Fannie and Freddie Bailout

Looks like it could happen this weekend.

Great… my hard earned tax dollars at work to bail out the irresponsible acts of Fannie and Freddie.  I wish I could start a company, not get taxed on profits, and have taxpayers bail it out when it suffers astronomical losses!  A brilliant business plan!

you mean:  I wish I was Bill Gross

My favorite part of the FRE/FNM saga is the tens of millions spent on lobbyists.  It is always wonderful to see a real synergy between the public and private sector.

redline - 05 September 2008 04:41 PM

Great… my hard earned tax dollars at work to bail out the irresponsible acts of Fannie and Freddie.  I wish I could start a company, not get taxed on profits, and have taxpayers bail it out when it suffers astronomical losses!  A brilliant business plan!

What tax dollars?  Seriously, where are these supposed tax dollars going to come from?  The US federal government is already spending more than it collects, so just what tax dollars are we refering to?

Here comes the Obama tax increases. Don’t worry guys He will only raise taxes on the so called rich which is anybody that is lucky enough to live in California.

hbguybill:
I think you should look at his tax plan more carefully. If you’re married and make 250K or more, then you’ll be taxed at a higher rate just based off of the income over 250K. Or if you so happen to sell a lot of stocks during this time. Percentage wise, you probably won’t pay anything extra, but you could pay some more.

FANNIE MAE(NYSE: FNM)
Closed 7.04
After Hours: 5.50 -1.54 (-21.87%) 7:59PM ET

FREDDIE MAC(NYSE: FRE)
Closed 5.10
After Hours: 4.04 -1.06 (-20.78%)7:59PM ET

Monday may not be a good day in the market.

Well don’t confuse losses in Freddie and Fannie for the market. Remember, a lot of banks are going to get bailed out here because they have the bonds and preferred in thei portfolio. The plan also bails out the preferred from what I read, which would be somewhat unexpected. If they explicitly back the debt/preferred, then they will have the same worth as treasuries. Of course, treasurie should take it on the chin. I’ll be interested to see what happens to CDS on US debt on Monday.

It also reads like the equity holders get diluted, but not wipped out either. What the heck kind of bailout is this?

Any tax increases because of this bailout are Bush tax increases. Now that he’s guaranteed their debt, future Presidents and Congresses will have to pay for it. It doesn’t matter who gets elected.

From the WaPo and NYT accounts it’s not yet been announced who is getting how much of the bailout. Presumably the big debtholders like China and the hedge funds will be fully bailed out. Common and preferred shareholders may or may not get bailed out. What really scares me is the possibility that the Bush administration has not even decided who’s getting bailed out yet (it is a very complex issue). We’ll find out more by Sunday - they’d better have all the details announced by the time Tokyo opens or it’s going to be total chaos in the markets.

Schlotkins - 05 September 2008 07:45 PM

Well don’t confuse losses in Freddie and Fannie for the market. Remember, a lot of banks are going to get bailed out here because they have the bonds and preferred in thei portfolio. The plan also bails out the preferred from what I read, which would be somewhat unexpected. If they explicitly back the debt/preferred, then they will have the same worth as treasuries. Of course, treasurie should take it on the chin. I’ll be interested to see what happens to CDS on US debt on Monday.

It also reads like the equity holders get diluted, but not wipped out either. What the heck kind of bailout is this?

As of friday night, we have conflicting information on the plan, so we can’t be sure. Some newspapers are saying the preferred are bust, others the opposite. All agree that a large amount of dilution awaits the Freddie and Fannie stock.

FairEconomist - 05 September 2008 08:10 PM

or it’s going to be total chaos in the markets.

It already was.

It sounds like some folks think that raising taxes can pay for this?

Sure… It’s just like how raising taxes will be able to pay for all of the entitlement programs…

From Barry’s blog, and I share the same thought…

As to the crappy derivatives that Phony and Fraudy bought when they thought of themselves as giant hedge funds—the first person in government that suggests taxpayer money be used to cover those losses, I will personally feed into a wood chipper . . . Feet first . . . Slowly.

NY Times reports that the Fannie and Freddie takeover are at hand.

There goes the neighborhood.

Apparently it is still uncertain as to whether the preferreds will be spared or
not.

ConsiderAgain - 05 September 2008 07:32 PM

Monday may not be a good day in the market.

Consider again.

asianinvasian - 06 September 2008 05:25 PM

ConsiderAgain - 05 September 2008 07:32 PM

Monday may not be a good day in the market.

Consider again.

Ya well, let’s see how good the market feels about this part:

Loan Giant Overstated the Size of Its Capital Base

I’m actually surprised accounting rules are so lax that they were allowed to use them in this manner. I mean, come on:

“For years, both companies have effectively recognized losses whenever payments on a loan are 90 days past due. But, in recent months, the companies said they would wait until payments were two years late. As a result, tens of thousands of loans have not been marked down in value.“

Obama, McCain Back Action to Rescue Freddie, Fannie (Update1)
http://www.bloomberg.com/apps/news?pid=20601087&sid=ayx1bu.ANjrs&refer=home

Bleeh.  Maybe we should just vote a dog in for president, country seems gone to the dogs anyway ... http://today.msnbc.msn.com/id/25917712?GT1=43001

Neither Bush, Obama, nor McCain have any choice but to support this. The foreign central banks that are funding the government’s massive deficit are also the ones who would be clobbered by a F&F debt haircut. Although the FCBs deserve to take a hike, no president can tell them to because a funding strike is disaster for the US. Such is the position that Bush’s deficits have put us into.

FairEconomist - 06 September 2008 08:20 PM

Neither Bush, Obama, nor McCain have any choice but to support this. The foreign central banks that are funding the government’s massive deficit are also the ones who would be clobbered by a F&F debt haircut. Although the FCBs deserve to take a hike, no president can tell them to because a funding strike is disaster for the US. Such is the position that Bush’s deficits have put us into.

I don’t think neither of these three has the knowledge required to be able to tell what’s going on, so they’re going to defer to the financial specialists running the show, aka. Paulson & Bernanke. These two have way more power over the USA’s future than the President right now.

Besides there’d be little incentive for either McCain or Obama to make waves about this. The issues are complicated, the public may not understand, so it’s better to go with the flow to not jeopardize any of the votes acquired.

Post-election though I wouldn’t be surprised if this resurfaces and there’s a lot of finger pointing about how much this is all going to cost.

I for one say that it’s about time they dogs get nationalized and receive an explicit financial backing by the US government.  They should wipe-out the common stock holders and discount the preferred stock holders.  Yeah, the move will result in more money being printed by the FEDS, but just image the carnage in the real estate market if these two dogs were left to die (you think it’s tough to get a mortgage now, it’d 100x more difficult to get a mortgage if these guys went belly up).  The net positive will be lower mortgage rates since the risk premium will decrease since the US government is backing things up.

usctrojanman29 - 06 September 2008 09:15 PM

The net positive will be lower mortgage rates since ...

The following is a poster on Calculated Risk:

/

sue writes:
Isn’t this ironic, paying higher taxes and more gov’t debt to keep housing prices affordable for all Americans. We must be idiots in this country.

With all our sophistication, the conclusion to this experiment is simple - how about going back to a fair risk premium on lending based on real income and real dollars. Promoting Home ownership in any type of subsidized way is retarded and irresponsible, because now all Americans and unborn Americans are going to pay for the subsidized risk premium for the rest of our lives.

The path to hell paved with good intentions once again.
sue | 09.06.08 - 8:17 pm | #

awgee - 07 September 2008 01:49 AM

usctrojanman29 - 06 September 2008 09:15 PM

The net positive will be lower mortgage rates since ...

The following is a poster on Calculated Risk:

/

sue writes:
Isn’t this ironic, paying higher taxes and more gov’t debt to keep housing prices affordable for all Americans. We must be idiots in this country.

With all our sophistication, the conclusion to this experiment is simple - how about going back to a fair risk premium on lending based on real income and real dollars. Promoting Home ownership in any type of subsidized way is retarded and irresponsible, because now all Americans and unborn Americans are going to pay for the subsidized risk premium for the rest of our lives.

The path to hell paved with good intentions once again.
sue | 09.06.08 - 8:17 pm | #

The choice to take over these two dogs is far better then letting them go out of business.  Sure there will be some burden that Joe Taxpayer will have to bare in the short term, but once the dust settles the companies may begin to generate revenues for the federal gov’t once the housing market stabilizes for good (how long that will be…who knows).

Did you all read the statement and the other attachements?

Don’t worry, the GSEs will pay the guberment a fee when this done to pay the guberment back.

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. Together, these factors should give momentum and urgency to the reform cause. Policymakers must view this next period as a “time out” where we have stabilized the GSEs while we decide their future role and structure.

I just like the “time out” part. Now Phony and Fraudy, you are not behaving like good little GSEs, do you want a time out? Oh… look what you have done now, look at all those delinquent loans. That’s it you get in the corner and face the wall, you can’t come out to play GSE again until uncle Jim and uncle Hank fix this mess. What did your uncle Jim and Hank do to you to deserve this mess. Bad, bad GSE, shame on you for lying to us.