HaloScan.com - Comments

Nanook writes:
first?

It's interesting to see the level of media attention being given to all this. Cracks in the facade, for all to see.
Nanook | 07.13.08 - 7:24 pm | #

DK writes:
Amen! This is vague and ambiguous. I can't imagine this providing any stabilization in the market beyond a few hours!
DK | 07.13.08 - 7:25 pm | #

KABOOM! writes:
third, bitch!
KABOOM! | 07.13.08 - 7:28 pm | #

joe shmoe writes:
Paulson mixes things up even more, putting the US govt into the equity market by buying and selling shares of F & F.

This is wrong in so many ways . . . bail-out for shareholders, playing mischief with share prices, making F & F more mixed rather than making it 100% govt or 100% private. . .

Do you trust the people who give no bid contracts to Halliburton to buy and sell F & F shares from the White House???

I thought he would just buy F & F bonds or give a line of credit. Buying equity shares is a disaster that does not even have to wait to happen.

I thought not bailing out shar eholder was about the only thing that there was consensus on from all branches of govt and wall street. . .
joe shmoe | 07.13.08 - 7:28 pm | #

crispy&cole writes:
Last thread we debated common vs preferred?
crispy&cole | Homepage | 07.13.08 - 7:29 pm | #

Troy writes:
It's as if we elected Tyler Durden in 2000 and 2004.
Troy | 07.13.08 - 7:29 pm | #

JohnR(VA) writes:
Ka-ching!
JohnR(VA) | 07.13.08 - 7:30 pm | #

joe shmoe writes:
sheeeeit, we know who we didn't elect in 2000 and whom we did in 2004. If ever a country deserved its fate.
joe shmoe | 07.13.08 - 7:30 pm | #

Anonymouse writes:
OT - SP Futures seem to like the announcement (as well as USD/YEN, which drives the whole shebang).

I would love to see the SPX retrace to perhaps the 1256 level Monday; a rejection of that price on lighter volume than Friday's would set up an A-B-C down inside a giant weekly A-B-C down confirmed this week (the weekly projection is 1120, oddly precisely between the 1175 and 1080 Fib retracement levels of '02-'07 cyclical bull move, which I considered likeliest Intermediate Bottoms).

IOW - short all rallies. This market could crash over the next few months.
Anonymouse | Homepage | 07.13.08 - 7:30 pm | #

RK writes:
Terms and conditions to protect the taxpayer???
Please specify. Boilerplate made of chewing gum, string and duct tape?
RK | 07.13.08 - 7:30 pm | #

safe_as_apartments writes:
All the chatter of "one and done" may hammer all other financial stocks, including LEH, WB, etc. It seems that there is a (possibly erroneous) consensus that the U.S. government can do no more than this.

This will be fun to watch!
safe_as_apartments | 07.13.08 - 7:32 pm | #

REBear writes:
Schumer: Don't blame me for IndyMac failure

Sen. Charles Schumer said Sunday the Bush administration is trying to "blame the fire on the person who calls 911" by suggesting he had a role in one of the costliest U.S. bank failures

Federal regulators with the Office of Thrift Supervision were "asleep at the switch" when it came to IndyMac's "reckless" behavior, the New York Democrat complained.

http://www.cnn.com/2008/POLITICS...umer/ index.html

>>
He is right...
REBear | 07.13.08 - 7:32 pm | #

drhb writes:
Yes, no, maybe, okay!

Paulson went from an adamant no to a total 180 turn. We may need to go back to our 6 day trading days that were pre-Great Depression days with the bailout on Friday and this action.

This is only a drop in the bucket. Another IndyMac will push the market down once again.

This is total market massaging. Why not wait until Monday morning? Nope. They have to dish this out on Sunday a few hours before world markets open. Memories of Bear Stearns.
drhb | Homepage | 07.13.08 - 7:34 pm | #

joe shmoe writes:
Yes, Schumer is right that the OTS was asleep at the switch when Indymac was engaging in reckless behavior. But so was Schumer. He said jack all until now. The train passed the switch 4 or 5 years ago and then it derailed about 2 years ago. Where is Schumer on F & F and everything f...ing thing else?
joe shmoe | 07.13.08 - 7:35 pm | #

Scooby writes:
Where's my housing, comrade?
Scooby | 07.13.08 - 7:35 pm | #

DK writes:
The big bank earnings this week will cause the next run/panic...
DK | 07.13.08 - 7:36 pm | #

ilovemytoaster writes:
I saw three government vans parked outside a hotel tonight. (GOV plates) crew cuts, duffel bags and pelican cases. Thought to myself - I wonder if it's the FDIC? mind flashing to posts from the recent few days of the FDIC as the new MIB, or in this case khakis.

But before I get all FUD (ok, now that I heaped on the FUD), I think of a wise person who told me - 'but if the global pool of money takes their money out of the stock market, just where are they going to put it? in a sock?' there aren't enough places. what, the Chinese market? (hello Cliff, meet Cliff).... so in the market it will stay, (just perhaps other stocks).

So it goes. Time will tell.
ilovemytoaster | 07.13.08 - 7:36 pm | #

Anonymous writes:
Buying of equity shares is de facto nationalization....
Anonymous | 07.13.08 - 7:36 pm | #

republicans are traitors writes:
Contact your Congressman, they are going to need Congressional approval for some of the socialist things they want to do. Stop the Federal Reserve from usurping more power. They are the problem and giving them more power is the exact opposite of what needs to happen.
republicans are traitors | 07.13.08 - 7:37 pm | #

safe_as_apartments writes:
Some great irony:

As a renter who pays taxes, I'm arguably more of a homeowner than a recent homebuyer.
safe_as_apartments | 07.13.08 - 7:37 pm | #

Anonymous writes:
this is wrong on so many levels I can't even begin to describe.....

Why don't they just buy them outright?? since they have given the green light to purchase equities.

Can you imagine a company putting out a statement like this??

Total and utter bullshit...

We are now socialists with a flag waving PR machine to boot.

Shameless

Ciao
MS
Anonymous | 07.13.08 - 7:37 pm | #

steveb writes:
It will be interesting to see what position Barack Obama takes on this issue. Will the Democrats insist that the equivalent of bankruptcy be declared for the GSEs, or will they fold and let the Republicans protect the bondholders?
steveb | 07.13.08 - 7:38 pm | #

RedBank writes:
I want my share certificates. If public money is being used to buy equity, I want my shares..
RedBank | 07.13.08 - 7:39 pm | #

safe_as_apartments writes:
Issue #1: Is the U.S. Venezuela, Argentina, or Zimbabwe?
safe_as_apartments | 07.13.08 - 7:39 pm | #

joe shmoe writes:
buying of equity shares is nationalization only if all of them are bought and it requires an act of Congress to sell any of them back to the open market.

buying some shares and indicating that you might buy more is the equivalent of making Jim Cramer the Sec of Treasury. No, it isn't even that good an idea. It is more on a par with letting Dick Cheney buy Blackwater and have his own private army of mercenaries . . . oops, we already let that happen.

We are so screwed.
joe shmoe | 07.13.08 - 7:39 pm | #

tranches of lunacy writes:
Looks like I changed my handle right on time.

Is there any precedent for this in US history -- the US Govt purchasing equity in ostensibly private companies? Uh, "if needed."
tranches of lunacy | 07.13.08 - 7:41 pm | #

Gamma writes:
Roubini had the right plan. Wipe out equity and 5% haircut on bondholders to pay for recap. That would have been capitalism.

Privatize profits, socialize the losses. F'ing joke.
Gamma | 07.13.08 - 7:41 pm | #

awgee writes:
Is there something in The Constitution which describes how the Treasury Dept. may purchase equity in a private corporation?
awgee | 07.13.08 - 7:41 pm | #

Gavshire Hathaway writes:
Its obvious what position Obama will take on this. Complete neutrality. He'll abstain from voting for fear of compromising his position. Pathetic.

This is not a partisan view. McCain will do the same thing.

Sheeple will continue to choose between a giant douche and a turd sandwich, and continue to feel good about participating in the democratic process. Sadly it is a sham. Orwell's predictions in Animal Farm and 1984 have never been more true than today.
Gavshire Hathaway | 07.13.08 - 7:42 pm | #

safe_as_apartments writes:
AP thinks this may be the last help from the government:

http://www.msnbc.msn.com/id/25665655/
safe_as_apartments | 07.13.08 - 7:42 pm | #

Alo writes:
Hot potato -- getting whipped through Congress's window...
Alo | 07.13.08 - 7:43 pm | #

12th Percentile writes:
Two words that don't belong next to each other "AP" and "thinks".
12th Percentile | 07.13.08 - 7:44 pm | #

Chase Sucks writes:
This plan is just goofy enough that it has a pretty good chance of going the way of the Super SIV...
Chase Sucks | 07.13.08 - 7:45 pm | #

sterling writes:
This situation is very reminiscent of Ned Beatty running around the north Georgia mountains in his underpants. It's not gonna be pretty but it sure is hard to avert your eyes.
sterling | 07.13.08 - 7:45 pm | #

argento writes:
The only industry/corporation that I can recall being nationalized is Amtrak, and the G owns all of the shares.
argento | 07.13.08 - 7:46 pm | #

Aheadofthecurve writes:
safe_as_apartments writes:
AP thinks this may be the last help from the government:

Where did Paulson's statement say that? This is nothing more than the first guy the reporter could reach on a Sunday evening shooting his mouth off.
Aheadofthecurve | 07.13.08 - 7:46 pm | #

joe shmoe writes:
the last help . . . but, at the same time, the Treasury can buy an unlimited amount of equity.... see the confusion? Just like an implicit guarantee, except this allows insiders to make out like bandits with F & F stock.

Allowing people to make killings in govt manipulated stock is beyond moral hazard.

Making sure holders of govt agency issued bonds get paid their interest and principal is (almost always) part of the essence of fiscal responsibility.

When the Bush Admn gets to choose, expect the most f....ed up non-solution no one had even thought of before.
joe shmoe | 07.13.08 - 7:46 pm | #

Troy writes:
Is there any precedent for this in US history -- the US Govt purchasing equity in ostensibly private companies?

Truman trying to nationalize the steelmakers?
Troy | 07.13.08 - 7:47 pm | #

Man-moth writes:
@As a renter who pays taxes, I'm arguably more of a homeowner than a recent homebuyer.

Best line I've heard today (I'm in the same position)!
Man-moth | Homepage | 07.13.08 - 7:47 pm | #

2poor2care writes:
Remember this is all a part of the master plan for privatization of public property.
2poor2care | 07.13.08 - 7:47 pm | #

DK writes:
Good one! Super SIV 2.0. Let's make that stick!
DK | 07.13.08 - 7:48 pm | #

Aheadofthecurve writes:
Didn't the gov take a stake in Chrysler? Besides, in most of the ROW governments take equity stake in companies. Often they sell them back at nice profits. Probably won't be the case here, but this is not so unprecedented.
Aheadofthecurve | 07.13.08 - 7:48 pm | #

theyieldcurve writes:
There goes the neighbourhood.
theyieldcurve | 07.13.08 - 7:49 pm | #

SS writes:
They're also extending credit to the FHLBs. This is indeed a major bailout of the mortgage system at the expense of the taxpayer...
SS | 07.13.08 - 7:50 pm | #

joe shmoe writes:
of course what we say here doesn't matter, but out in the world beyond this blog it will be important to distinguish what Paulson proposed from nationalization.

Industries and companies have been nationalized before, but I do not know an example of the govt becoming a stock trader.

But, now that I think about it, we have heard this idea before. The Bushies wanted to invest Social Security funds in the stock market. Remember??? Eeerily familiar.

Our government cannot be allowed to become a Wall Street trading firm. That is not what government is.
joe shmoe | 07.13.08 - 7:50 pm | #

kaiser writes:
If Treasury buys FNM's equity at current prices, would that not massively dilute current shareowners? We all knew a bail out was inevitable, this form actually is pretty reasonable at punishing shareowners. Treasury should also reduce management pay, replace the Board, and claw back bonuses from prior management.
kaiser | 07.13.08 - 7:50 pm | #

Versace-clad babe with a Whart writes:
Equity!?
Versace-clad babe with a Whart | 07.13.08 - 7:51 pm | #

joe shmoe writes:
Chrysler was given loan guarantees.

I do not know an example of the govt buying shares of commonly traded stock.
joe shmoe | 07.13.08 - 7:52 pm | #

Tripleplay writes:
Chrysler-----Gov guaranteed the loans---no equity position.

It didn't cost the taxpayers anything as Chrysler paid up in full.

.
Tripleplay | 07.13.08 - 7:52 pm | #

kwark writes:
This whole thing stinks. Hard to call it socialism though when the general public is likely to take it in the shorts. Sounds more like crony capitalism as practiced in the US - on a giant scale - but with the usual smoke and mirrors removed. On second thought, it does sound something like the government-business arrangements as practiced in "socialist" Germany prior to 1945.
kwark | 07.13.08 - 7:53 pm | #

argento writes:
The Supreme Court rejected Truman's attempt to nationalize the steel industry because the Court felt that it did not fall under the President's vanilla "national security" umbrella.

The general consensus is that Congress can nationalize any industry (e.g. Amtrak) that it wants under the Commerce Clause, provided that it meets the "just compensation" clause of the Fifth Amendment.
argento | 07.13.08 - 7:53 pm | #

covered writes:
Two words that don't belong next to each other "AP" and "thinks".
12th Percentile

Example from the 3:32pm copy of the AP story by Jeannie Aversa:

The official, who spoke on condition of animosity, also sought to send a calming message about Fannie's and Freddie's financial shape, saying: "There's been no deterioration of the situation since Friday."

Upon further review--maybe that wasn't a typo.
covered | 07.13.08 - 7:53 pm | #

Jim writes:
Issue #1: Is the U.S. Venezuela, Argentina, or Zimbabwe?

None of the above.

Chavéz, whether you hate him or not, has set up all sort of programs for the poor—literacy programs, primary schools, trade schools, and health care facilities. The U.S. would never do that.

As for Argentina, they finally halted their slide when they rejected the prescriptions of the I.M.F. and the World Bank. The U.S. would never do that because the people who run the I.M.F. and the World Bank are the same people who run the U.S.

The U.S. is hardly in Zimbabwe’s class. Our dollar is not going to zero.

No, the U.S. is its own case: A nation run by gangsters inhabited by a people who secretly want nothing more than to be robbed and left impoverished.
Jim | 07.13.08 - 7:54 pm | #

mailgilbs writes:
They're not saying the Govt will buy traded equities. I'm not sure what they ARE saying...but I don't think that's it. Anyway, FRE and FNM are saying they won't act on it anyway.
mailgilbs | 07.13.08 - 7:54 pm | #

joe shmoe writes:
Argento

right, nationalization is possible and sometimes the right thing to do.

govt become a stock trader is wrong, dangerous, stupid, and I sure hope someone can construct a rock solid legal argument against it as well as a massively effective politcal campaign against it.

A dose of honest socialism would be good for this country, making for an honestly mixed economy. Expanding the Bush Crony capitalism into the stock market is abominable.
joe shmoe | 07.13.08 - 7:56 pm | #

anon writes:
Newly or specially issued shares or existing shares? More details needed as CR stated.
anon | 07.13.08 - 7:57 pm | #

joe shmoe writes:
Mailgibs

What other kind of equities are there, other than traded equities?

There's loans and there's buying equities. I think Paulson was frightfully clear on this.
joe shmoe | 07.13.08 - 7:57 pm | #

anon writes:
http://www.nation.com.pk/pakista...08/The-oil- bomb

it's food for thought- next week Iran sells oil in Euros not $
anon | 07.13.08 - 7:58 pm | #

Anonymous writes:
I understood there would be ponies.
Anonymous | 07.13.08 - 8:00 pm | #

theyieldcurve writes:
It's as if we elected Tyler Durden in 2000 and 2004.

That's giving Bush way too much credit. At least Tyler Durden had a philosophy about life. Bush only has delusions.
theyieldcurve | 07.13.08 - 8:01 pm | #

mailgilbs writes:
OK, I really don't know what he's talking about, and this is all over my head--though I do have a great deal riding on whatever the hell is going on.
mailgilbs | 07.13.08 - 8:01 pm | #

joe shmoe writes:
It just goes to show, when you let people get away with torture they then start to think they can do anything
joe shmoe | 07.13.08 - 8:01 pm | #

Yankee writes:
12th Percentile writes:
Two words that don't belong next to each other "AP" and "thinks".

two more words that do not go together: 'AP' and 'speaks'. Mmmmmore llllllllike sssssttttuttters.
Yankee | 07.13.08 - 8:04 pm | #

PonziMonetizaCoruptiCapatlism writes:
One rate...

backstop means anyone anywhere gets the same rate, if the risk is the same...

that the govvie bails you out.
PonziMonetizaCoruptiCapatlism | 07.13.08 - 8:05 pm | #

ndk writes:
So it goes. Time will tell.

Indeed. I feel like almost every post these days could be tagged "Ephemera". It's a little surreal, really fascinating, and in some ways I feel lucky to have a chance to see it all happen.

If only I didn't have to live through it, too.
ndk | 07.13.08 - 8:05 pm | #

theyieldcurve writes:
"Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need. We're the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War's a spiritual war... our Great Depression is our lives. We've all been raised on television to believe that one day we'd all be millionaires, and movie gods, and rock stars. But we won't. And we're slowly learning that fact. And we're very, very pissed off."

That pretty well sums it up.
theyieldcurve | 07.13.08 - 8:06 pm | #

AllenM writes:
As I had sussed out, they will buy a special preferred to bailout the capital needs, access to the Fed, and a swift kick to the shorts.

I *knew* on Friday that the Freddie letter would precipitate this.

As I stated, they will not allow this to fail, it would be catastrophic.

Everybody who thinks this will precipitate a dollar drop is wrong, letting fannie and freddie go would have done that.

Now, we return to the usual glibertarian rants that assume we can currently just switch off the financial system and resume a gold backed dollar.

Only at $100k per ounce.

Ready? I thought so.

Carry on,
Conjure, you ready for some peace and quiet?

I think Bushco has figured out they need to leave Iran to the next folks.

Someday this war's gonna end...
AllenM | 07.13.08 - 8:06 pm | #

Lawyerliz writes:
Even the hub, who rolls his eyes when I opine on the dreadful things that will happen, said to me, something awful must be about to happen because all these gov't spokespersons are going all reasurring on the tv news. He was NOT reassured.
Lawyerliz | 07.13.08 - 8:06 pm | #

Brian23 writes:
Roubini has an interesting take on this. If anyone has a chance, read the link on CR for Roubini. He proposes just writing down the debt so investors essentially take the losses.
Brian23 | 07.13.08 - 8:07 pm | #

joe shmoe writes:
AllenM

It looks like you will take a tidy profit on Monday, but I can't see having confidence in this going forward...... I think its going to calm the waters like switching on a giant whirlpool.

No libertarian rant here. I would be a social democrat if there were such a thing in this country.
joe shmoe | 07.13.08 - 8:11 pm | #

ROBOT BALLS writes:
So, forgive me if I'm being dense, but there's been a lot of news over the weekend:

Has anything actually changed for FNM and FRE?

So far it's just talk, right, and some poorly-defined access to the discount window?
ROBOT BALLS | 07.13.08 - 8:12 pm | #

Pavel Chichikov writes:
"Orwell's predictions in Animal Farm and 1984 have never been more true than today."

1984 was Soviet Union 1937, or Germany 1944.
Pavel Chichikov | 07.13.08 - 8:14 pm | #

Pamplona writes:
PPT,llc buys FNM,FRE

in other news, Madonna's gay brother has a crush on Guy
Pamplona | 07.13.08 - 8:17 pm | #

Pavel Chichikov writes:
"This whole thing stinks. Hard to call it socialism though when the general public is likely to take it in the shorts."

But that is socialism.
Pavel Chichikov | 07.13.08 - 8:17 pm | #

El Cliffo writes:
Nothing happened yet. Congress must approve almost everything. The Fed window borrowing doesn't help FRE or FNM long-term, anyway, which is where they need it, right? And how will "new ownership" of FRE and FNM help? If they stunk before, they'll stink tomorrow.

Meanwhile, any FRE or FNM bailout probably means help is less likely for LEH, WM or WB.
El Cliffo | 07.13.08 - 8:17 pm | #

rcyran writes:
1984 was the BBC in 1948

AllenM - concur.
rcyran | 07.13.08 - 8:17 pm | #

TheGuru writes:
If either company taps this line of credit, it will be a naked and very public admission that one or both of their capital positions is not as "strong" as alleged and the management will be caught in a lie. If they tap the equity line, they are done for with the exception of a 100% taxpayer funded bailout.
TheGuru | 07.13.08 - 8:19 pm | #

Pavel Chichikov writes:
"On second thought, it does sound something like the government-business arrangements as practiced in "socialist" Germany prior to 1945."

Germany 1933-45 was a predatory parasitic state living on plunder and, latterly, slave labor. Lasted 12 years.
Pavel Chichikov | 07.13.08 - 8:20 pm | #

Speed writes:
"Paulson, speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence."
Bloomberg

The collapse in confidence is in Paulson, Bernanke, and the US economy - F&F are incidental.
Speed | 07.13.08 - 8:21 pm | #

Etz writes:
Somebody call 911.

The bus driver is drunk.
Etz | 07.13.08 - 8:21 pm | #

Pavel Chichikov writes:
"1984 was the BBC in 1948."

The experience of the BBC during the war helped Blair (Orwell) write the book, but he was a lot deeper a mind than that.
Pavel Chichikov | 07.13.08 - 8:22 pm | #

peAkcredit writes:
The taxpayer will come out of this - smelling like a roast.
peAkcredit | 07.13.08 - 8:22 pm | #

joe shmoe writes:
But Germany today is a well-run mixed economy. No housing bubble there, just solid long term growth, a strong Euro, and more national health care than anyone knows what to do with.
joe shmoe | 07.13.08 - 8:22 pm | #

Tom Stone writes:
I expect a surge in demand for crisco...
Tom Stone | 07.13.08 - 8:22 pm | #

Richard writes:
@theyieldcurve i heard Tyler Durden just got twins, boy and girl, what a coincidence.
Richard | 07.13.08 - 8:24 pm | #

Speed writes:
More:

"Paulson's proposal, which the Treasury anticipates will be incorporated into an existing congressional bill and approved this week, signals a shift toward an explicit guarantee of Fannie Mae and Freddie Mac debt. The two shareholder-owned companies are government-sponsored enterprises, giving investors the indication of an implicit federal backing."

Means that if they do get the "explicit" backing, stocks in F&F become US Treasury Bonds. I wonder if they will be AAA.
Speed | 07.13.08 - 8:24 pm | #

doom writes:
Nikkei is flat at the open. Down about 18.

Do they even care?
doom | 07.13.08 - 8:24 pm | #

Tom Stone writes:
385 visitors.
Tom Stone | 07.13.08 - 8:25 pm | #

ilsm writes:
Kwark,

The fascists did something like this public got the risk, Kruppes et al got the money.

Worked until the Red Army crossed the Vistula..............
ilsm | 07.13.08 - 8:26 pm | #

ROBOT BALLS writes:
Hmm. Is the CR "Visitors Online" signal indicating a rally?
ROBOT BALLS | 07.13.08 - 8:26 pm | #

Pavel Chichikov writes:
"Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need. We're the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War's a spiritual war... our Great Depression is our lives. We've all been raised on television to believe that one day we'd all be millionaires, and movie gods, and rock stars. But we won't. And we're slowly learning that fact. And we're very, very pissed off."

Not a bad analysis. But then what?
Pavel Chichikov | 07.13.08 - 8:26 pm | #

mbz writes:
Dollar is up a bit. Oil down $1.
mbz | 07.13.08 - 8:26 pm | #

Sniglet writes:
Do any of these GSE bail-out plans help the shareholders? I have read many of the proposals to allow borrowing at the Fed, or government funding, but nothing seems to make it clear what would happen to shareholder equity in each of these scenarios. Any schemes based on "borrowing" money likely wouldn't dilute equity, but any actual efforts to raise capital certainly would.

The government needs to make it clear it will bail out the shareholders or we will be in for a world of hurt. It doesn't help that they will just provide a back-stop to prevent defaults on GSE debt. If the share values drop much further private investors will simply abandon the entire financial system altogether.
Sniglet | 07.13.08 - 8:27 pm | #

Speed writes:
Kotoba mo nai wa.
Speed | 07.13.08 - 8:28 pm | #

Anonymous writes:
Tomorrow is going to be very ugly for the markets.
Trust me, you'll see.
This is not what big money longs wanted to see.
They wanted to continue to hear that all was well.
Anonymous | 07.13.08 - 8:30 pm | #

crispy&cole writes:
Watching the local news. they showed a few hundred morons in Brett Favre shirts protesting to keep him with the Packers... Meanwhile these iditos have no idea they are about to buy some FNM stock...Keep the sheeple at bay and you win Bush..
crispy&cole | Homepage | 07.13.08 - 8:31 pm | #

Lawyerliz writes:
What if they provide the backstop and F & F don't tap any money. I don't think they actually need any money right now. Well, I guess that long scheduled 3 bill is needed, but that is a drop in the bucket.

Sorta on the level of they gave a war and nobody came.

They are in medium term trouble, but who knows at what level the house price market will bottom out?
Lawyerliz | 07.13.08 - 8:32 pm | #

Speed writes:
They very likely think that their 401k's are FDIC insured.
Speed | 07.13.08 - 8:32 pm | #

Noble writes:
Have we checked with the Chinese? After all somebody somewhere will have to buy this treasury debt. If the Treasury were a Chinese bank (good argument to be made here) then dont you have to check with the owners before you make a loan, especially knowing its a bad loan?
Noble | Homepage | 07.13.08 - 8:33 pm | #

Lawyerliz writes:
Hahahaha.
Lawyerliz | 07.13.08 - 8:33 pm | #

Canadian watching with popcorn writes:
If I see some of those beer bellied hillbillies in the crowd at the Beijing Olympics go into the good old USA USA chant, I am goint to piss myself......
Canadian watching with popcorn | 07.13.08 - 8:33 pm | #

argento writes:
they showed a few hundred morons in Brett Favre shirts protesting to keep him with the Packers

The Packers are an example that nationalism can work. They're the only community-owned national sports franchise.
argento | 07.13.08 - 8:35 pm | #

Lawyerliz writes:
Why?
Lawyerliz | 07.13.08 - 8:35 pm | #

Anonymous Bosch writes:
Looks like I picked the wrong weekend to quit shooting glue.
Anonymous Bosch | 07.13.08 - 8:35 pm | #

Lawyerliz writes:
That's why to Canadian. Why should people root for their sports idols? I personally don't care very much, but why shouldn't they?
Lawyerliz | 07.13.08 - 8:36 pm | #

Kicker writes:
Has anything actually changed for FNM and FRE?

I'd bet that F&F pretty much run a matched book (maturity dates of liabilities match assets). That makes them pretty much immune to the kind of runs that took down Bear Stearns.

The only way they could use the discount window to their advantage would be to dump assets on the Fed and buy back bonds with a higher interest rate on the open market. That would be ugly because the sums involved.

As I see it the most profitable path for current shareholders would be to put F&F into run-off. Most likely the bonds (if held to maturity) will yield more value than they are currently trading on the market. Much better than a massively dilutive equity offering.

Of course, that would be the end-of-the-world as far as the mortgage market is concerned.

Echo's of Bear Stearns where equity holders got a bump because they held the worlds financial system by its tenders.
Kicker | 07.13.08 - 8:36 pm | #

Aheadofthecurve writes:
I'm not sure what you guys are in such an uproar over. These 2 "entities" were never real private companies. They were started by the government and had an "implicit" guarantee. Now it's "explicit". But not much has changed.
Aheadofthecurve | 07.13.08 - 8:36 pm | #

RK writes:
Your social security just got privatized after all. The
government will own all the failed enterprises, and you will own the government. You don't even have to pay a broker's commission.
RK | 07.13.08 - 8:37 pm | #

Anonymous writes:
Good news for all the insurers and sovereign funds that own GSE paper.
Bad news for the equity markets.
The equity markets did not want to hear about the equity option - they know that's going nuclear....
Anonymous | 07.13.08 - 8:37 pm | #

joe shmoe writes:
LawyerLiz

Yes, that could be Paulson's gambit. If he and Bush et al all believe F & F is really sound as long as there is not a continued run on their stock price, then he could be putting forward this plan as pure PR (or BS), with the added bonus of opening the door to making the govt a stock trader.

But I think F & F will either be pressed again soon (either need to borrow or its shares will boom and bust) or I think the govt stock trading part of the package will lead to mischief very quickly. Remember, they only have 5 months left to rob and plunder.
joe shmoe | 07.13.08 - 8:38 pm | #

safe_as_apartments writes:
Can we please just put the U.S. into run-off and be done with it?
safe_as_apartments | 07.13.08 - 8:40 pm | #

energyecon writes:
AoTC,

I am sure we will all be much happier if your view turns out to be the case, we will see how the credit markets view this turn of events...whither TNX...
energyecon | Homepage | 07.13.08 - 8:40 pm | #

Anonymous writes:
Banana republic
Anonymous | 07.13.08 - 8:40 pm | #

fallon writes:
From the NYT:

"[As a) nation that holds itself up as a citadel of free enterprise, the government has morphed from lender of last resort into effectively the only lender for millions of Americans engaged in the largest transactions (Housing and College Education) of their lives."

http://www.nytimes.com/2008/07/1...arantee.html? hp

One should ask, given the mess made by the Titans of Capitalism, perhaps Housing, Education (and I would add Health Care) have no business as business for profit. Take these three out of the realm of private concerns and we might just have a competitive United States in the facing of extreme capitalist flows of money and globalism. Just a thought.
fallon | 07.13.08 - 8:41 pm | #

jo6pac writes:
Anonymous Bosch writes:
Looks like I picked the wrong weekend to quit shooting glue.
Anonymous Bosch | 07.13.08 - 8:35 pm | #

-------------------------------------------------- ------------------------------
Please don't do this it's really done with a bag and you breath in real deep.
jo6pac
The race to the bottom continues.
jo6pac | 07.13.08 - 8:43 pm | #

theyieldcurve writes:
If I see some of those beer bellied hillbillies in the crowd at the Beijing Olympics go into the good old USA USA chant, I am goint to piss myself......

Luckily, you and I will be at Bud Camp.
theyieldcurve | 07.13.08 - 8:43 pm | #

DR writes:
So what is going to happen with Senator Dodd's 300 billion Home Loan Aid Bill?

We can only print treasuries so fast...
DR | 07.13.08 - 8:45 pm | #

theyieldcurve writes:
"Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need. We're the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War's a spiritual war... our Great Depression is our lives. We've all been raised on television to believe that one day we'd all be millionaires, and movie gods, and rock stars. But we won't. And we're slowly learning that fact. And we're very, very pissed off."
---------------------------------------
Not a bad analysis. But then what?

A new Great Depression, then 1776 all over again. Either that, or endless painflation and general discontent.
theyieldcurve | 07.13.08 - 8:46 pm | #

Nemo writes:
Aheadofthecurve --

I'm not sure what you guys are in such an uproar over. These 2 "entities" were never real private companies.

They are private enough to pay their shareholders dividends and their executives tens of millions of dollars a year.

They were started by the government and had an "implicit" guarantee. Now it's "explicit". But not much has changed.

Everyone knows, and has always known, that there would be a bail-out if necessary. What was not known is what the terms would be. For the bail-out to take the form of an EQUITY INVESTMENT is utterly outrageous.

Of course, there will never be enough people who understand what is happening for any outrage to appear. But "we guys" -- this guy, anyway -- are in an uproar because we do understand.
Nemo | Homepage | 07.13.08 - 8:47 pm | #

Canadian watching with popcorn writes:
The Indymac failure made the national news in Canada tonight, just after the piece of the US plundering the Iraq oil supply............
Canadian watching with popcorn | 07.13.08 - 8:48 pm | #

Speed writes:
Nikkei +86

Masaka sonna koto ga aruhazu nai yo!
Speed | 07.13.08 - 8:48 pm | #

Lawyerliz writes:
Health care and education yeah, but really, why housing? You can find someplace to live really cheaply if you are willing not to live with granite, et al.

I have my very nice house in Brevard County, and I rent a room for snicker $369 in Dade. Includes utilities. Landlord has never raised my rent. now that I have written this he will. Now, mind you all I do is sleep there 3-4 nites a week. If I had to I could live in that room and be perfectly happy. I was happy in my nice Miami Dade house and I was happy living in the trailer after Andrew, and I was happy
back in the house after it was totally rebuilt, and I was happy in a little cheap house in Brevard, and very happy in my very nice big paid for house in Brevard.

Or, occasionally I was depressed in all those places. Thing is, you can be happy or unhappy anywhere. And as long as you have some imagination you can find somewhere cheap to live.
Lawyerliz | 07.13.08 - 8:49 pm | #

theyieldcurve writes:
I'm not sure what you guys are in such an uproar over. These 2 "entities" were never real private companies. They were started by the government and had an "implicit" guarantee. Now it's "explicit". But not much has changed.

It's all about optics. Nothing more. Nothing less.
theyieldcurve | 07.13.08 - 8:49 pm | #

Nemo writes:
Klaatu barada nikto!
Nemo | Homepage | 07.13.08 - 8:49 pm | #

Anonymous Bosch writes:
the housing industry, the sheepskin industry, the disease industry... -- fallon

To which I would add the criminal justice industry.

I'll keep that in mind, jo6pac, should the temptation ever occur.

Anonymous Bosch | 07.13.08 - 8:49 pm | #

Dennis writes:
Dear Treasury Secretary Paulson:

Evening news said that you guys may bail out the mortgage giants. Well sir, I'm a mortgage midget and you can bail me out if you have a mind to. In fact, I'll sell you all of my shares and you can nationalize me. Be sorta like AMTRAK. I think I'd like that.

If that doesn't work for you, can I borrow some money at that there discount window everybody keeps talking about? I'm well-capitalized like Fannie and Freddie but I've got some cash flow issues like they do and my stock has been taking a beating lately. In fact, Achmed down at the 7-11 won't trade them even-up anymore for a Virginia Lottery scratch-off - which is my recapitalization plan until I get my disability check at the end of the month.

I've got some stuff down in the basement and out in the garage that I can bring by as collateral. Probably worth more than what Bear Stearns gave you. Some of its kinda bulky and might not fit thru the window. Do you have like a freight elevator or anything that we can use? Oh, and do you have a hand cart or should I bring one?

vr
Dennis

PS I see that your buddy Bob Steel just took over at Wachovia. That's where I do my banking. Should I be worried?
Dennis | 07.13.08 - 8:50 pm | #

Lawyerliz writes:
Will somebody please translate speed. Assuming he's saying anything.
Lawyerliz | 07.13.08 - 8:51 pm | #

Anonymous writes:
Chase Sucks: You have a good memory. It's so easy to forget the goofy trail balloons like Super SIV!
Anonymous | 07.13.08 - 8:51 pm | #

Geoff writes:
Ahead of the curve - you appear to now be completely behind the curve. You sound like Brad DuhLong for crying out loud. If you don't realize that there is an issue here, I dont know what kind of glue you are sniffin.
Geoff | 07.13.08 - 8:52 pm | #

Mike_in_FL writes:
markets don't seem terribly impressed, as far as I can tell. Nikkei up a whopping 4 points at last count ... dollar up a bit, but not all that much ... Long Treasuries down about a half point ...and S&P futures up about 12 points. Who the heck knows what things will look like in 12 hours. But this doesn't (so far) look like a rocking good time party ... more like having a few beers at happy hour and then going home for the night.
Mike_in_FL | Homepage | 07.13.08 - 8:52 pm | #

auction pro writes:
the us gov acts like it can borrow money at WILL. As a investor I'm not willing to lend at ANY PRICE!
auction pro | 07.13.08 - 8:53 pm | #

Speed writes:
Last one - Son shite toku tore
Speed | 07.13.08 - 8:54 pm | #

energyecon writes:
TED spread ticked up to 1.21 when I was watching all the other fun...
energyecon | Homepage | 07.13.08 - 8:55 pm | #

Canadian watching with popcorn writes:
Here comes the $10,000 Ameriway Buck....
Canadian watching with popcorn | 07.13.08 - 8:55 pm | #

Wilbur writes:
I think that the Statement was intentionally vague. The White House does not want to deal with this problem and wants to try to trick the markets into thinking that everything is fine. If so, they can postpone the day of reckoning to a later date....
Wilbur | 07.13.08 - 8:56 pm | #

Zack writes:
Look at one model, the Continental Illinois bank failure. The US bought equity, a little then a lot, but had a preferred position and eventually wiped out all the other shareholders. It then sold its equity to Bank of America, and was done. I believe something similar will happen to FRE and FNM. As the losses mount (foreclosures, housing prices down), the tiny capital cushion of the two companies will be wiped out. It may take a while for this to happen. Shareholders are f'd, and the debt-holders are protected. That's how it works, folks.
Zack | 07.13.08 - 8:56 pm | #

Troy writes:
Will somebody please translate speed.

"Kotoba mo nai wa" =

"I have no words" (spoken as a female)

then

"Masaka sonna koto ga aruhazu nai yo!" =

"There's really no way this should be possible!"

inserting an "f-ing" in there somewhere is acceptable
Troy | 07.13.08 - 8:56 pm | #

theyieldcurve writes:
Last one - Son shite toku tore

You must lose a fly to catch a trout. I admit it - I'm a sushi lover.
theyieldcurve | 07.13.08 - 8:57 pm | #

unirealist writes:
Karl Denninger has an excellent weekend post on the GSE nightmare.

(At MarketTicker)

It is his opinion that F&F need 500 Billion to re-capitalize to reasonable leverages.

Paulson is apparently terrified that wiping out the shareholders (as opposed to bondholders), will send the financial system into cardiac arrest. Even though it is the only sane and sensible thing to do, and upon which everyone except the shareholders themselves seems to agree must happen.
unirealist | 07.13.08 - 8:57 pm | #

argento writes:
The real question is whether Congress is going to play political games with F/F.

If they adopt the Paulson plan wholesale, then the Dem Congress can pass the puck to BushCo if the plan fails. On the other hand, does anyone think that Congress has the conviction to reject Paulson's plan, and create its own? In that case, the buck stops with Congress.

So far, the Dem. Congress has not been that proactive...
argento | 07.13.08 - 8:58 pm | #

Troy writes:
If so, they can postpone the day of reckoning to a later date....

Anyone take the under on Nov 4? Thought not!
Troy | 07.13.08 - 8:58 pm | #

theyieldcurve writes:
And my contribution...

Gen izureba shi-ba oyobazu.
theyieldcurve | 07.13.08 - 8:59 pm | #

Crashcadia writes:
We at CR should be able to come up with a name for this new depression.

I have heard terms, such as

"The Greater Depression"
"The Great Depression II"

Here is my term.
"The Exalted Dejection"

Anyone here with a better term that may stick and get used by the MSM?
Crashcadia | 07.13.08 - 8:59 pm | #

Pamplona writes:
uni,

everyone except the shareholders themselves

the price's of fnm and fre seem to indicate that the shareholders do recognize it.
Pamplona | 07.13.08 - 8:59 pm | #

Troy writes:
500 Billion to re-capitalize to reasonable leverages.

10%? KD is high. Conforming by defnition was relatively safe beans for this decade. If conforming needs a 10% capital infusion then the other $8T of the debt issue needs what, 50%?
Troy | 07.13.08 - 9:00 pm | #

km4 writes:
In short, in a nation that holds itself up as a citadel of free enterprise, the government has morphed from lender of last resort into effectively the only lender for millions of Americans engaged in the largest transactions of their lives.

Now make sure and thank the Bush admin. ( the biggest crooks in the history of America ) for pushing you to own a piece of the 'ownership society' sucker !
km4 | 07.13.08 - 9:00 pm | #

auction pro writes:
I agree with 500 billion to recaptilize.the number I came up with was closer to 750billion
auction pro | 07.13.08 - 9:01 pm | #

12th Percentile writes:
crashcadia

it has been named already. I can't remember the poster's name but they referred to it as the:

Grande Depression

It was in reference to Starbucks, but I think it is perfect.

The Grande Depression.
12th Percentile | 07.13.08 - 9:01 pm | #

theyieldcurve writes:
Anyone here with a better term that may stick and get used by the MSM?

For the information age (and a Canadian plug for the metric system): MegaDepression.
theyieldcurve | 07.13.08 - 9:01 pm | #

Nemo writes:
CNBC World is talking about the iPhone.

"It's very exciting!"

Apparently
Nemo | Homepage | 07.13.08 - 9:02 pm | #

Anonymous Bosch writes:
Looks like I picked the wrong weekend to quit turning Japanese.

"We are hopeful that this issue appropriately abates soon."
Anonymous Bosch | 07.13.08 - 9:02 pm | #

12th percentile writes:
I'm talking about my new

iBailout3T

It doesn't have many features, but it is built to last and I plan on owning it until I can get to New Zealand.
12th percentile | 07.13.08 - 9:03 pm | #

theyieldcurve writes:
Anyone here with a better term that may stick and get used by the MSM?

The Great Compression?
theyieldcurve | 07.13.08 - 9:04 pm | #

unirealist writes:
Conforming by definition was relatively safe beans for this decade.

According to KD, since 2000 F&F have accepted all kinds of crap paper from Countrywide etc. "Conforming" doesn't mean sh*t if it is low-doc with little down.
unirealist | 07.13.08 - 9:04 pm | #

Aheadofthecurve writes:
"Everyone knows, and has always known, that there would be a bail-out if necessary. What was not known is what the terms would be. For the bail-out to take the form of an EQUITY INVESTMENT is utterly outrageous."

This may actually be cheaper than a bailout. Fanny and Freddy need to issue equity to raise cash. That's almost impossible to do at current prices. The government backstop may induce private buyers to jump in. It's entirely possible the government may not have to actually buy shares at all. If they do, in 5 years there's a decent chance they can sell them at a profit. Whereas a bailout would be almost guaranteed to cost the taxpayers.
Aheadofthecurve | 07.13.08 - 9:05 pm | #

Gary writes:
All this japanese reminds me of another quote:

The [economic] situation has developed not necesarily to [the USA]'s advantage.
Gary | 07.13.08 - 9:06 pm | #

fallon writes:
Lawyerliz writes:
Health care and education yeah, but really, why housing?
-----------------------
Why housing? Why do democracies tend to have a stable middle class whom own their own houses and the land underneath?

Of course one could just rely on a benevolent corporate oligarchy to rent land and its improvements to the middle class, but then, who needs a middle class at that point. Small farmers are basically extinct so why no just break down that urban rural divide anyway (and I own a small farm and live in the city in a nice middle class neighborhood so I speak from experience).

But at the rate of housing depreciation and foreclosures combined with what will be lower earning power and higher taxes, perhaps we won't have much a middle class in the end anyway and the US will look more like post-Communist Russia or perhaps we will be the NEW CHINA with the US Treasury and FED having a controlling share of most everything.

Just think how well we could revitalize our manufacturing base if the US socialized not just losses from investments but losses from inputs priced against losing outputs (why Walmart would need no longer outsource cheap consumer crap).
fallon | 07.13.08 - 9:07 pm | #

Anonymous writes:
"temporary authority for Treasury to purchase equity", and an "increase in the line of credit".

Uh Huh just like the TAF by the FED, the US is a short across the board. Oh and those nice safe T-bills, the T stands for Toilet.
Anonymous | 07.13.08 - 9:07 pm | #

Escariot writes:
Anyone here with a better term that may stick and get used by the MSM?

The Five Year Plan
Escariot | 07.13.08 - 9:08 pm | #

ROBOT BALLS writes:
Anyone here with a better term that may stick and get used by the MSM?

The Bush Bust?
The Leveraged Wipeout?
The Long Emergency? (I think that one's Kunstler's)
ROBOT BALLS | 07.13.08 - 9:08 pm | #

Ross writes:
Sitting here watching 'Fun With Dick And Jane' is highly appropriate...

Jim Carrey started out small. He stole his lawn back!
Ross | 07.13.08 - 9:09 pm | #

Charlie Poole writes:
It is absurd to place the Fed in a consultant role with respect to capital requirements at the GSEs, given that the Fed has virtually no understanding of how the GSEs manage risk.
Charlie Poole | 07.13.08 - 9:10 pm | #

Zack writes:
Read up on Continental Illinois, from this website:

On May 17, the FDIC, Federal Reserve and OCC announced how much they were willing to pay to remain ignorant of whether Continental really was too big to fail. The package they announced in a joint press statement included:

- An additional $2 billion in funding for the bank arranged by the FDIC and the banking industry;
- Federal Reserve assurances about providing liquidity;
- Twenty-four major banks would provide $5.3 billion in unsecured funds until a more permanent solution could be found; and, controversially,
- The FDIC said it would make good all of the banks depositors and creditors, setting aside the $100,000 limit on deposit insurance that should have governed its payouts.

The emergency measures provided a temporary breathing space in which regulators looked for another institution that would agree to take over Continental. The worries about Continentals impaired portfolio and legal entanglements were such that the search proved fruitless.

In July, regulators hammered out a controversial approach to permanently rescuing the institution under which the FDIC would purchase some $4.5 billion book value of impaired loans with an adjusted book value of $3.5 billion in return for assuming $3.5 billion of the banks Federal Reserve debt.

Under the permanent assistance program, the FDIC also acquired preferred stock in Continentals holding company, in return for infusing $1 billion in equity capital into the bank. This transaction effectively left the government agency as the 80% owner of the bank a nationalisation in everything but name.
Shareholders in the bank lost most of the value of their investment immediately after the FDICs stock purchase. They lost the rest of the value of their investment later on, when the FDIC exercised an option to purchase the remaining shares. (The option became exercisable because the losses from the FDIC-assumed impaired loan portfolio reached a pre-agreed level.)
Zack | Homepage | 07.13.08 - 9:10 pm | #

argento writes:
OT: Look like BUD's going to be Belgian.

http://www.bloomberg.com/apps/ne...qvKA& refer=home

America's still up for sale.
argento | 07.13.08 - 9:10 pm | #

Troy writes:
here is a quick graph I've made of net mortgage lending 2002 - 2008.

In billions, 2008 extrapolated (1Q08x4)
Troy | 07.13.08 - 9:11 pm | #

auction pro writes:
common theme here tonight. common man needs to take back his or her government!
auction pro | 07.13.08 - 9:11 pm | #

theyieldcurve writes:
OT: Look like BUD's going to be Belgian.

Belgian Bud Camp?
theyieldcurve | 07.13.08 - 9:12 pm | #

Outsider writes:
Nothing another rebate can't solve.
Outsider | 07.13.08 - 9:13 pm | #

theyieldcurve writes:
common theme here tonight. common man needs to take back his or her government!

A little revolution now and then is a good thing, don’t you think? (Who said and in what movie?)
theyieldcurve | 07.13.08 - 9:14 pm | #

awgee writes:
Once again, I am a bit confused. If the GSEs are as well capitalized as they claim recently, why are the Federal Reserve, OFHEO, the SEC, Congressional leaders of both parties, with the two companies developing a three-part plan for immediate action?
awgee | 07.13.08 - 9:16 pm | #

Troy writes:
A little revolution now and then is a good thing

Any chance of assembling a Constitutional Convention with 1 thousandth of the net collective wisdom of the founders?
Troy | 07.13.08 - 9:16 pm | #

fried writes:
Well,Bud's gone. Who knows, a few folks might notice that.
fried | 07.13.08 - 9:18 pm | #

Canadian watching with popcorn writes:
Belgian Bud Camp?
Hey were going to have real tits at camp this year, none of that plastic American stuff, GIVER..........
Canadian watching with popcorn | 07.13.08 - 9:18 pm | #

Ross writes:
Revolution? Nah, I'm just gonna have my gun club buds over to talk a little treason. Buds? Associates...Bud gonna talk Waloon.
Ross | 07.13.08 - 9:18 pm | #

mock turtle writes:
echoing
safe_as_apartments comments at 742 above

fan & fred may be it

---
http://www.msnbc.msn.com/id/25665655/

"But, some of Wall Street’s biggest investors believe there was another message in the government’s announcement — the rest of the financial sector seems unlikely to get a helping hand. Global banks and brokerages have already written down nearly $300 billion in soured mortgage investments — a number projected to ultimately reach $1 trillion.

“The credit crisis has obviously entered into a new phase — the government"
mock turtle | 07.13.08 - 9:19 pm | #

Versace-clad babe with a Whart writes:
The Great Decline
Versace-clad babe with a Whart | 07.13.08 - 9:20 pm | #

rich writes:
>Paulson is apparently terrified that wiping out the shareholders (as opposed to bondholders), will send the financial system into cardiac arrest. Even though it is the only sane and sensible thing to do, and upon which everyone except the shareholders themselves seems to agree must happen.

I'm convinced Paulson is the driving force behind the PPT. For several years, Paulson has had: 1)a deathly fear against another 2000-01 equity collapse; and 2) a belief that he and the PPT could engineer the U.S. markets out of it, using an orchestrated cadre of black box traders, government-supplied leverage, pre-arranged signals, and a promise not to use any of the leverage short.

I have never believe Paulson could pull it off in a deep enough crisis, because he has no real hold over the black box traders and because propped up U.S. equity indices are bound to get out of whack with other global equities, especially European.

If you want to see real market reaction these days, watch the FTSE, DAX and CAC. They are all at multi-year lows. If they dive over the next 36 hours, it tells you the PPT is about to fold.
rich | 07.13.08 - 9:20 pm | #

Gary writes:
The Pyrite Age
Gary | 07.13.08 - 9:20 pm | #

auction pro writes:
the people on this blog are much above average intelligence. I here a lot of discontent but, not a lot on how we are going to affect change in our gov!
auction pro | 07.13.08 - 9:21 pm | #

Leftys Liquors writes:
Nemo

That goes way back.
Leftys Liquors | 07.13.08 - 9:21 pm | #

Troy writes:
not a lot on how we are going to affect change in our gov!

JAL, business class, LAX or SFO -> NRT
Troy | 07.13.08 - 9:22 pm | #

Clyde writes:
The Great Unwind defeats the Credit Tsunami by a nose.
Clyde | 07.13.08 - 9:22 pm | #

not a banker writes:
safe_as_apartments writes:
AP thinks this may be the last help from the government:

http://www.msnbc.msn.com/id/25665655/
safe_as_apartments | 07.13.08 - 7:42 pm | #
--------------------------------------

Yeah right:
http://www.youtube.com/watch?v=-...h?v=-uyAXni- KSc
not a banker | 07.13.08 - 9:22 pm | #

theyieldcurve writes:
Belgian Bud Camp?
----------------------
Hey were going to have real tits at camp this year, none of that plastic American stuff, GIVER..........

Belgium is affectionately known as the cockpit of Europe.
theyieldcurve | 07.13.08 - 9:23 pm | #

Escariot writes:
Belgium is affectionately known as the cockpit of Europe.
theyieldcurve | 07.13.08 - 9:23 pm | #

LOL
Escariot | 07.13.08 - 9:23 pm | #

Gary writes:
auction pro,
You've never met jg, ipodius, Sivaram Villaleuthapillambac, O-Joe, Sebastian, . . . .
Gary | 07.13.08 - 9:24 pm | #

theyieldcurve writes:
the people on this blog are much above average intelligence. I here a lot of discontent but, not a lot on how we are going to affect change in our gov!

(Respectfully) This, coming from a country that elected Bush 2.0.
theyieldcurve | 07.13.08 - 9:24 pm | #

Zack writes:
Note that FRE and FNM have reported losses of about $12 billion in the last year. Their combined capital cushion is $81 millioin. Clearly they are using optimistic models to value their portfolio, so losses should accelerate as they have to mark to market, and the foreclosures and price declines continue to pile up. Folks, they just don't have enough capital to cover these losses, and if they try to raise capital, shareholders will run for the hills--no matter what the money is private or taxpayer!
Zack | Homepage | 07.13.08 - 9:24 pm | #

friardaddy writes:
Still doesn't change DTI of 43 to 1.
friardaddy | 07.13.08 - 9:25 pm | #

Clyde writes:
You effect change in the government by enforcing the laws on the books. And pricking asset bubbles. My work is done here.
Clyde | 07.13.08 - 9:25 pm | #

friardaddy writes:
CR - given the economic turmoil, sounds like 4pm ET on FDIC Fridays and Govt Bailout Sundays will be busy for you in the near term?
friardaddy | 07.13.08 - 9:27 pm | #

Lawyerliz writes:
Didn't Jefferson say that thing about revolution every so often being a good thing.

'Course he was a homedebtor, and just plain debtor, as well as a slave owner.
Lawyerliz | 07.13.08 - 9:28 pm | #

theyieldcurve writes:
Belgium is affectionately known as the cockpit of Europe.
theyieldcurve | 07.13.08 - 9:23 pm | #
--------------------------------------------
LOL
Escariot | 07.13.08 - 9:23 pm | #

Funny, but true...

http://www.infoplease.com/dictio...pit- europe.html
theyieldcurve | 07.13.08 - 9:28 pm | #

ShortShorts writes:
Just make sure that when you short you have borrowed actual shares. Otherwise the SEC may catch you naked, and the idea of seeing any of you naked fills me with horror.
ShortShorts | 07.13.08 - 9:28 pm | #

January 31, 2010 writes:
I hate to admit it, but I am one of the pessimists that went into the weekend short.

I have learned my lesson, though.

The market will go up because F & F will not fail. Rather, they will be bailed out.

The market will go up because Banks will show in their "earnings" reports that they had massive billion dollar writeoffs, but the writeoffs will not be as large as feared.

The market will go because while CPI & PPI will be increasing at frightening levels the Core will still be "tame."

The market will go up because the reatail sales numbers will be impressive due to consumers spending thir stimulus checks on the oil & food--you know, the stuff that went up in price in the CPI that doesn't count.

The market will go up because the bailout of F & F will likely prompt Lawrence Yun to say the worst of the housing crash is behind us.

The market will go up because the dollar will strengthen since the likelihood of F & F failing is diminished; thereby, lowering the price of oil--potentially below $140bbl.

I should have realized all of this on Friday. Maybe I should leave my financial future in the hands of the "professionals" on Wall Street.

Live & Learn :-(
January 31, 2010 | 07.13.08 - 9:29 pm | #

rich writes:
Zack,

I agree with your analysis. We are still in the 4th or 5th inning of the mortgage /credit meltdown. I would have expected Fannie and Freddie to hit the wall in like the 7th inning.

The fact that they are melting down and needing capital so soon tells you they are cooked, and so are a lot of other financials. This is going to get scary before it's over, and it's a long way from over.

Keep in mind that the financials are a leading indicator. The difficulties that ordinary operating companies and small businesses will face with lack of access to credit, higher borrowing costs and lower demand and pricing power are mostly yet to come. The trend line is for an epic economic crisis.
rich | 07.13.08 - 9:30 pm | #

Zack writes:
From Barron's:

Looking at their balance sheets, Porter points out, you find mortgages with a face value of $1.7 trillion, supported by assets of about $70 billion in core capital. On a combined basis, they're leveraged 24-to-1, but when you toss in their off-balance sheet guarantees, that figure balloons to 68-to-1. It would only take a modest decline in the value of those mortgages to wipe out Fannie and Freddie's equity.
Zack | Homepage | 07.13.08 - 9:30 pm | #

theyieldcurve writes:
Didn't Jefferson say that thing about revolution every so often being a good thing.

Correct. Also popularized by Captain Marko Ramius (Sean Connery) in The Hunt for Red October.
theyieldcurve | 07.13.08 - 9:30 pm | #

Canadian watching with popcorn writes:
Belgium is affectionately known as the cockpit of Europe.
I spent some time in Brugge in my younger years, great place............
Canadian watching with popcorn | 07.13.08 - 9:31 pm | #

some investor guy writes:
New term for this?

A. The Great Unwinding
B. The Great Deleveraging
some investor guy | 07.13.08 - 9:31 pm | #

Campbeln writes:
Belgium is affectionately known as the cockpit of Europe.
theyieldcurve | 07.13.08 - 9:23 pm | #

Funny, I always thought that was Amsterdam!?! [rimshot] - oh, another entendre!)

Cn
Campbeln | 07.13.08 - 9:31 pm | #

not a banker writes:
Etz writes:
Somebody call 911.

The bus driver is drunk.
Etz | 07.13.08 - 8:21 pm | #

So is the 911 operator
not a banker | 07.13.08 - 9:32 pm | #

Zack writes:
Rich, we are in agreement.
Zack | Homepage | 07.13.08 - 9:32 pm | #

wally writes:
Paulson has very little credibility left. the clear pattern has emerged that he will lie until cornered.

The actions he announced may have some effect if there is a liquidity issue for F or F - but we've been assured there is no such problem. Others, however, have said there is a solvency problem. If that is true, a liquidity injection will simply let them get in deeper before it all blows up.

In short, Paulson's announcement is no reassurance at all.
wally | 07.13.08 - 9:32 pm | #

Lawyerliz writes:
Good movie. Don't remember Connery saying that, but I'm sure you're right.
Lawyerliz | 07.13.08 - 9:32 pm | #

ShortShorts writes:
Now go put some clothes on
ShortShorts | 07.13.08 - 9:33 pm | #

mock turtle writes:
crashcadia at 859 wrote.
"Anyone here with a better term that may stick and get used by the msm to describe (this new depression)?

----

how bout this

the last great depression
mock turtle | 07.13.08 - 9:33 pm | #

12th Percentile writes:
I found a video of this week's market

Rally

I pretend it is Ben and Paulson driving.
12th Percentile | 07.13.08 - 9:34 pm | #

Lawyerliz writes:
OOOOOoooo, mock t that is a really scary suggestion.
Lawyerliz | 07.13.08 - 9:34 pm | #

Ross writes:
Toonces the driving cat!!!
Ross | 07.13.08 - 9:36 pm | #

Alpha_Bear writes:
How about, "The Final Countdown"?
Alpha_Bear | 07.13.08 - 9:36 pm | #

Canadian watching with popcorn writes:
January 31
Don't sweat it, from what I am seeing it may be up for about one week, then you will be ok..........
Canadian watching with popcorn | 07.13.08 - 9:37 pm | #

curious writes:
January 31, nothing really changed since Friday. If you're a short-term trader, you did make a mistake. Otherwise, sit tight. It's not even close to being over.
curious | 07.13.08 - 9:37 pm | #

Chase Sucks writes:
Last week we saw GSE spreads tighten which makes me think speculators went long expecting a definitave bond bailout while existing investors held nervously hoping for the same thing. After pondering "the plan" I don't see anything definative enough to give either side comfort. I think tomorrow's $3bil auction will be a "success" because of the Treasury's dialing for dollars campaign over the weekend but after that, we may see significant selling pressure. Just a guess.
Chase Sucks | 07.13.08 - 9:38 pm | #

Bartman writes:
"Aheadofthecurve writes:
Didn't the gov take a stake in Chrysler?"

Not really.

A loan guarantee. Paid it back early. Lee Iacocca worked for $1/year until then. Think these Wall Street Crooks would ever go for that ?
Bartman | 07.13.08 - 9:38 pm | #

Rob Dawg writes:
The Fabulous Furry Freak Brothers in "Fiat Fiasco." And if that smoke don't curl your toes you're too damn young to be watching this show.
Rob Dawg | Homepage | 07.13.08 - 9:39 pm | #

boob writes:
All the fed programs so far are the equivilant of the haeart and lung machine: alive until the electricity goes out.

"This may actually be cheaper than a bailout. Fanny and Freddy need to issue equity to raise cash. That's almost impossible to do at current prices. The government backstop may induce private buyers to jump in. It's entirely possible the government may not have to actually buy shares at all. If they do, in 5 years there's a decent chance they can sell them at a profit. Whereas a bailout would be almost guaranteed to cost the taxpayers."

This would assume that the business model is actually sound no. IF the leverage levels have to come down and the cost of funding eventually goes up kindnof the same position as Ibanks...The entire busness model is a charade..
boob | 07.13.08 - 9:40 pm | #

Canadian watching with popcorn writes:
Come on this is America, would have to have something catchy like:
Super Suckdown......
Super Smackdown.....
Canadian watching with popcorn | 07.13.08 - 9:40 pm | #

mp writes:
Friday there wasn't a problem, now there may be a problem, but we don't know how big of problem.

It's brilliant, it's confidence inspiring, it's a nothing burger.
mp | 07.13.08 - 9:40 pm | #

Tim writes:
Whoa US treasury buying shares. No no bailout here...

I have a feeling this will be the reverse of Bear Stearns which was exactly 4 months ago and also options ex. Monday Open higher, close lower, sell off Tuesday, Reflex up move Wednesday, down slightly Thursday, Then down Friday.
Tim | 07.13.08 - 9:40 pm | #

bond guy writes:
I just got back from fixing my garage door, and saw the news.

As some have pointed out above, the optimistic take on this is that there is no risk to the Treasury if they offer the GSE's a credit line which is not drawn. (Technically - expand the line which already exists, which is one piece of evidence always pointed to by analysts who wanted to talk up the "implicit guarantee.)

However, I'm not sure I'd want to be that optimistic. It seems too early for the regulators to intervene. As the Brits saw in Northern Rock takeover, it can be expensive or legally difficult for regulators to intervene while the equity holders still think their stake is worth something.
bond guy | 07.13.08 - 9:41 pm | #

mp writes:
I have one thing to say here and this statement proves it:

Paulson doesn't *know* how big the problem is, *neither* does Bernanke.

Now, *that* is scary.
mp | 07.13.08 - 9:43 pm | #

auction pro writes:
i never voted for bush nor would I want to be associated with such catastrophe!
auction pro | 07.13.08 - 9:43 pm | #

pastafarian writes:
A little revolution now and then is a good thing, don’t you think? (Who said and in what movie?)

Lawyerliz and theyieldcurve are correct: the original quote is from Jefferson (in a letter to James Madison):

I hold it, that a little rebellion, now and then, is a good thing, and as necessary in the political world as storms in the physical.
pastafarian | 07.13.08 - 9:43 pm | #

Tim writes:
"...equity holders still think their stake is worth something."

theyll wake up soon. Bag holders ie state pensions, Legg Mason, bond holders should dump as much as they can.
Tim | 07.13.08 - 9:43 pm | #

Ross writes:
If F&F rally tomorrow, nekkid short them suckers.
Ross | 07.13.08 - 9:44 pm | #

mp writes:
By "this statement," I mean Paulson's announcement.

You can be sure there are auditors at Fannie and Freddie tonight.
mp | 07.13.08 - 9:44 pm | #

bond guy writes:
Bartman writes:
"Aheadofthecurve writes:
Didn't the gov take a stake in Chrysler?"

Not really.
A loan guarantee. Paid it back early. Lee Iacocca worked for $1/year until then. Think these Wall Street Crooks would ever go for that ?"

I thought the government got some warrants in exchange for the guarantee, and they paid off when the loan when paid back. Too lazy to verify; it may be another bailout I am thinking of.
bond guy | 07.13.08 - 9:44 pm | #

12thPercentile writes:
mp

I believe Paulson knows what is happening as well as Conjure knows the taste of dog balls.

They know.

I'm on the fence about whether they care.
12thPercentile | 07.13.08 - 9:45 pm | #

Bartman writes:
"Meanwhile, any FRE or FNM bailout probably means help is less likely for LEH, WM or WB.
El Cliffo | 07.13.08 - 8:17 pm"

As Meatloaf said, 2 out of 3 (Put Option Positions) is not bad...BURN BABY BURN.
Bartman | 07.13.08 - 9:46 pm | #

mp writes:
Well, one thing is certain. This statement came from Waffle House and Mr. Market will quickly figure out that much.
mp | 07.13.08 - 9:47 pm | #

boob writes:
The play will be to sell the FHLB debt..did soemone say they are backing that debt as well? Belive that amounts to $1.3 trillion or so (long and short paper)...anyone have color on the FHLB side...

S
boob |