WSJ: Treasury to Issue Statement Supportive of Mortgage Giants
- Treasury officials this evening are expected to announce several measures aimed at shoring up confidence in Fannie Mae and Freddie Mac, according to people familiar with the situation.
- The Treasury announcement is likely to discuss the availability of a line of credit for the companies if needed and an indication that the government might buy equity capital in the companies in a pinch, these people said.
- The Fed is expected to make a separate statement regarding the near panic that has slashed the value of Fannie and Freddie shares by nearly half over the past week.
- All told, the announcements, crafted during a series of weekend discussions, represent a broad attempt by the federal government to do everything it can short of an actual intervention to prop up the two stockholder-owned, government-sponsored companies, whose operations are vital to the functioning of the U.S. housing market. (key words = prop up)
- Monday's markets will bring a big test of the two companies" financial health when Freddie Mac is due to sell $3 billion of short-term debt. An unsuccessful sale could be a major blow to investor confidence.
- Treasury officials and other regulators have been calling potential buyers of the debt over the weekend to gauge their interest and urge them to participate, according to people familiar with the matter. ("free market" baby)
- Alarmed about the sharply eroding confidence in the nation’s two largest mortgage finance companies, the Bush administration will ask Congress to approve a rescue package that would give the government the authority to buy billions of dollars in stock in Fannie Mae and Freddie Mac and also lend to the companies to meet their short-term funding needs, people briefed about the plan said on Sunday. (now that's a "free market" solution if I ever heard of one. Remember, we are all about free markets on the way down but they are not enough on the way down - that's intervention time!)
- As part of the plan, the administration will also call on Congress to raise the national debt limit, people briefed on the plan said. (more debt for your grandchildren!)
- The credit line provided by the Treasury to the companies has always been seen by the market place as evidence that the two companies would be rescued by the government if they ever encountered severe financial problems. Now, in the face of market turmoil in recent days, a quiet yet dramatic policy shift has occurred. Government officials no longer deny the existence of a guarantee. Instead, senior officials at both the Fed and the Treasury have been talking in recent days of possibly taking steps to “harden the guarantee.”
- A default by either one of the companies could be catastrophic for the financial system.
- The White House and the Federal Reserve moved Sunday to prevent Fannie Mae and Freddie Mac from failing. In a statement, Treasury Secretary Henry Paulson said the global reach of Fannie [FNM] and Freddie [FRE] necessitated unprecedented action. The Treasury has moved to increase its existing line of credit to Fannie and Freddie. In addition, Treasury have been given the power to buy the two companies stock. In a separate vote, the Fed board of governors voted to open its discount window lending facility to Fannie and Freddie. In return, Paulson asked Congress to rework a measure in the housing bill moving through Congress to give the Fed a formal role to work with the new GSE regulator that the legislation would create.
- Treasury gets authority to buy Fannie, Freddie stock
- Paulson says Fannie Freddie must be saved
- Fed to extend discount window to Fannie, Freddie
- Treasury to increase credit line to Fannie, Freddie
Bear Stearns levered 30:1
Freddie, Fannie levered 60:1
Your tax dollars and an unlimited printing press of US Dollars? Priceless.
[Jul 10: Whose Bottom Will this Be? Lehman Brothers (LEH) or Fannie (FNM) and Freddie (FRE)]
6 comments:
Mark - you were less than 30 minutes too early; first published at 6:27 pm -
U.S. plan to save Fannie and Freddie
Paulson and Bernanke proposal would give mortgage finance giants bigger line of credit with Treasury and open NY Federal Reserve lending window. [and Treasury can/may take an equity position in each]
Mark, others - very interesting two articles by Brett Steenbarger on "How many IndyMacs are out there" and "The Geographic Distibution of Troubled Banks".
The croix is how to play; sold half of SKF into the peaks Fri to reduce exposure; and bought some UYG calls as hedge; one of them will have to go up
cheers
hrs, 1000+ banks went down in S&L crisis.
S&L crisis will look like child's play compared to this.
I pointed this out to readers in spring but can't find the post quickly so I'll point this link out...
FDIC quietly hiring 50% extra staff (most retired) for wave of future bank failures.
240->360 people
http://tinyurl.com/ysllua
Gonna need more in my opinion.
Again, I am surprised gold is not rocketing on both inflation and the paper money creation that will be needed to keep this farce going as capital is destroyed left and right the next 24 months.
But, I guess we have tons of capital in the Middle East and Asia so its more location of capital rather than availability.
United States of Suprime should be putting on quite a show in next 24 months. IndyMac will just be the pregame IMO.
The stream of cash in this area never ends. Makes me want to puke. I hate not being able to short for the fear that the government uses our own tax payer money to shoot my own foot. At the same time, going long betting that they shoot me in the foot, seems just as stupid.
link to Barchart Banks - Southeast http://www2.barchart.com/sectors.asp?sec=banks~-~southeast.sec&level=2&title=Banks+%2d+Southeast
sorted by relative strength
FNM and FRE down ~40% intraday on Friday. Looking at the futures shows they both could be up ~40% today. I wonder who capitalized on that opportunity.
Post a Comment