under different symbols (ie: FRE.PZ or FREPRZ or FRE/PZ - depends on teh quote vendor). Anyway yahoo finance is okay for common stock but doesn't show major holders of the preferreds. I'll check a bloomberg terminal tomorrow morning at work if I remember and post it up to whatever FRE/FNM thread is most recent at that time @ 8:30am EST or so...
Mike in Long Island | 09.07.08 - 12:22 pm | #

Tom Stone writes:
Another attempt to have their cake and eat it too.A bulimic I know told me it just doesn't taste the same the second time...
Tom Stone | 09.07.08 - 12:23 pm | #

capital-restoration plans writes:
This is treason baby! Paulson is bailing out foreign governments with American taxpayer funding! Illegal baby!
capital-restoration plans | 09.07.08 - 12:23 pm | #

readykilowatt writes:
Door's open, boys!
readykilowatt | 09.07.08 - 12:23 pm | #

Peconic Bay writes:
Mike in Long Island,

It depends on the previous value of the preferred shares, but it is going to be ugly for everyone. The Treasury Department is putting in a billion to each GSE purchasing a 79% stake. That puts the post-money valuation at 1.26 billion. Fannie had a 7.5 billion market cap as of Friday; Freddie's was 3.3. So it looks like the common holders get just about wiped out and the junior preferred holders get a major haircut. There is only 300 million in residual equity to be shared between the preferred and common holders, so the outcome holds many tears for these investors.

Sad, but well deserved.

Best,
Peconic Bay | 09.07.08 - 12:24 pm | #

Troy writes:
He is counting down the seconds until he can run for this shit show (see MTP from bejing where he said he is gone in 5 months)

I think Hank should stay on regardless of who wins.

Seriously. Wall Street largely made this mess, and the BSDs of Wall Street are going to have to figure out how to put it back together.

Bumbling bureaucrats and academics don't have the chops for this.
Troy | 09.07.08 - 12:25 pm | #

WAWAWA writes:
This is treason baby! Paulson is bailing out foreign governments with American taxpayer funding

It shows how dependant our economy is on forigne governments. We are paper tiger.
WAWAWA | Homepage | 09.07.08 - 12:25 pm | #

Anonymous writes:
So which of the 2 candidates is most likely to screw the tax payers LESS?

I'm wondering who will have the "cojones" to let the investors and bond holders (all the risk takers) loose their bets and save the tax payer to the best of their ability.

Does anybody know? Cause whoever it is, has my vote.
Anonymous | 09.07.08 - 12:26 pm | #

La république de bananes writes:
Grab the lawn chairs and get in line now!
La république de bananes | 09.07.08 - 12:26 pm | #

capital-restoration plans writes:
It appears that since November 2007, the Company may have under-reserved for bad loans and sub-prime investments leading to delayed asset write-downs. On or about November 29, 2007, the Company sold $6 billion in Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Shares (the "Preferred Shares") which trade under the symbol FRE-PZ in a public offering (the "Offering"). The Preferred Shares, which were offered at $25 per share, have lost over 40% of their value.

Freddie Mac common shares which traded in the $30 range in late 2007 have been decimated by the subsequent revelations of the Company's losses and write-downs, so that Freddie Mac common shares are now trading below $6, wiping out hundreds of millions of dollars in shareholder value. Due to the continuing deteriorating situation, there have been suggestions that a government bail-out might be necessary.

http://www.streetinsider.com/Pre...ns/ 3908925.html
capital-restoration plans | 09.07.08 - 12:26 pm | #

crispy&cole writes:
Several websites are saying 80% loss for common and 10% for preferreds.
crispy&cole | Homepage | 09.07.08 - 12:27 pm | #

Leftys Liquors writes:
We have two semi-loads of vaseline arriving about noon, and some of that hair restoration creme from that infomercial running on CNBC now. Where is Dennis Kneale when you need him?
Leftys Liquors | 09.07.08 - 12:28 pm | #

Troy writes:
Does this instill confidence in markets that depend so much on foreign capital?

The whole f'in country is in run-off mode.
Troy | 09.07.08 - 12:28 pm | #

Max writes:
Close my eyes again
I watch you run away
Put my heart on ice
It hurts like hell to have had better days
Up and over the sun
Not forever but higher than heaven
Now I go no one
And I'm dying from lack of love
And affection

Get in line, get in line, get in line
I'm giving myself away
Max | Homepage | 09.07.08 - 12:29 pm | #

Zimbabwe Millionare writes:
Where the EFFFF is my bail-out? I can suck the government tit as well as any.
Zimbabwe Millionare | 09.07.08 - 12:29 pm | #

Mike in Long Island writes:
Peconic Bay,
Thanks for the clarification. In my haste I neglected to consider what price the Treasury was paying for their 80% stake vis a vis existing market cap.
Mike in Long Island | 09.07.08 - 12:30 pm | #

wally writes:
"So where does it say that PIMCO and foreign investors are off the hook? Where is a statement about bonds....???"

Indeed. Interesting. PIMCO would seem to be a huge winner here. The guarantee on bonds is now implicitly (love that word!) stronger but at no loss of value.
wally | 09.07.08 - 12:31 pm | #

LALA writes:
I agree with you troy.
This is not for the faint of heart. Regardless of what anyone thinks of what paulson has done he is a very bright man whom i believe is trying to muddle through this. And i must definately not a republican.


Unfortunately, he told Tom Brokav on that MTP, that regardless of whether he is asked to stay or not - he is gone.
LALA | 09.07.08 - 12:31 pm | #

Anonymous writes:
The U.S. is now buying MBS securities direct from GSEs in the open market, and there is no explicit limit specified
The U.S. just a planet-sized new (red) line item on its national balance sheet

Wonder when they will start doing auto loans.
Anonymous | 09.07.08 - 12:32 pm | #

BB writes:
The perfect storm?

http://www.nhc.noaa.gov/graphics...l? 5day#contents
BB | 09.07.08 - 12:33 pm | #

hammerhead writes:
Mike, Hank Paulson's new GSE policy, right off the press (or net). He's keeping the bozo CEOs on and buying more junk paper for at least the next year. Holy crap!!

"I am particularly pleased that the departing CEOs, Dan Mudd and Dick Syron, have agreed to stay on for a period to help with the transition .

To promote stability in the secondary mortgage market and lower the cost of funding, the GSEs will modestly increase their MBS portfolios through the end of 2009. Then, to address systemic risk, in 2010 their portfolios will begin to be gradually reduced at the rate of 10 percent per year, largely through natural run off, eventually stabilizing at a lower, less risky size."

Paulson will be leaving the new President with something more than the Iraq War and the entitlement time bomb, an imploding GSE situation. He has effectively passed the hot potato on to the new administration. He'll be counting his mega-milli ons at some IB or hedge fund when this ship hits the fan. Meanwhile, housing prices continue towards total collapse:

"Because the GSEs are Congressio nally-chart ered, only Congress can address the inherent conflict of attempting to serve both shareholde rs and a public mission. The new Congress and the next Administra tion must decide what role government in general, and these entities in particular ,should play in the housing market. There is a consensus today that these enterprise s pose a systemic risk and they cannot continue in their current form. Government support needs to be either explicit or non-existe nt, and structured to resolve the conflict between public and private purposes. And policymake rs must address the issue of systemic risk. " I think that under Paulson's program, the GSEs could become repositori es for the toxic waste that the Fed has taken as collateral while plying the investment banks with liquidity. In other words, the private Federal Reserve Board can now easily stick the taxpayers with some of the $400 billion worth of mbs garbage it is presently stuck with. This will free up some of the Feds reserves. This new program could continue delivering the bankster doctrine of "Privatization of profits and socialization of losses". The GSEs have gone from being a large, gross, private septic tank filled with financial excrement, to a full on public sewer system, overflowing with waste and controlled by the Fed and ex-Goldamn Sachs insiders, but funded and maintained by the US taxpayers.
hammerhead | 09.07.08 - 12:34 pm | #

Anonymous writes:
Borrow hopefully short from China and lend long to deadbeat Americans.
Anonymous | 09.07.08 - 12:34 pm | #

Jas Jain writes:
--
"This is treason baby! Paulson is bailing out foreign governments with American taxpayer funding! Illegal baby!"

Paulson IS Treason Secret(ary). He has assumed dictatorial powers over the manipulation of the e-con-omy. And whose interests is he supposed to protect?

What no one is talking about is the impotence of the American People to stop the Crooks' agent in the govt from doing whatever they want to do to protect Crooks' interests. Our govt officials answer to the higher power!

We will be watching the play out of the system of the Crooks, by the Crooks and for the Crooks as the recession turns into depression and, ultimately, to Greater Depression. The American People have been robbed and would continue to get robbed by the Crooks because Crooks have total control of the econo-political system.

Financial markets, especially, the Scam Market, exist primarily to enrich the Crooks. All in the name of “free markets.”

Jas
Jas Jain | 09.07.08 - 12:36 pm | #

Pablo escobar writes:
Sooooo treasury is going to buy MBS. Great. Where are they going to get the money?

Printing it up, perchance?
Pablo escobar | 09.07.08 - 12:38 pm | #

some investor guy writes:
The good news is....

only four months left of the administration which produced this mess.
some investor guy | 09.07.08 - 12:38 pm | #

BB writes:
Equity markets to rally.
BB | 09.07.08 - 12:40 pm | #

nullpointer writes:
look at the font size @ marketwatch....its as bad as watching CNBC
nullpointer | 09.07.08 - 12:41 pm | #

A Dark & Stormy Night writes:
To say that I do not have warm & fuzzy feelings about suddenly finding myself to be an involuntary super preferred F&F stockholder would be an understatement.

And can someone please explain to me why everything that Paulson manages to do somehow has to involve the word "super"?
First we had "super SIV", now we have "super preferred". Super preferred sounds like something I feed my cat.

We are all super pre-effed now.
A Dark & Stormy Night | 09.07.08 - 12:43 pm | #

La république de bananes writes:
Lefty, vaseline and screech should be ok for the middle class. Keep a few cases of KY and bourbon on hand in case a few uppers show up.
La république de bananes | 09.07.08 - 12:43 pm | #

x-man writes:
BB--market won't rally for long. if it rallies.
x-man | 09.07.08 - 12:44 pm | #

FFDIC writes:
NYTimes - U.S. Unveils Takeover of Two Mortgage Giants
http://www.nytimes.com/2008/09/0...&hp& oref=slogin
FFDIC | 09.07.08 - 12:46 pm | #

classified IV writes:
FFDIC - How could these banks have gotten in such bad shape without anyone taking notice?

All bank regulatory agencies were neutered under the Bushies. They couldn't change the speed limit so they got rid of the cops. The FDIC's Director of (bank) Supervision isn't a bank examiner, the Regional Director in the most troublesome region is not an examiner, there are field supervisors that have little experience in safety and soundness exams, the exam process was reduced to "drive by" exams and phone calls to the bankers....it could be even uglier if all was known.
classified IV | 09.07.08 - 12:46 pm | #

Gavshire Hathaway writes:
Call me crazy. I don't think the market rallies on this news. Serious tankage.
Gavshire Hathaway | 09.07.08 - 12:46 pm | #

Hmm writes:
Realistically, what would have happened if the GSEs were allowed to fail?
Hmm | 09.07.08 - 12:46 pm | #

BB writes:
Hmm writes:
Realistically, what would have happened if the GSEs were allowed to fail?
------------------

Capitalism collapses.
BB | 09.07.08 - 12:48 pm | #

x-man writes:
bb-not true
x-man | 09.07.08 - 12:49 pm | #

LALA writes:
Anonymous @ 12:26

Screwing the chinese debtholders will screw the USA taxpayers more than anything.

The USA taxpayer is currently beholden to the chinese, japenese, hell even russia. We have borrowed from them to finance our lifestyles. We have borrowed from them to wage war in Iraq, and to pay middle east nations for our oil. Nobody held a gun to our head to buy the bigger house, bigger cars and more tv's.

It is not just the government who acted irresponsibily it is also the people of this country. In 6 of Bush's state of the union speeches he touted the impressive home ownership numbers as an example of the strength of the economy. But the people voted voted for him after all he was their favorite crack dealer.

At this point gravity is in charge and the who the president is going to be will have a minimal impact.
LALA | 09.07.08 - 12:49 pm | #

bob mologna writes:
"ooh-la-la writes:
Ray:"Haloscan says 493... on a Sunday... before noon. What time does Lefty's open ? Do they have lots of inventory ?"

542 now. I'll have a Beamish, thank you."

Beamish is shite, only people from Cork drink it. Ya boyo?
bob mologna | 09.07.08 - 12:49 pm | #

Alo writes:
BB, I think that happened years ago.
Alo | 09.07.08 - 12:49 pm | #

Milkman writes:
The GSEs probably *will* fail, regardless of Hank. And then . . .
Milkman | 09.07.08 - 12:49 pm | #

Rally Monkey writes:
Call me crazy. I don't think the market rallies on this news. Serious tankage.




noooooooooooooooooooooooooo
Rally Monkey | 09.07.08 - 12:49 pm | #

RayOnTheFarm writes:
Realistically, what would have happened if the GSEs were allowed to fail?

Instead ask this.. what would have to all the GSE paper owned by FCBs ?
RayOnTheFarm | 09.07.08 - 12:50 pm | #

Substance over Form writes:
Checklist :

rubber boots ? check !
adult diaper duck taped on ? check !

ok , I am set to see what Mish is up to.
Substance over Form | 09.07.08 - 12:50 pm | #

cd writes:
null-that font hurt my head...

flipping cable channels-I see hardly a mention of this historic action anywhere..No intelligent conversation or protest by any commentators on cnn, fox, abc etc..

Where's the justice deparmtment here?
cd | 09.07.08 - 12:51 pm | #

tbizzle writes:
just watched on bloomberg and Lockhart looked like he was about to cry...really not looking good.
tbizzle | 09.07.08 - 12:51 pm | #

mock turtle writes:
reading and re-reading jim and hanks statement indicates clearly that they have nationalized, or socialized or whatever... have just purchased the us mortgage industry. period.

they...i mean we, own it
mock turtle | 09.07.08 - 12:52 pm | #

JimPortlandOR writes:
Maybe the US Govt needs to do a garage sale? We've got about a dozen nuclear aircraft carriers that China, Russia and the oil shiekdoms would luv to bid on. B-2 bombers are worth some real cash too.

Alaska is a great asset too, mostly already US land. The Ruskies got a bad deal with a former President, so Bush could make them whole.

Japan would luv Hawaii. Texas/NM/Ariz would be a great purchase by Mexico. Or trade it for oil. Remember the Alamo!

Let's see, France could get back the former Louisiana-Purchase States from the 1803 deal: all those red states....
JimPortlandOR | 09.07.08 - 12:53 pm | #

mock turtle writes:
Milkman writes:
The GSEs probably *will* fail, regardless of Hank. And then . . .

---

just the opposite

GSEs can not fail so long as ben and hank have the keys to the printing presses in the basement, and enuf ink

the costs have been shifted to the full faith and credit of the united states of america
mock turtle | 09.07.08 - 12:56 pm | #

mp writes:
Conjure Bag smells fear, lots and lots of fear.
mp | 09.07.08 - 12:56 pm | #

american taxpayer writes:
JimPortlandOR-
very funny. We could go back to the original 13 colonies. It would be easier to manage.
american taxpayer | 09.07.08 - 12:56 pm | #

BB writes:
It seems the proverbial bazooka has to be used, now let's see if there's enough ammo there.
BB | 09.07.08 - 12:57 pm | #

JimPortlandOR writes:
American taxpayer: maybe Britain will take us back (if we ask real nice and learn God Save the Queen.)
JimPortlandOR | 09.07.08 - 12:59 pm | #

sue writes:
Great Job Brownie, I mean Hank.
sue | 09.07.08 - 1:00 pm | #

sue writes:
Maybe the Japanese we wimd up with Hawaii after all
sue | 09.07.08 - 1:01 pm | #

Steve Townsend writes:
Isn't the most important thing how much this expands the federal balance sheet? It's hard to see this reducing borrowing costs for US mortgage holders if the perceived risk in holding US Treasuries skyrockets (due to said expansion now the FRE/FNM guarantee is explicit).
Steve Townsend | 09.07.08 - 1:01 pm | #

energyecon writes:
BB,

Yeah, are we going to see a replay of the scene from "Independence Day" when they try nuking one of the alien ships...to no effect.
energyecon | Homepage | 09.07.08 - 1:01 pm | #

BB writes:
Really scary :

Cheney renews call for U.S., Europe unity on Georgia
http://us.cnn.com/2008/WORLD/eur...y.ap/ index.html
BB | 09.07.08 - 1:01 pm | #

Elvis writes:
I am going to refer to him as "Gonzo Secretary of the Treasury, Hank Paulson." Seems appropriate.
Elvis | 09.07.08 - 1:02 pm | #

Customer writes:
LEFTY!! I need a double bourbon, and make it snappy... BTW, do ya take USD here anymore? What a sec... might have some "preferred" stock here you might like...
Customer | 09.07.08 - 1:02 pm | #

Elvis writes:
Enough CR for today, people. Be good Americans and go watch the NFL.
Elvis | 09.07.08 - 1:03 pm | #

a writes:
The big news seems to be that Treasury is buying MBSs, up to 800 B USD and more if the debt ceiling is raised. At what price? Who decides?
a | 09.07.08 - 1:03 pm | #

MarkS writes:
Pink really is a swell color for the GSEs.
MarkS | 09.07.08 - 1:04 pm | #

Pablo escobar writes:
Good news that they waited until the start of the 09 federal fiscal year, right?

This doubling of debt will go on the next president's books
Pablo escobar | 09.07.08 - 1:05 pm | #

Anonymous writes:
Nytimes:
"Treasury Secretary Henry M. Paulson Jr. also announced that he had dismissed the chief executives of both companies and replaced them with two long-time financial executives. Herbert M. Allison, currently chairman of TIAA-CREF, the huge pension fund for teachers, will take over Fannie Mae and replace the chief executive, Daniel Mudd. David M. Moffett, currently a senior adviser at the Carlyle Group, one of the country’s biggest private equity firms, will replace Richard Syron as chief executive of Freddie Mac."

The Carlye Group will get parceled the "good stuff" from the GSEs while the "bad stuff" will be given to the pension funds.
Anonymous | 09.07.08 - 1:05 pm | #

energyecon writes:
mp,

And the proximate cause of that fear is...? That is what I was trying to get at last night, saying this seemed a bit different than the previous episodes of Benny & Hank's Excellent Sunday Financial Adventures - what is so imminent?

Now I am sure I will not learn what that is, but that is the question that rattling around in my noggin...
energyecon | Homepage | 09.07.08 - 1:06 pm | #

mock turtle writes:
just for fun i took jim lockhart's and hank paulson's statement this morning and erased all strategic, predictive and explanatory language leaving only action statements...the words left are all theirs...quotes... except for two parenthetical comments of mine :)

what follows below is word for word what the said they were going to DO, with all the fluff taken out.

---------

Dan Mudd and Dick Syron, have agreed to stay on for a period to help with the transition. (youre fired...after awhile!)

GSEs will modestly increase their MBS portfolios through the end of 2009.

in 2010 their portfolios will begin to be gradually reduced at the rate of 10 percent per year, largely through natural run off,

place both enterprises in conservatorship.

Treasury and FHFA have established Preferred Stock Purchase Agreements,

Treasury will ensure that each company maintains a positive net worth.

Treasury receives senior preferred equity shares and warrants that protect taxpayers.

common and preferred shareholders bear losses ahead of the new government senior preferred shares.

conservatorship does not eliminate the common stock, it does place common shareholders last in terms of claims on the assets of the enterprise.

conservatorship does not eliminate the outstanding preferred stock, but does place preferred shareholders second, after the common shareholders, in absorbing losses.

establishment of a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.

This facility is intended to serve as an ultimate liquidity backstop, in essence, implementing the temporary liquidity backstop authority granted by Congress in July, and will be available until those authorities expire in December 2009.

Treasury is initiating a temporary program to purchase GSE MBS.

Treasury will begin this new program later this month, investing in new GSE MBS. Additional purchases will be made as deemed appropriate. (new!!!)

Treasury can hold these securities to maturity,

This program will also expire with the Treasury's temporary authorities in December 2009.

the GSEs are in conservatorship, they will no longer be managed with a strategy to maximize common shareholder returns, a strategy which historically encouraged risk-taking.

The Preferred Stock Purchase Agreements minimize current cash outlays, and give taxpayers a large stake in the future value of these entities.

At the end of next year, the Treasury temporary authorities will expire, the GSE portfolios will begin to gradually run off, and the GSEs will begin to pay the government a fee to compensate taxpayers for the on-going support provided by the Preferred Stock Purchase Agreements.
mock turtle | 09.07.08 - 1:07 pm | #

Tin Foil Hat alert writes:
Carlyle Group!?! NooOooOO!!! I see black helicopters over Freddie Mac now...
Tin Foil Hat alert | 09.07.08 - 1:07 pm | #

sk writes:
Ok, ongoing, the goverment senior preferred stock purchase program depends on the difference (loss) in net worth each quarter - they make up the difference and get senior preferred stock in return.

So, this dilutes the common and the existing preferred right too ?

That's in addition to the common and existing preferred being first in line for losses, meaning NO payout from any assets left, in the event of BK ?

That's the only I can interpret this. Any other views ?

-K
sk | 09.07.08 - 1:08 pm |