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Fannie (FNM) and Freddie (FRE) |
HenryTo
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 Posted: Wed Aug 08, 2007 2:50 am Post subject: Fannie (FNM) and Freddie (FRE) |
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Both stocks bounced substantially since Friday afternoon and will most probably lead the next housing bull cycle, however muted it is (actually, the more muted the better, as long as the pipeline is growing). Now that the jumbo loan market is starting to freeze up as well, senators and regulators alike are entertaining the though of easing the caps of both quasi-government companies.
Following is courtesy of the WSJ:
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Big Fans for Fannie, Freddie Some Lawmakers See
One-Time Pariah Firms As Subprime Salvation
By JAMES R. HAGERTY
August 8, 2007; Page C1
The mortgage-market meltdown isn't over, but it already has produced two clear winners: Fannie Mae and Freddie Mac, the nation's biggest investors in home loans.
Until recently, politicians in Washington were arguing about how best to rein in the two giant government-sponsored companies, both recovering from accounting scandals and lapses in financial controls. Now, as worry about the housing market trumps accounting scruples, the political debate has shifted to whether Fannie and Freddie need to grow even bigger to buy more loans and calm mortgage investors.
Sen. Christopher Dodd (D., Conn.), chairman of the Senate Banking Committee, yesterday called on the companies' regulator to consider raising the caps placed last year on the amount of mortgages and related securities Fannie and Freddie can hold, as a way of ensuring that plenty of money is available to fund mortgage loans.
Sen. Charles Schumer (D., N.Y.) also called for higher caps. Both Fannie and Freddie are pushing for the same move. A spokeswoman for their regulator, the Office of Federal Housing Enterprise Oversight, or Ofheo, said the agency will respond to the senators shortly.
Fannie's shares gained 3.1% to close at $64.43 on the New York Stock Exchange yesterday, while Freddie was up 2.7% to $61.64.
The two stocks have held steady over the past month amid anxiety over mortgage defaults, while shares of Countrywide Financial Corp., the nation's largest home-mortgage lender, have fallen 27%.
Fannie and Freddie are benefiting because investors are still happy to buy the mortgage securities they create, backed by loans purchased from lenders scattered across the country. The two companies collect fees for guaranteeing the interest and principal payments on the loans backing those securities. Although Fannie and Freddie are private-sector companies, they were created by Congress to funnel money into housing, and investors assume that Congress would bail them out in a crisis.
Sticking With Uncle Sam
With loan defaults rising and house prices falling, investors now are shunning, at least temporarily, mortgage securities packaged by Wall Street firms and others that don't have any implied backing from Uncle Sam. That makes it hard for lenders to find buyers for loans that can't be sold to Fannie and Freddie. Regulations prevent them from buying loans of more than $417,000 on single-family homes, and they have stricter standards on down payments and verification of income than were imposed by Wall Street during the housing boom.
The result is a spike in rates on some types of loans that can't be sold to Fannie or Freddie, such as prime, 30-year, fixed-rate jumbo loans, those above $417,000. Yesterday, the average rate on such loans was 7.44%, according to a survey by financial publishers HSH Associates. That's 0.84 percentage point higher than the average rate on "conforming" loans, those that meet Fannie and Freddie's standards. Typically over the past decade, the premium paid for jumbo loans has been around 0.20 to 0.30 point.
Even middle-class people often pay $500,000 to $700,000 for a humdrum home in high-cost areas. So the higher rates on jumbo loans could be "devastating" for the housing market in some areas, says Michael Menatian, president of Sanborn Mortgage Corp., a mortgage bank in West Hartford, Conn.
As lenders recoil from riskier types of mortgages, "we're turning a lot of people away now," says Jeff Lazerson, chief executive of Mortgage Grader, a mortgage broker in Laguna Niguel, Calif.
Many investors hope that alarm over the housing market will induce Ofheo to ease restraints on Fannie and Freddie.
But Joshua Rosner, an analyst at the New York research boutique Graham Fisher & Co., describes as "mass delusion" the idea that they can save the day for investors exposed to billions of dollars of ill-advised home loans now heading toward foreclosure. For one thing, he says, Ofheo has required Fannie and Freddie to follow stricter standards, recently imposed by banking regulators, in assessing borrowers' ability to repay. So they can't buy up loads of reckless loans to speculators or people failing to pay bills.
Richard Syron, chief executive of Freddie, agrees that there are limits to what his company can do. "Neither we nor anyone else can buy at par loans that probably shouldn't have been made in the first place," he says.
Freddie's Limited Help
Mr. Syron says Freddie can provide funding to refinance many subprime borrowers stuck with loans due to reset to sharply higher monthly payments, but not most of them. In addition, he says, Freddie could help the market by buying and holding more mortgage securities packaged by Wall Street if the cap on its holdings rises.
Fannie and Freddie may be able to buy subprime mortgage securities at discounts that more than make up for the credit risk, Kenneth Posner, an analyst at Morgan Stanley, said in a research note. They also may be able to charge more for providing guarantees on securities sold to others, he said: "We can't imagine anyone complaining -- right now there's no other game in town."
The flight of other investors from the mortgage market "does show the role and the need" for Freddie and Fannie to act as steady providers of mortgage funding, Mr. Syron says. Still, he says, Freddie isn't gloating: "You don't want to take a lot of joy in other people's suffering."
Write to James R. Hagerty at bob.hagerty@wsj.com |
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Fannie (FNM) and Freddie (FRE) Replies |
HenryTo
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| Posted: Thu Aug 14, 2008 1:25 pm Post subject: |
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Recent Wall Street Journal forecast survey putting the odds of a government bailout of the GSEs at 59%:
http://online.wsj.com/article/SB121864245359137157.html?mod=hpp_europe_whats_news
| Quote: | Chances are better than even that government money will be used to prop up Fannie Mae and Freddie Mac, according to economists in the latest Wall Street Journal forecasting survey, and a sizeable minority said the institutions should be nationalized.
When Treasury Secretary Henry Paulson went to Congress last month to defend his plan to extend credit to Fannie and Freddie or purchase equity in the government-sponsored enterprises, if necessary, he made it clear that the proposal is a "backup facility, [that] hopefully would never be used." However, sharp losses at the two companies last week and continued concerns about the U.S. credit market have increased the chance that government funds would be needed. On average, the 53 economists polled in the survey put the probability at 59% that the Treasury Department will have to step in to bail out Fannie or Freddie.
"Blank checks almost always get filled in and cashed," said Stuart Hoffman of PNC Financial Services Group. |
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HenryTo
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HenryTo
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| Posted: Tue Aug 05, 2008 9:38 am Post subject: |
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Insiders assert that Freddie Mac CEO ignored several warning signs and recommendations leading up to the current crisis of confidence in the GSEs:
http://www.nytimes.com/2008/08/05/business/05freddie.html?_r=3&ref=business&oref=slogin&oref=slogin&oref=slogin
| Quote: | Mr. Syron contends his options were limited.
“If I had better foresight, maybe I could have improved things a little bit,” he said. “But frankly, if I had perfect foresight, I would never have taken this job in the first place.”
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Mr. Syron and the Fannie Mae chief executive, Daniel H. Mudd, defended their choices, saying in interviews that they did not anticipate that the housing market would decline so quickly and that they were buffeted by conflicting pressures.
“This company has to answer to shareholders, to our regulator and to Congress, and those groups often demand completely contradictory things,” Mr. Syron said in an interview.
Indeed, executives of both companies maintain that one of the reasons the firms hold so many bad loans is that Congress has leaned on them for years to buy mortgages from low-income borrowers to encourage affordable housing. In 2004, Freddie Mac warned regulators that affordable housing goals could force the company to buy riskier loans. |
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HenryTo
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| Posted: Sun Jul 27, 2008 1:02 pm Post subject: |
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Larry Summers on the GSEs:
http://www.ft.com/cms/s/0/b150d388-5bf8-11dd-9e99-000077b07658.html
| Quote: | Anyone who cares about the health of the US economy should welcome the enactment of the Treasury’s rescue plan for Fannie Mae and Freddie Mac, along with other measures to support the housing market. While there is room for argument about details, the risks to the financial system were too great to allow delay.
No one should suppose, however, that the issue is now satisfactorily resolved, even for the short term. Emergency legislation was necessary because market participants were unwilling to buy Fannie and Freddie’s debt; investors doubted that the government-sponsored enterprises were healthy enough to repay it and did not draw sufficient reassurance from the implicit guarantee of federal support. If their debt proves easier to place now, it is only because this guarantee has been strengthened, not because anything has changed at the GSEs.
This, to put it mildly, is a highly problematic posture for policy. While I strongly supported the Federal Reserve’s policy response to the crisis at Bear Stearns because it was necessary to avoid systemic risk, it is easy to sympathise with those who fear that bailouts inhibit market discipline. Consider how much more problematic the Bear Stearns response would have been had policymakers signalled their commitment to back the company’s liabilities without limit; left management in place with no change in the business model; and allowed dividends to be paid and shareholders to keep going with hope for a better tomorrow. Yet all of these elements are present in the cases of Fannie and Freddie.
To see the temptation and danger inherent in a situation of this kind, one need only look back to the mismanagement of the savings and loans crisis during the 1980s. Policymakers protected depositors, allowed institutions to operate even when their fundraising depended on government support, and suspended regular standards in order to attract private capital. With gains privatised and losses socialised, taxpayers ultimately ended up with a $300bn-plus bill measured in today’s dollars.
Allowing the clearly undercapitalised GSEs to continue operating within their current paradigm carries similar risks. The principal difference is that the GSEs are much larger than the thrift institutions, while the housing crisis is more serious than anything we have seen since the Depression.
To be sure, if one supposed that the GSEs’ problems were all issues of confidence and was certain of their underlying financial health, there might be a case for government guarantees with no onerous conditions. But almost every outside observer agrees that pre-crisis, the GSEs could only borrow because of their implicit government guarantees. Since the crisis their position has sharply deteriorated, and will deteriorate further.
There is no question that we need the GSEs to be highly active in support of the housing market and financial system in the months ahead. If the authorities can see a path to their being able to play such a role in a framework where it can honestly be said that their borrowing is based on confidence in their financial position rather than primarily on federal guarantees, then this is obviously the preferred alternative. But after what we have seen, such a judgment cannot be based on the GSEs’ own claims, the understandable desire of government officials to maintain confidence and attract private capital, or the fact that they are able to borrow – which only reflects the strength of federally provided credit assurances.
If this preferred alternative is, as I fear, not realistic given the state of GSE finances, the government should use its new receivership power to protect taxpayers and the financial system. In the process, payments to stock holders, holders of preferred stock and probably subordinated debt holders would be wiped out, conserving cash for the benefit of taxpayers. The GSEs’ borrowing costs would fall considerably, helping prospective homeowners.
In this scenario, the government would operate the GSEs as public corporations for several years. They would then be in a position to extend credit where appropriate to support resolution of the current housing crisis. Once the crisis has passed, the federal government would divide their functions into government and private components, the latter of which would be sold off in multiple pieces. The proceeds could be used to fund the low-income housing support activity that was previously mandated to the GSEs.
With this approach, the federal government would be in a position to support the housing market in the years ahead without encouraging dubious financial practices or denying financial reality, as is the case today. In the longer term, it would provide an opportunity to rebuild the housing finance system on far stronger foundations.
A major concern is that receivership would endanger the financial health of the US by taking on to the federal government’s balance sheet all the liabilities of the GSEs. This argument confuses appearance with reality. Recent statements by the Treasury and the Fed have removed any doubt that the US will stand behind the senior debt of the GSEs. Surely everyone should have learned by now that keeping liabilities off balance sheets does not make them any smaller or less real.
The stakes here are high. The choices made in the coming months will bear on the housing market, future taxpayer burdens, the credibility of US financial authorities in times of crisis and the integrity of the political system. It is a time for decisive action.
The writer is Charles W. Eliot university professor at Harvard and a managing director of D.E. Shaw & Co. |
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HenryTo
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| Posted: Thu Jul 24, 2008 2:19 pm Post subject: |
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Hi Suomodo,
You're too kind as usual - I am just reporting what I am seeing.
I also highly appreciate and anticipate your running commentaries on the market and what you're currently thinking. They have helped crystalize my thinking as well!
Best regards,
Henry |
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Suomodo
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| Posted: Thu Jul 24, 2008 1:24 pm Post subject: |
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| HenryTo wrote: | Congress ties the GSE bailout to the national debt - but raises the limit of the latter at the same time to $10.6 trillion. As of tonight, the national debt sits at $9.52 trillion, giving the Treasury a lifeline of over $1 trillion, or nearly 20% of the "market cap" of agency MBS. This is definitely sufficient. We should passage of this bill in the next two days:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aCy_Dl.5rdv0&refer=home |
Your comments are brilliant Henry, I appreciate them very much ...
And thanks for the call on Airlines as well... bought some UAUA two weeks ago scaling down to USD 4  |
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Rubedo
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| Posted: Thu Jul 24, 2008 7:43 am Post subject: |
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http://www.bloomberg.com/apps/news?pid=20601087&sid=afW0hUrRUP54&refer=home
Freddie, Fannie Should Split, Not Get Aid, Faber Says (Update3)
By Carol Massar and Alexis Xydias
July 23 (Bloomberg) -- Freddie Mac and Fannie Mae should close down their business or split into private companies and not get government aid, investor Marc Faber said.
``They should close down Fannie Mae and Freddie Mac or what they should do is split them into 10 different companies and let them run as private companies,'' said Faber, who forecast the so-called Black Monday crash in 1987, in an interview with Bloomberg Television from Chicago. ``What Freddie Mac and Fannie Mae should right away do is not obtain any federal aid, but issue additional shares'' to avoid using taxpayers' money in a rescue plan, he said.
Fannie Mae and Freddie Mac, which own or guarantee about half of the $12 trillion of U.S. mortgages, have fallen 31 percent and 41 percent respectively this month, on concern the companies have insufficient capital to cover writedowns and losses amid the mortgage-market collapse.
The U.S. Congress may vote today on a rescue plan for Fannie Mae and Freddie Mac after lawmakers reached a deal on legislation aimed at alleviating the worst housing recession in a quarter century.
Fannie Mae gained $2.24 to $15.65 at 11:47 a.m. in New York. Freddie Mac added $1.07 to $10.77.
`Colossal Bust'
Faber said the ``world may already be in recession,'' and reiterated a prediction for a ``bust'' in global markets.
Markets may enter ``a vicious cycle on the downside'' whose worst scenario is a ``colossal bust with inflation,'' as central banks are unable to manage the economic slowdown and faster growth in prices.
Still, Faber forecast the Standard & Poor's 500 Index may climb about 5.7 percent from current levels, to 1,350. Oil may drop $30 a barrel to ``about'' $100 in the near term, he said, although the ``long-term'' prospect for oil prices is to remain ``tight.''
``In the last two months I've asked businesses around the world, and business is down everywhere, and slowing down very considerably,'' Faber said. ``A lot of earnings will start to decelerate. One sector that is quite vulnerable is technology.''
Stocks worldwide have tumbled this year, erasing about $11 trillion in value, as $467 billion in credit-related losses and accelerating inflation weigh on the outlook for economic and profit growth.
Oil is down 14 percent from a record $147.27 on July 11 in New York as the dollar strengthened and high prices curbed gasoline demand. |
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HenryTo
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| Posted: Thu Jul 24, 2008 12:05 am Post subject: |
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Featured editorial at the WSJ earlier yesterday, entitled "The Fannie Mae Gang":
http://online.wsj.com/article/SB121677050160675397.html?mod=mostpop
| Quote: | The Fannie Mae Gang
By PAUL A. GIGOT
July 23, 2008; Page A17
Angelo Mozilo was in one of his Napoleonic moods. It was October 2003, and the CEO of Countrywide Financial was berating me for The Wall Street Journal's editorials raising doubts about the accounting of Fannie Mae. I had just been introduced to him by Franklin Raines, then the CEO of Fannie, whom I had run into by chance at a reception hosted by the Business Council, the CEO group that had invited me to moderate a couple of panels.
Mr. Mozilo loudly declared that I didn't know what I was talking about, that I didn't understand accounting or the mortgage markets, and that I was in the pocket of Fannie's competitors, among other insults. Mr. Raines, always smoother than Mr. Mozilo, politely intervened to avoid an extended argument, and Countrywide's bantam rooster strutted off.
I've thought about that episode more than once recently amid the meltdown and government rescue of Fannie and its sibling, Freddie Mac. Trying to defend the mortgage giants, Paul Krugman of the New York Times recently wrote, "What you need to know here is that the right -- the WSJ editorial page, Heritage, etc. -- hates, hates, hates Fannie and Freddie. Why? Because they don't want quasi-public entities competing with Angelo Mozilo."
That's a howler even by Mr. Krugman's standards. Fannie Mae and Mr. Mozilo weren't competitors; they were partners. Fannie helped to make Countrywide as profitable as it once was by buying its mortgages in bulk. Mr. Raines -- following predecessor Jim Johnson -- and Mr. Mozilo made each other rich. Which explains why Mr. Johnson could feel so comfortable asking Sen. Kent Conrad (D., N.D.) to discuss a sweetheart mortgage with Mr. Mozilo, and also explains the Mozilo-Raines tag team in 2003.
I recount all this now because it illustrates the perverse nature of Fannie and Freddie that has made them such a relentless and untouchable political force. Their unique clout derives from a combination of liberal ideology and private profit. Fannie has been able to purchase political immunity for decades by disguising its vast profit-making machine in the cloak of "affordable housing." To be more precise, Fan and Fred have been protected by an alliance of Capitol Hill and Wall Street, of Barney Frank and Angelo Mozilo.
I know this because for more than six years I've been one of their antagonists. Any editor worth his expense account makes enemies, and complaints from CEOs, politicians and World Bank presidents are common. But Fannie Mae and Freddie Mac are unique in their thuggery, and their response to critics may help readers appreciate why taxpayers are now explicitly on the hook to rescue companies that some of us have spent years warning about.
My battles with Fan and Fred began with no great expectations. In late 2001, I got a tip that Fannie's derivatives accounting might be suspect. I asked Susan Lee to investigate, and the editorial she wrote in February 2002, "Fannie Mae Enron?", sent Fannie's shares down nearly 4% in a day. In retrospect, my only regret is the question mark.
Mr. Raines reacted with immediate fury, denouncing us in a letter to the editor as "glib, disingenuous, contorted, even irresponsible," and that was the subtle part. He turned up on CNBC to say, in essence, that we had made it all up because we didn't want poor people to own houses, while Freddie issued its own denunciation.
The companies also mobilized their Wall Street allies, who benefited both from promoting their shares and from selling their mortgage-backed securities, or MBSs. The latter is a beautiful racket, thanks to the previously implicit and now explicit government guarantee that the companies are too big to fail. The Street can hawk Fan and Fred MBSs as nearly as safe as Treasurys but with a higher yield. They make a bundle in fees.
At the time, Wall Street's Fannie apologists outdid themselves with their counterattack. One of the most slavish was Jonathan Gray, of Sanford C. Bernstein, who wrote to clients that the editorial was "unfounded and unsubstantiated" and "discredits the paper." My favorite point in his Feb. 20, 2002, Bernstein Research Call was this rebuttal to our point that "Taxpayers Are on The Hook: This is incorrect. The agencies' debt is not guaranteed by the U.S. Treasury or any agency of the Federal Government." Oops.
Mr. Gray's memo made its way to Wall Street Journal management via Michael Ellmann, a research analyst who had covered Dow Jones and was then at Grantham, Mayo, Van Otterloo & Co. "I think Gray is far more accurate than your editorial writer. Your subscribers deserve better," he wrote to one senior executive.
I also received several interventions from friends and even Dow Jones colleagues on behalf of the companies. But I was especially startled one day to find in my mail a personal letter from George Gould, an acquaintance about whom I'd written a favorable column when he was Treasury undersecretary for finance in 1988.
Mr. Gould's letter assailed our editorials and me in nasty personal terms, and I quickly discovered the root of his vitriol: Though his letter didn't say so, he had become a director of Freddie Mac. He was still on the board when Freddie's accounting lapses finally exploded into a scandal some months later.
The companies eased their assaults when they concluded we weren't about to stop, and in any case they soon had bigger problems. Freddie's accounting fiasco became public in 2003, while Fannie's accounting blew up in 2004. Mr. Raines was forced to resign, and a report by regulator James Lockhart discovered that Fannie had rigged its earnings in a way that allowed it to pay huge bonuses to Mr. Raines and other executives.
Such a debacle after so much denial would have sunk any normal financial company, but once again Fan and Fred could fall back on their political protection. In the wake of Freddie's implosion, Republican Rep. Cliff Stearns of Florida held one hearing on its accounting practices and scheduled more in early 2004.
He was soon told that not only could he hold no more hearings, but House Speaker Dennis Hastert was stripping his subcommittee of jurisdiction over Fan and Fred's accounting and giving it to Mike Oxley's Financial Services Committee. "It was because of all their lobbying work," explains Mr. Stearns today, in epic understatement. Mr. Oxley proceeded to let Barney Frank (D., Mass.), then in the minority, roll all over him and protect the companies from stronger regulatory oversight. Mr. Oxley, who has since retired, was the featured guest at no fewer than 19 Fannie-sponsored fund-raisers.
Or consider the experience of Wisconsin Rep. Paul Ryan, one of the GOP's bright young lights who decided in the 1990s that Fan and Fred needed more supervision. As he held town hall meetings in his district, he soon noticed a man in a well-tailored suit hanging out amid the John Deere caps and street clothes. Mr. Ryan was being stalked by a Fannie lobbyist monitoring his every word.
On another occasion, he was invited to a meeting with the Democratic mayor of Racine, which is in his district, though he wasn't sure why. When he arrived, Mr. Ryan discovered that both he and the mayor had been invited separately -- not by each other, but by a Fannie lobbyist who proceeded to tell them about the great things Fannie did for home ownership in Racine.
When none of that deterred Mr. Ryan, Fannie played rougher. It called every mortgage holder in his district, claiming (falsely) that Mr. Ryan wanted to raise the cost of their mortgage and asking if Fannie could tell the congressman to stop on their behalf. He received some 6,000 telegrams. When Mr. Ryan finally left Financial Services for a seat on Ways and Means, which doesn't oversee Fannie, he received a personal note from Mr. Raines congratulating him. "He meant good riddance," says Mr. Ryan.
Fan and Fred also couldn't prosper for as long as they have without the support of the political left, both in Congress and the intellectual class. This includes Mr. Frank and Sen. Chuck Schumer (D., N.Y.) on Capitol Hill, as well as Mr. Krugman and the Washington Post's Steven Pearlstein in the press. Their claim is that the companies are essential for homeownership.
Yet as studies have shown, about half of the implicit taxpayer subsidy for Fan and Fred is pocketed by shareholders and management. According to the Federal Reserve, the half that goes to homeowners adds up to a mere seven basis points on mortgages. In return for this, Fannie was able to pay no fewer than 21 of its executives more than $1 million in 2002, and in 2003 Mr. Raines pocketed more than $20 million. Fannie's left-wing defenders are underwriters of crony capitalism, not affordable housing.
So here we are this week, with the House and Senate preparing to commit taxpayer money to save Fannie and Freddie. The implicit taxpayer guarantee that Messrs. Gray and Raines and so many others said didn't exist has become explicit. Taxpayers may end up having to inject capital into the companies, in addition to guaranteeing their debt.
The abiding lesson here is what happens when you combine private profit with government power. You create political monsters that are protected both by journalists on the left and pseudo-capitalists on Wall Street, by liberal Democrats and country-club Republicans. Even now, after all of their dishonesty and failure, Fannie and Freddie could emerge from this taxpayer rescue more powerful than ever. Campaigning to spare taxpayers from that result would represent genuine "change," not that either presidential candidate seems interested.
Mr. Gigot is the Journal's editorial page editor. |
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HenryTo
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| Posted: Wed Jul 23, 2008 8:58 am Post subject: |
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Short-selling drops dramatically at the GSEs:
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Wed, 23 Jul, 07:14 GMT
Short sells drop in U.S. firms after SEC rule - S3 data
Shorting of Fannie Mae and Freddie Mac dropped 90 percent, with a 70 percent decline at the other firms targeted.
NEW YORK (Thomson IM) - Short sells dropped dramatically in shares of the 19 financial firms targeted by U.S. regulators' emergency short-selling rule this week, a market data company said on Tuesday.
Short sells dropped 90 percent in shares of mortgage finance companies Fannie Mae <FNM.N> and Freddie Mac <FRE.N>, and declined 70 percent in shares of the other 17 financial firms affected by the rule, S3 Matching Technologies said, citing a review of data from its clients.
The firm said it compared short sale data from July 14, prior to the U.S. Securities and Exchange Commission emergency rule, with data for Monday, July 21 -- the first day the rule took effect.
The SEC's rule is part of an effort to clamp down on market manipulation that some blame for the sharp declines in financial stocks and the demise of investment bank Bear Stearns in March.
The rule is designed to prevent illegal 'naked' short selling, which occurs when an investor sells stock that has not yet been borrowed.
It affects Fannie and Freddie and major financial firms including Citigroup Inc <C.N>, Lehman Brothers Holdings Inc <LEH.N>, Goldman Sachs <GS.N>, Merrill Lynch <MER.N>, Morgan Stanley <MS.N> and JPMorgan Chase & Co <JPM.N>.
While the SEC said last week that its rule was not intended to stop legitimate short selling, S3's data showed that its clients had dramatically altered their strategies.
'The short sell slowdown during the first day was obviously very significant across the targeted symbols,' Jack Holt, chief executive of S3, said in a statement. 'While there is no way for data to reveal if a short sell is 'naked,' there's no doubt the SEC has put a rule in place that has drastically reduced short selling.'
S3 processes data for Wall Street dealers, brokerage houses and financial institutions of all types, seeing about 15 billion financial transactions per day. It said short sales represent about 1 percent of its clients' total volume.
Official short selling data is released twice per month by the exchanges, so firms that process or track trades for brokerages, like S3, are able to see more current data.
Investors who sell securities 'short' profit from betting stocks will fall. They borrow shares and then sell them, waiting for the stock to fall so they can buy the shares back at a lower price, return them to the lender, and pocket the difference. |
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HenryTo
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| Posted: Wed Jul 23, 2008 2:13 am Post subject: |
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Congress ties the GSE bailout to the national debt - but raises the limit of the latter at the same time to $10.6 trillion. As of tonight, the national debt sits at $9.52 trillion, giving the Treasury a lifeline of over $1 trillion, or nearly 20% of the "market cap" of agency MBS. This is definitely sufficient. We should passage of this bill in the next two days:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aCy_Dl.5rdv0&refer=home |
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rffrydr
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mtvk
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| Posted: Mon Jul 21, 2008 8:33 pm Post subject: |
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Why FNM & FRE management crooks are not prosecuted?
No one talks about it. |
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rffrydr
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HenryTo
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HenryTo
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| Posted: Mon Jul 21, 2008 9:54 am Post subject: |
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Dr R.
From what I can tell, the market was underwhelmed with the $300 billion limit lifeline that Congress was contemplating. In a crisis such as this, you don't disclose to what extent you're willing to back them up. A great example is the HKMA buying up 10% of the HKSE's market cap during August 1998 and telling the market they will buy more if they have to.
Total losses (frequency x severity) won't ever come to $300 billion but given the responses I've seen so far and given historical experience, I think a lifeline of 10% of all agency MBS outstanding would be the absolute minimum - if Congress has to institute some kind of cap for political reasons. This can be done by raising the debt limit by 2% to 3% and tying the lifeline to that. If I were Paulson, I would use $300 billion for backup purposes and use $200 billion of that to buy agency MBS on the secondary market in order to compress mortgage and credit spreads across the board. This would also directly inject $200 billion of liquidity in the financial markets, as long as the Fed doesn't "take it back" by selling $200 billion in Treasuries.
Best regards,
Henry |
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