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WinK 09-05-2008 08:53 PM

Gov't may soon back Fannie, Freddie
 
[b]What to do MOnday guys? Short financials??...sh*t will hit the fan? [/b]
Gov't may soon back Fannie, Freddie
Friday September 5, 10:58 pm ET
By Alan Zibel, AP Business Writer
Gov't may soon take over troubled mortgage finance giants Fannie Mae, Freddie Mac

WASHINGTON (AP) -- The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation's mortgage debt, a person briefed on the matter said Friday night.
Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the troubled companies into a conservatorship.

The news, first reported on The Wall Street Journal's Web site, came after stock markets closed. In after-hours trading Fannie Mae's shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac's shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government's actions.

The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.

That confirmed what investors saw in Fannie and Freddie's recent financial results: trouble in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with little or no proof of their income and assets.

Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.

While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.

Many in Washington and on Wall Street hadn't expected Treasury Secretary Henry Paulson to intervene unless the companies had trouble issuing debt to fund their operations.

This summer, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the two companies if needed.

Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.

Supporters, however, argue the Bush administration had little choice but to support Fannie and Freddie, which together hold or guarantee $5 trillion in mortgages -- almost half the nation's total.

Representatives of Fannie and Freddie declined to comment on the government assistance plan.

Treasury spokeswoman Brookly McLaughlin said officials "have been in regular communications" with Fannie and Freddie, but refused to comment saying, "We are not going to comment on rumors."

Concern has been growing that a government rescue of Fannie and Freddie could not only wipe out common stockholders, but also be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares.

Paulson has been in contact in recent weeks with foreign governments that hold billions of dollars of Fannie and Freddie debt to reassure them that the United States recognizes the importance of the two companies.

The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.

Mudd, the son of TV anchor Roger Mudd, was elevated to Fannie Mae's top post in December 2004 when chief executive Franklin Raines and chief financial officer Timothy Howard were swept out of office in an accounting scandal. Syron was named Freddie Mac's CEO in 2003, replacing former chief Gregory Parseghian, who was ousted in after being implicated in accounting irregularities.

He formerly was executive chairman of Thermo Electron Corp., a Waltham, Mass.-based maker of scientific equipment, served head of the American Stock Exchange was president of the Federal Reserve Bank of Boston in the early 1990s.

Fannie Mae was created by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.

A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office.

But the epic decision highlights the size of the threats facing the housing market and the economy. On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns by JP Morgan Chase.

AP Business Writers Martin Crutsinger and Jeannine Aversa contributed to this report.

Nikkei 09-06-2008 07:24 AM

Government to wipe out Fannie/Freddie shareholders by Sunday
I don't own this etf but I still don't understand why skf is down after hours more than $6? Can someone shed some light here?

AtlanticBLUE 09-06-2008 08:01 PM

Wink & Bearrally,

Pls. keep me update with Fre and Fnm :) Thanks


Ablue

bearrally 09-07-2008 12:23 AM

25 billion? are you mad? 7.6 trillion in bond and preferred shares that lost 30% in bond and 50% in prefferred shares in value. Paulson pledged to make all international investors whole again.

just like the 8 billion to bail out indymac.... hahaha, Bair just confirm 26 billion less than 1 month later....

WinK 09-07-2008 01:04 AM

[b]What will happen to Bill Gross and PIMCO?[/b]
If anyone can give opinions on directions market will react on Monday??
So, with this, all common and preferred shares prob. gone??
What will happen to the notes they just sold last week?...Freaking crooks in FNM & FRE cooks the book on assets, etc.
Paulson to Take Over and Restructure Fannie, Freddie (Update5)

By Dawn Kopecki and Alison Vekshin

Sept. 6 (Bloomberg) -- Treasury Secretary Henry Paulson will use his authority to rescue Fannie Mae and Freddie Mac, likely placing the beleaguered mortgage-finance companies under government control as early as this weekend.

The Treasury plans to put Fannie and Freddie into a so- called conservatorship and pump capital into the companies, House Financial Services Committee Chairman Barney Frank said in an interview after being briefed by Paulson. The government would make periodic injections of funds by buying convertible preferred shares or warrants in the companies as needed, avoiding large up- front taxpayer costs, according to a person briefed on the plan.

``This is no bailout, particularly for the shareholders,'' Frank said. The federal government ``will be senior to all shareholders, preferred and common.''

Paulson gathered with Federal Reserve Chairman Ben S. Bernanke, Federal Housing Finance Agency Director James Lockhart, Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron this weekend on a plan to take control of the government-sponsored enterprises, which have operated as private shareholder-owned corporations for almost 40 years. Paulson is seeking to halt the crisis of confidence in Fannie and Freddie following $14.9 billion in losses in the past year that boosted their borrowing costs and hampered the mortgage market.

Paulson was prompted to step in after Morgan Stanley, which had been hired to analyze the companies' financials, concluded that Freddie, and to a lesser extent Fannie, relied on accounting maneuvers to meet their capital requirements, according to people with knowledge of the findings. The accounting overstated the value of their actual reserves, the people said.

Mark Lake, a spokesman at Morgan Stanley in New York, declined to comment.

Morgan Stanley

A government takeover would be the latest attempt to blunt the impact of the yearlong credit crisis, after the Fed provided financing for Bear Stearns Cos.'s sale to JPMorgan Chase & Co.

Holders of the common and preferred stock are ``very unlikely to come out of this at all happy,'' and the chief executive officers will be forced out, Frank said. Investors in the senior and subordinated debt will be protected, according to three people briefed on the discussions.

Paulson met with Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron yesterday to tell them of the decision to put the companies into conservatorship, and remove the executives from their jobs, according to two people briefed on the plan.

Paulson consulted with Bank of America Chief Executive Officer Kenneth Lewis, according to people with knowledge of the talks. A public announcement is expected this weekend, one person said. Frank said he plans to hold a hearing next week.

Treasury Briefings

Treasury was ``convinced that the markets simply wouldn't respond until after something like this,'' Frank said in the interview. ``What they're talking about doing are two things, one is conservatorship and two, putting some money into them. I think it's an important combination.''

The Treasury briefed Democratic presidential candidate Barack Obama today and has contacted Republican contender John McCain's staff about its intentions. Officials have also discussed the plans with House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid and Senate Banking Committee Chairman Christopher Dodd.

Obama and McCain gave their support for federal action to rescue Fannie and Freddie while saying steps must be taken to ensure the companies don't keep passing losses off to taxpayers.

``These entities are so big and they are so tied into the housing market that it's probably true that we have to take steps to make sure that they don't just collapse,'' Obama said today while campaigning in Terre Haute, Indiana.

Preferred Stock

Dodd said the restructuring shouldn't put ``other financial institutions at risk.''

U.S. bank and insurance companies are the biggest holders of the companies' preferred shares. The market value of Fannie's $21.73 billion in preferred stock had dropped 64 percent to $7.87 billion late last month, according to Friedman Billings & Ramsey Co. The market value of Freddie's $14.1 billion in preferred shares had fallen 61 percent to $5.44 billion.

Fannie was created by the government in 1938 and Freddie was chartered in 1970 mainly to boost the availability of home loans and provide market stability. The companies currently own or guarantee almost half of the $12 trillion in U.S. home loans.

Opening Their Wallets

The decision to rescue Fannie and Freddie follows Paulson's repeated comments to lawmakers in July that he wasn't likely to use taxpayer funds to prop up the companies. The shares of both companies have slid since Paulson won powers to inject unlimited funds in the companies, and their borrowing costs rose.

Pacific Investment Management Co., manager of the world's biggest bond fund, and other large investors may put in their own money once the Treasury decides to inject government funds, Bill Gross, co-chief investment officer at Newport Beach, California- based Pimco, said yesterday in a Bloomberg Television interview.

``They have to open their wallet,'' Gross said. About 61 percent of Gross's holdings were mortgage-backed securities as of June 30, mostly debt guaranteed by Fannie, Freddie or government agency Ginnie Mae, according to data on Pimco's Web site.

Making Progress

Washington-based Fannie and Freddie dropped in after-hours trading yesterday. Fannie fell $2.25, or 32 percent, to $4.79 at 5:50 p.m. in New York Stock Exchange trading and Freddie slumped $1.40, or 27 percent, to $3.70. Fannie is down about 66 percent since the end of June as concerns about the companies' capital grew. Freddie has fallen about 69 percent.

Fannie's market capitalization is now $7.6 billion, down from $38.9 billion at the end of last year. Freddie's has fallen to $3.3 billion, from $22 billion over the same period.

``We are making progress on our work with Morgan Stanley, FHFA and the Fed,'' Treasury spokeswoman Brookly Mclaughlin said yesterday in Washington, declining to comment on any specific plans. FHFA spokeswoman Stefanie Mullin declined to comment, as did Mark Lake at Morgan Stanley.

Bernanke participated in yesterday's meetings because the central bank was given a consultative role in overseeing Fannie's and Freddie's capital under legislation approved in July. Paulson's decision won the approval of Bernanke and Lockhart, the person briefed on the discussions said.

Shareholders' Fates

The FHFA has the authority to place Fannie or Freddie into conservatorships or receiverships under the law. The legislation that President George W. Bush signed July 30 also gave the Treasury the power through the end of next year to extend unlimited credit to or make equity purchases in the firms.

Under a conservatorship, the authorities would aim to preserve Fannie and Freddie assets, rather than dispose of them, the law says.

The FHFA was scheduled to release its assessment of the companies' capital levels as early as this week as part of a quarterly appraisal of their finances.

[b]Analysts have speculated that the Treasury would wipe out common shareholders, while seeking to shield preferred stockowners from total loss[/b]. Fannie and Freddie preferred shares are typically owned by banks and insurance companies. [b]Their $5.2 trillion of debt outstanding is held by investors including Asian central banks, and would probably be guaranteed, analysts said.[/b]

Expanding Ownership

Standard & Poor's and Moody's Investors Service cut the preferred stock ratings of both companies to the lowest investment-grade quality on concern a bailout may not extend to the securities. S&P reduced the rating to the lowest investment grade, citing ``uncertainty'' about whether any government bailout would extend to the securities. The senior debt, implicitly backed by the government, carries the top ratings.

``Treasury's main concern is the debt markets, and if it was to say that it will do whatever is necessary to keep Fannie and Freddie running, the better it is for their funding,'' said Alex Pollock, fellow at the American Enterprise Institute in Washington and former president of the Chicago Federal Home Loan Bank.

Fannie was created in 1938 as part of President Franklin D. Roosevelt's New Deal. With the Vietnam War pressuring the federal budget, Fannie was split from the government in 1968, and shares in the company were sold to the public. Freddie was created in 1970 to provide competition for Fannie. The companies make money by buying mortgages from banks, funding their purchases with low- cost debt, and by guaranteeing home-loan securities.

Record Spreads

The government has been leaning on the companies to help pull the economy out of a housing slump as other buyers retreat from the market, burned by more than $500 billion of losses since the collapse of the subprime-mortgage market last year.

Fannie and Freddie need to sell billions of dollars of bonds each month to pay maturing debt. As of mid-August the companies had $223 billion of debt to refinance by the end of the quarter.

While they have continued to issue securities, Fannie and Freddie have paid record yields over U.S. Treasuries to attract investors reluctant to take on the debt even with its implicit backing from the government.

[b]Freddie sold $3 billion of two-year reference notes this week at 3.229 percent, or 97.5 basis points more than Treasuries of similar maturity, the highest since at least 1998, based on company and market data compiled by Bloomberg.[/b]

Fannie had $47 billion of capital as of June 30, according to company filings. The company is required by its regulator to hold $37.5 billion. Freddie's capital stood at $37.1 billion, compared with a requirement of $34.5 billion, filings show.

Mudd was accompanied in his meetings at FHFA yesterday by Fannie General Counsel Beth Wilkinson and Chairman Stephen Ashley. Last week, he shook up the company's management in an effort to restore investor confidence, replacing three top deputies.

To contact the reporter on this story: Dawn Kopecki in Washington at [email]dkopecki@bloomberg.net[/email]; Alison Vekshin in Washington at [email]avekshin@bloomberg.net[/email];
Last Updated: September 6, 2008 20:33 EDT

bearrally 09-07-2008 02:39 PM

1. PIMCO will not get sue by world central banks from selling junks, get free money from taxpayers to cover their overleverage scams.

2. Federal, states, local government and private pensions will be raid because they hold mostly common shares of these two scams.

This turn out to be a greatest robery of the retirees ever in world history, and there are idiot Americans applausing for more....

Those babyboomers can kiss goodbye to their pension if they are thinking about retiring in the next few years.

Again, welcome to the USSA....

WinK 09-07-2008 07:02 PM

I'll say f* common share holders, the average American fools who bought the BS the administration sold. Long live the corporations and the Chinese. Love the bail out from the fiscal conservative, good economy rolling of Dubbya.

WinK 09-07-2008 10:36 PM

[b]Asian Stocks, U.S. Futures Rally on Fannie, Freddie Takeover [/b]
By Patrick Rial and Shani Raja

[b]Sept. 8 (Bloomberg) -- Asian stocks surged the most in eight months and U.S. futures jumped after the U.S. government seized control of Fannie Mae and Freddie Mac, shoring up global financial markets reeling from more than $500 billion in credit losses.[/b]

Mizuho Financial Group Inc. and Macquarie Group Ltd. rose more than 10 percent, driving a measure of financial shares to the biggest gain in ten years, after the takeover of the two- biggest U.S. mortgage guarantors cut credit risk. Origin Energy Ltd. jumped to a record after ConocoPhillips said it will join Origin's natural gas venture. Toyota Motor Corp. added 4.6 percent after the yen weakened following the biggest measure yet taken by officials to limit the credit crisis's fallout.

``It draws a line under the recent problems,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``It's very positive for the banking sector in particular, which has been beaten down quite badly.''

The MSCI Asia Pacific Index climbed 4.2 percent, the most since January, to 121.76 as of 12:11 p.m. in Tokyo, with financial companies accounting for almost half of that gain. The measure on Friday closed at its lowest level since June 13, 2006.

Japan's Nikkei 225 Stock Average rose 3.5 percent to 12,650.27 led by Toyota and robot-maker Fanuc Ltd.

Taiwan's Taiex Index jumped 5.3 percent, the biggest gain in Asia and the gauge's steepest rally since May 2004, on speculation the government may take action to boost stock prices and consumer spending. Li & Fung Ltd. led Hong Kong equities higher after selling a stake to Singapore's Temasek Holdings Pte.

Futures Rally

More than $17 trillion in global equity value has been wiped out since October as the credit crisis and U.S. housing recession dragged economies worldwide. Investors had worried failures by Fannie and Freddie, which hold more than $1.5 trillion in assets and almost the same amount of debt, would spark further losses at financial institutions around the world.

S&P 500 futures expiring in September climbed 2.8 percent to 1,275.20, the steepest advance since April 1.

Macquarie, Australia's biggest investment bank which has lost half its value since its 2007-peak, rose 11 percent to A$46.71. Woori Finance Holdings Co., which control's South Korea's second-largest bank, advanced 15 percent to 15,050 won, the steepest advance on record.

``The market likes less uncertainty and this takes care of that,'' said E. William Stone, who oversees $66 billion as chief investment strategist at PNC Wealth Management in Philadelphia. ``If this helps re-stabilize the housing situation it's got to be looked at as a positive.''

Lower Risk

The cost to protect Asia-Pacific corporate bonds from default fell by the most in about five months, credit-default swaps show. MSCI's Asia Pacific financial stock index jumped 6.7 percent, poised for its biggest gain since October 1998.

Nomura Holdings Inc., Japan's biggest investment bank, advanced 9.1 percent to 1,492 yen after the Yomiuri newspaper said on Sept. 6 the company may bid for a stake in Lehman Brothers Holdings Inc. Orix Corp., Japan's biggest leasing company, rallied 13 percent for the biggest gain in three years to 13,500, paring its loss for the year to 29 percent.

Fannie and Freddie, which make up almost half the U.S. home- loan market, were seized after the biggest surge in mortgage defaults in at least three decades, Treasury Secretary Henry Paulson said in Washington. Both fell more than 80 percent since the start of the year.

``Had the U.S. mortgage-financing companies failed, it would have triggered a substantial financial crisis across the globe,'' said Naoki Fujiwara, who oversees about $720 million as chief fund manager at Tokyo-based Shinkin Asset Management Co. The takeovers ``have eliminated concerns among investors and boosted confidence the financial market will stabilize.''

Exporters Climb

Toyota climbed 4.6 percent to 4,970 yen. The world's No. 2 automaker also rose after the yen weakened against the dollar and the euro. Samsung Electronics Co., the biggest computer-memory maker, added 3.7 percent to 539,000 won.

Origin, Australia's biggest producer of gas from coal seams, gained 12 percent to A$17.53 after ConocoPhillips, the second- biggest U.S. oil refiner, agreed to pay as much as $8 billion to join a natural gas venture in Queensland.

Li & Fung, which sells clothes, toys and home furniture to Wal-Mart Stores Inc., surged 12 percent to HK$25.15 after Temasek, Singapore's government-owned investment company, agreed to pay HK$3.88 billion ($497 million) for new shares in the company.

To contact the reporter for this story: Patrick Rial in Tokyo at [email]prial@bloomberg.net[/email]; Shani Raja in Sydney at [email]sraja4@bloomberg.net[/email]

WinK 09-07-2008 10:40 PM

U.S. Takeover of Fannie, Freddie Offers `Stopgap' for Mortgages

By Rebecca Christie and John Brinsley
More Photos/Details

Sept. 8 (Bloomberg) -- The U.S. Treasury's takeover of Fannie Mae and Freddie Mac is aimed at keeping the companies going into 2009, while leaving the next president and Congress to decide their long-term structure.

Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart yesterday placed the two firms in a government-operated conservatorship, ousting their chief executives and eliminating their dividends. The Treasury may purchase up to $200 billion of stock in the firms to keep them solvent.

``Some of this is a stopgap to try to prevent the mortgage market from falling apart,'' former Federal Reserve Bank of St. Louis President William Poole said on Bloomberg Radio. The federally chartered, shareholder-owned structure, with risks covered by taxpayers, is ``an unacceptable situation,'' he said, projecting the Treasury may need to cover as much as $300 billion of losses.

Yesterday's action leaves open the option favored by former Federal Reserve Chairman Alan Greenspan, to split up and sell off the companies, or a full nationalization that would cement the government's role in mortgage markets. Avoiding a decision on the issue enhances the likelihood of congressional backing for the emergency steps, Democratic Senator Charles Schumer said.

``The new Congress and the next administration must decide what role government in general, and these entities in particular, should play in the housing market,'' Paulson said yesterday in Washington. There is a consensus now that ``they cannot continue in their current form,'' he added.

Ejecting CEOs

The FHFA, which will run the conservatorship, ejected Fannie CEO Daniel Mudd, 50, and Freddie CEO Richard Syron, 64. They were replaced by Herbert Allison, 65, former CEO of TIAA- Cref, and David Moffett, 56, who was a US Bancorp vice chairman.

The Treasury also said yesterday it will provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and purchase mortgage-backed debt in the open market.

``This is not a permanent solution -- they've not saved Fannie and Freddie, what they've done is they've bought 15 months,'' said Bill Ackman, founder of Pershing Square Capital Management in New York, which has sold short the two companies, or bet on declines in their securities. ``It's a band aid. They haven't permanently recapitalized the companies.''

1930s Creation

The takeovers bring Fannie, formed after the Great Depression and spun off in 1968, and Freddie, created in 1970, back under the government's fold. It's the biggest step yet in officials' efforts to grapple with a yearlong credit crisis that has caused more than $500 billion of losses and writedowns.

``This action should lead to an increased availability of mortgage financing, which will help achieve stability in housing,'' Bank of America Corp. Chief Executive Officer Kenneth Lewis, said in e-mailed remarks. Paulson consulted with Lewis last week, according to two people briefed on the discussions. Bank of America spokesman Scott Silvestri declined to comment on the talks.

Under the plan, the Treasury will receive $1 billion of senior preferred stock in coming days, with warrants representing ownership stakes of 79.9 percent of Fannie and Freddie. The government will receive annual interest of 10 percent on its stake.

As a condition for the assistance, Fannie and Freddie eventually will have to reduce their holdings of mortgages and securities backed by home loans.

Last in Line

While common stockholders of Fannie and Freddie won't be eliminated, they will be last in line for any claims, Paulson said. Preferred shareholders will be second in absorbing losses, he said. Interest and principal payments will continue to be made on the companies' subordinated debt, Lockhart said.

The government is taking an increasing role in financial markets, after the Fed six months ago provided $29 billion of financing to prevent Bear Stearns & Cos.'s collapse. Chairman Ben S. Bernanke praised yesterday's action in a statement.

Democratic presidential nominee Barack Obama said yesterday that ``some'' intervention was necessary to prevent a ``larger and deeper crisis.'' After the current crisis subsides, ``the plan must move toward clarifying the true public and private status of our housing policies,'' he said.

``We've got to keep people in their homes,'' Republican presidential candidate John McCain said in an interview with CBS's ``Face the Nation'' program. ``There's got to be restructuring, there's got to be reorganization, and there's got to be some confidence that we've stopped this downward spiral.''

Two-Month Saga

The government takeover comes almost two months after Paulson first sought emergency powers to inject capital into the beleaguered mortgage-finance companies. Congress approved the measure in legislation signed by President George W. Bush on July 30.

Paulson had indicated until early last month that it was unlikely he'd use the authority, and then kept silent even as investors clamored for clarity on how a government intervention would work.

Included in yesterday's measures is a Treasury program to purchase new mortgage-backed securities from the two companies, starting with a $5 billion purchase this month.

The Treasury will also hire independent asset managers to purchase and run the portfolio of mortgage-backed securities it will buy. ``There is no reason to expect taxpayer losses from this program, and it could produce gains,'' the department said.

`Threaded the Needle'

``Paulson has threaded the needle just right by taking necessary action to stabilize U.S. financial markets while minimizing the liability for taxpayers,'' Schumer of New York, who heads the congressional Joint Economic Committee, said in a statement. ``This plan will be met with broad acceptance in Congress because it doesn't prejudge the ultimate fate of Fannie Mae and Freddie Mac.''

[b]Paulson's decision, taken after consulting with Bernanke, followed a review that found Washington-based Fannie and McLean, Virginia-based Freddie used accounting methods that inflated their capital, according to people with knowledge of the decision.[/b]

Paulson, 62, hired Morgan Stanley a month ago to probe the companies' finances. The investment bank concluded that the accounting, while legal, enabled Freddie, and to a lesser extent Fannie, to overstate the value of their reserves, according to the people who declined to be identified because the findings were confidential.

Fannie and Freddie own or guarantee almost half of the $12 trillion in U.S. home loans and the government had been leaning on the companies to help pull the economy out of the housing crisis.

Concern over the companies' capital pushed their borrowing costs to record levels over U.S. Treasuries, sent their common and preferred stocks tumbling and boosted mortgage rates. Fannie is down about 66 percent in New York Stock Exchange trading since the end of June. Freddie has fallen about 69 percent.

To contact the reporter on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net; Dawn Kopecki in Washington at dkopecki@bloomberg.net
Last Updated: September 8, 2008 00:01 EDT

BF online 09-17-2008 02:47 AM

They just bailed out another bank AIG, soon or later they will have to bail GM & Ford. Where does the gov't getting the money ? From tax payers. Very true on this, but americans are loosing jobs significantly....lesser tax budgets for them. And big spending overseas like irag & afganistan , and paying fees on military bases all over the world. So where do they get more money? They just have to keep printing papers.
I have no doubts their currency will loose its value. Just have to wait and see when china decide to dumb us dollars and accepting euros. Oh lord & god help american people. It reminds me that lady palin said, the iraq war is god's will .......
will see if the depression crisis is also god's will :rolleyes:

DayTrad 02-25-2010 10:01 AM

'Death of American Capitalism:' The 10 final scenes

Commentary: Munger warns 2012 is our tipping point on 'road to ruin'

By Paul B. Farrell

February 23, 2010 -- ARROYO GRANDE, Calif. (MarketWatch) -- Good news, Americans are "downbeat about today. Upbeat about tomorrow," says the latest USA Today/Gallup Poll. "Americans feel battered by hard times, record home foreclosures, stubbornly high unemployment rates and war."

And yes, we are "fed up with Washington and convinced more than 3 to 1 that the nation is heading in the wrong direction," yet there's "confidence that there will be better times ahead, that the classic American dream endures and hasn't been extinguished. It's not even at its low ebb." Why? Because we're in denial!

And yes, we are "fed up with Washington and convinced more than 3 to 1 that the nation is heading in the wrong direction," yet there's "confidence that there will be better times ahead, that the classic American dream endures and hasn't been extinguished. It's not even at its low ebb." Why? Because we're in denial!

Do Main Street's 95 million investors know something Warren Buffett's long-time partner, Charlie Munger, doesn't know? Munger is warning us "It's Over" for America. Yes, "o-v-e-r," America's in decline, at the end-of-days, coming to "financial ruin," says Munger.
Optimism has always been the enduring spirit that made us a great nation, brought us back from overwhelming challenges and impossible odds -- WW II, the Civil War, the 1776 Revolution. Yes, that spirit still burns in our soul, says the poll.

But we also know, as we said earlier in "The Death of the Soul of Capitalism," that over the long-term, through many centuries, historians give nations an average of about 200 years before they burn out. Why? Because the "blind optimism" that makes a nation great in the early years of its rise to power and glory becomes, paradoxically, its worst enemy in the end-days.

Their arrogance traps them in a self-sabotaging cycle that weakens their resolve, makes them vulnerable to new, unpredictable challenges, ultimately destroying them from within. That happens over and over throughout history, even as their optimistic brains tell them they're still the greatest.

So for a moment, please set aside your "optimism," listen to our translation of Munger's drama as a 10-scene crime-thriller about America on the "road to ruin."

Plot notes: Warning, America is on a 'road to financial ruin'

Turns out that like Buffett, whose tales we detailed earlier, Munger's a good storyteller. His parable, "Basically It's Over: A parable about how one nation came to financial ruin," appeared in Slate magazine. Clearly he's warning about the end of capitalism, the end of democracy, the coming end of America.

In his parable Munger calls America "Basicland ... rich in all nature's bounty." In our recasting it as a drama, we'll use "America" rather than "Basicland" in the narrative to drive home the full impact of Munger's powerful message.

Scene 1: Power and wealth create false sense of invincibility

Significantly, Munger says 2012 is the turning point, a signal, the moment setting up the final crisis scene. We've often made a similar timing prediction, one tied to the 2012 election, and a reminder of the warning made by Jared Diamond in "Collapse: How Societies Choose to Fail or Succeed." In the late stages of a nation's cycle: A crisis hits. Everyone, leaders and citizens, act surprised. But it's too late: "Civilizations share a sharp curve of decline. Indeed, a society's demise may begin only a decade or two after it reaches its peak population, wealth and power." Just 20 short years to ruin?

Munger warns: "Even a country as cautious, sound, and generous as America could come to ruin if it failed to address the dangers that can be caused by the ordinary accidents of life. These dangers were significant by 2012, when the extreme prosperity of America had created a peculiar outcome: As their affluence and leisure time grew, America's citizens more and more whiled away their time in the excitement of casino gambling." Yes, Main Street "feels battered" while Wall Street gambling casinos generate billions.

Scene 2: Greed consumes America: Gambling replaces real work

In Munger's brilliant parable "the winnings of the casinos eventually amounted to 25% of America's GDP, while 22% of all employee earnings in America were paid to persons employed by the casinos" and "many of the gamblers were highly talented engineers attracted partly by casino poker but mostly by bets available in the bucket shop systems, with the bets now called financial derivatives." Yes, the same derivative bets Buffett targeted when he warned against "financial weapons of mass destruction."

Scene 3: Wall Street's casinos prosper as Main Street suffers

Munger's also not talking about just the million or so gamblers working in Wall Street's "too political to fail" casino-banks. No, "gamblers" are also among Main Street America's 95 million average investors, though most of the high rollers are the slick pros on casino payrolls where "most casino revenue now came from bets on security prices under a system used in the 1920s." Think of Goldman's trading operation that often makes $100 million profits daily, while America has close to 20% underemployed.

Scene 4: America's side-bet debt to foreign casinos skyrockets

Now comes the crucial turning point in Munger's crime-thriller: "Many people, particularly foreigners with savings to invest, regarded this situation as disgraceful. After all, they reasoned, it was just common sense for lenders to avoid gambling addicts ... They feared big trouble if the gambling-addicted citizens of America were suddenly faced with hardship." They were right.

Scene 5: Nations in denial rarely prepare for disasters in advance

"Then came the twin shocks," a plot twist borrowed from "Avatar," "Wall-E" and Al Gore, the kind of shocks that most "optimists" (especially those hell-bent on voting Obama and the liberals out of office by 2012) always deny. So, "hydrocarbon prices rose to new highs." Munger must mean a twist like oil hitting a scene-stealing $1,000 a barrel.

Scene 6: In the later stages, get-rich-quick beats real work

America seeks the advice of the "Good Father," a tall ex-Fed chairman who suggests "America change its laws. It should strongly discourage casino gambling, partly through a complete ban on the trading in financial derivatives, and it should encourage former casino employees -- and former casino patrons -- to produce and sell items that foreigners were willing to buy." Never happen: Not as long as Wall Street's gamblers can make more in a year trading derivatives than most Americans make in a lifetime. Why "work?"

Scene 7: Wall Street CEOs, economists, lobbyists love gambling

Sounds great, many approved, "but others, including many of America's prominent economists, had strong objections. These economists had intense faith that any outcome at all in a free market -- even wild growth in casino gambling -- is constructive. Indeed, these economists were so committed to their basic faith that they looked forward to the day when America would expand real securities trading, as a percentage of securities outstanding, by a factor of 100, so that it could match the speculation level present in the United States just before onslaught of the Great Recession that began in 2008."

Scene 8: Wall Street gamblers love Reaganomics, hate change

Though Munger and his partner got rich in this bizarre parable, his plot turns dark as America's "investment and commercial bankers were hostile to change. Like the objecting economists, the bankers wanted change exactly opposite to change wanted by the Good Father." Wall Street "came to believe that the Good Father lacked any understanding of important and eternal causes of human progress that the bankers were trying to serve" by leaving today's free market gambling casino operations untouched, so it could quickly return to pre-2008 "greed is very good" reality.

Scene 9: Main Street investors join Wall Street's 'Happy Conspiracy'

The endgame now unfolds rapidly. Munger warns that America's investors, workers and citizens have become so jaded they merge with Wall Street's self-sabotaging conspiracy: "Of course, the most effective political opposition to change came from the gambling casinos themselves. This was not surprising, as at least one casino was located in each legislative district." They "saw themselves as part of a long-established industry that provided harmless pleasure while improving the thinking skills of its customers."

Scene 10: Politicians love Wall Street's derivative casino: Game over!

The 86-year-old Munger is himself a metaphor for America's version of the classic historical cycle: He was an optimist as he and Warren built their $267 billion company over four decades. But sadly, his parable, his vision of America's future, has no optimistic finale. Rather it's reminiscent of Diamond's "Collapse," Bogle's "Battle for the Soul of Capitalism," and so many other recent reminders about how America just went over a cliff and how Wall Street's casino-banks will soon drive us off a bigger cliff into the Great Depression II by 2012.

Munger's parable is more than a Hollywood suspense-thriller, it's another example of the classic historical life-cycle of a nation.

In the final scenes "politicians ignored the Good Father one more time," the casino-banks returned to gambling in derivative "securities with extreme financial leverage. A couple of economic messes followed, during which every constituency tried to avoid hardship by deflecting it to others. Much counterproductive governmental action was taken, and the country's credit was reduced to tatters. America is now under new management, using a new governmental system. It also has a new nickname: Sorrowland."

Epilogue: Your moral dilemma: a no-win scenario or historical destiny?

Do we really have a choice? Ask yourself, what's ahead after 2012? Can you see beyond a destructive campaign: Obama at war with Palin and the "Tea Party of No?" What are the long-term prospects of our "civilization." Do you share Munger's dark vision?

Or does the USA Today/Gallup Poll tell you guys like Munger, Buffett and Volker do "lack any understanding of important and eternal causes of human progress that the bankers are trying to serve" with their gambling casinos. "Optimists" in those polls are just politicians, bankers and citizens like you, in denial, can't hear the warnings. So we get no changes, no action, no preparations because at this stage in the long-term historical cycle, optimism has turned into our worse enemy, wishful-thinking.

Solution? Get into action, let's launch the "Second American Revolution." Got any constructive, optimistic strategies? Share them. Add your comments.



Freddie Mac CEO warns of a wave of foreclosures
By ALAN ZIBEL Associated Press
Feb. 24, 2010, 11:02PM

Freddie Mac lost almost $26 billion last year, ominous news for taxpayers who are footing the bill to rescue the mortgage finance company and its sibling Fannie Mae.

[b]Freddie Mac, which has lost a total of almost $80  billion since the housing crisis started in 2007, is bracing for more pain. The McLean, Va.-based company said a record 4 percent of its borrowers are at least three months behind on their payments and facing foreclosure.

Its chief executive, Charles Haldeman, warned Wednesday of a “potential large wave of foreclosures” still to come. [/b]

This is a major problem for the federal government, which seized control of Freddie and Fannie in September 2008.[color=red] The two companies have already siphoned $111 billion from the government to stay afloat. That number is expected to hit $188 billion by fall 2011.

And while Freddie Mac didn't ask for any more bailout money last quarter, the company said it will likely need more financial aid and might never repay it.[/color]

“We now have unlimited taxpayer exposure to the bailout of Fannie and Freddie, a bailout nation where the big get bigger, the small get smaller and the taxpayer gets poorer,” Rep. Jeb Hensarling, R-Dallas, said at a House hearing Wednesday.

Fannie and Freddie dominate the mortgage market, backing about 70 percent of the loans made last year. The two companies purchase mortgages from lenders and package them into securities. Investors are willing to buy the securities because they are effectively guaranteed by the U.S. government. That puts American taxpayers at risk.

But the fragile housing sector is so dependent on the government that officials say they won't have a detailed exit strategy until next year. Underscoring the market's weakness, the Commerce Department said Wednesday that sales of new homes unexpectedly plunged 11 percent from December to January to the lowest level on record.

Treasury Secretary Timothy Geithner told lawmakers Wednesday that the Obama administration will “make sure we bring about fundamental change in the housing market and get ourselves in a position where the government is playing a less risky, but more constructive, role in supporting housing markets in the future.”

Separately, Freddie Mac warned there is “significant uncertainty as to whether or when we will emerge” from government control.

For taxpayers, stabilizing Freddie and Fannie Mae has been one of the costliest consequences of the financial meltdown. Freddie Mac has received about $51 billion from Treasury to date, and the Obama administration has pledged to cover unlimited losses through 2012.

Freddie Mac said Wednesday it lost $25.7 billion, or $7.89 a share, for all of 2009. Of those losses, $4.1 billion went to dividends paid to the Treasury Department, which holds a nearly 80 percent stake in the company.

In the final three months of last year, Freddie Mac posted a loss of $7.8 billion, or $2.39 a share. The results, however, were a marked improvement over the fourth quarter 2008 when Freddie lost $23.9 billion, or $7.37 a share.

During the most recent quarter, Freddie suffered $7.1 billion in credit losses and a $3.4 billion write-down in low income tax credit investments. Also Wednesday, Fannie Mae said in a regulatory filing that it plans to take a $5 billion charge when it reports its fourth quarter results later this week.

bearrally 03-03-2010 03:22 PM

new scam from Fannie Mae to come to a theater near you soon..... rolmao.....

This will make AIG scam looked like peanut compare to this scam......

:cheer :cheer

S&P 500 03-03-2010 03:34 PM

Bearally, Daytrade, etc. :)

What do you think of Federal Agricultural Mortgage Corp. (AGM)? I have it right now.

:hug :hug

bearrally 03-03-2010 03:57 PM

i don't touch anything with a word mortgage in it unless it is a short....:cheer

S&P 500 03-03-2010 06:38 PM

BR and Others :)

AGM is cheap, still under $10 per share.

:hug :hug

bearrally 03-05-2010 09:25 AM

Fannie = 1st round of the scam was rolled out yesterday...

S&P 500 03-06-2010 07:37 AM

BR and Others :)

Enjoy the AGM ride safely while it lasts.

:hug :hug


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