Fannie & Freddie bailout

[desdawg]

Looks like Fannie & Freddie couldn't dig out on their own. It's not done yet but it is getting close.
The U.S. government plans to put government sponsored mortgage finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N) under federal control, the New York Times and Washington Post newspapers reported late Friday, in what could be the largest financial bailout in the nation's history.
http://news.yahoo.com/s/nm/20080906/bs_nm/fannie_freddie_reports_dc_2

[ScottA]

Free market economy hard at work. 

[desdawg]

Jim Cramer is not a popular guy around here and he knows it but here is his take on the situation.
http://www.thestreet.com/story/10436132/1/cramer-fannie-freddie-takeover-changes-the-game.html?puc=_dmiss

[StinkerBell]

Once again We as tax payers have to pay. This will not help the person who lost their home, this only helps the board of directors continue receiving their over inflated paycheck. Not only that, We have to pay for this and at the same time it is now extremely hard for a person with good credit, good income and a good debt ratio to even secure a home loan. Basically another tax. When will we take back this country. Shoot, our fore fathers didn't just roll over over, they took on taxation over TEA.

[StinkerBell]

complain complain complain
moan moan moan moan
complain complain complain
moan moan moan moan
complain complain complain
moan moan moan moan
complain complain complain
moan moan moan moan
complain complain complain
moan moan moan moan
complain complain complain
moan moan moan moan
complain complain complain

[Sassy]

  I feel your pain, Stink     

[glenn kangiser]

We are a dealing with a system that has grown so out of control and so ripped off by corruption we will likely not be able to do anything about it until it fully fails and we have to start a new one in my opinion.

Until then I suggest a large size jar of Vaseline.

[muldoon]

Paulson was on cspan this morning to announce the details, I missed the first few minutes but watched most of it.  He looked terrible.  He was sweating like he was about to (or did) have a stroke.  This is an unmitigated disaster. 

The deal as I see it and understand it. 

FNM/FRE - new management, common stock goes to nothing.  preferreds and senior get some support.  In the future the treasury will buy new MBS paper and be the market maker for mortgage.  Over the next 15 months they will buy this aggressively - I think I heard 20 billion a month.  At that time they will look to rundown the portfolio as they hope the market comes back for them.  Dividends are cut, lobbying is cut, "competitive book keeping" is cut.

Who benefits?  Holders of existing paper, big banks, central banks, foreign banks and governments - this MBS paper has been trading near the floor.  Merril Lynch just sold CDOs at 22.5 cents on the dollar and they gave 75% of the money to the company buying them effectively getting 5.5 cents on the dollar.  This "fixes" this and gives the banks and foreign central banks a dumping ground.  It's us.  As other countries are fighting economic problems in their own countries they want $$$ to spend locally, they need to dump this paper. 

Who loses?  The government for one.  Who would buy treasuries when agency paper is also explictly guarenteed and has a higher yield?  I think the TNX goes up for sure, maybe even 200 basis points.  The cost of borrowing for the government just went up, perhaps as much as 50%.   I think many regional sized banks that hold gse preferred stock get slaughtered, on this without dividends it will crater which in turn affects capital ratios and puts them in pain. 

What does it fix - nothing really, it's a bandaid.  It doesn't help people stay in their homes.  It does nothing to lower mortgage rates, in fact after a few weeks/months it will likely spike them hard.  It does not bail out regional banks.  It's a punt to kick the can down the road.  Paulson leaves office in January with the new administration - he's leaving the mess for someone else to cleanup.   

[Sassy]

So, Muldoon, if I understand what you said...  again, in the long run, the central banks, international & foreign banks will benefit...  while the US taxpayer bails them out... 

what does that do for my gov't Thrift plan - that's supposed to be most of my retirement - I have most of my money in US Treasury bonds as the international market wasn't doing so hot lately...  I borrowed $42,000 last year from the plan - figured I was better off having the money & using it & have paid back over $12,000 besides what I've contributed from my paycheck every 2 weeks (it was 12%, I changed it to the minimum that will be matched by the gov't 5%) but all that the fund has done is decrease in value over that time so in reality I've just thrown probably $15,000-20,000 in a black hole...   

[desdawg]

Thanks for the insight Muldoon. What you are saying is nothing is really changed in a material way that will help anyone out. It seems the Fed has already purchased $30B worth of MBS paper at par value when the deal was cut with JP Morgan Chase to take over the Bear Stearns fiasco. Remember the name BlackRock from earlier posts. It shows up here again as a Delaware LLC formed by JPM and the Fed for the purpose of holding the Bear Stearns MBS paper.
http://www.urbandigs.com/2008/03/fed_is_buying_mbs_paper_in_for.html Click on the link for Interfluidity, in the article for more info.
I don't have the background to understand all of the complex workings of money, all I know is when I don't have enough. Sassy I hope your retirement savings didn't get knackered in this process. Have you ever noticed that all these kind of things take place over a weekend.

[muldoon]

So, Muldoon, if I understand what you said...  again, in the long run, the central banks, international & foreign banks will benefit...  while the US taxpayer bails them out... 

what does that do for my gov't Thrift plan - that's supposed to be most of my retirement - I have most of my money in US Treasury bonds as the international market wasn't doing so hot lately...  I borrowed $42,000 last year from the plan - figured I was better off having the money & using it & have paid back over $12,000 besides what I've contributed from my paycheck every 2 weeks (it was 12%, I changed it to the minimum that will be matched by the gov't 5%) but all that the fund has done is decrease in value over that time so in reality I've just thrown probably $15,000-20,000 in a black hole...   

Sassy, I dont know for sure.  All I can give is my opinion, and my opinion is "worth" exactly what you paid for it.   

To me, this should have the effect of raising the yield on treasuries.  When yield increases price falls because as they pay a higher return it requires lower upfront cost to lure in investors.  All bonds have this relationship, yields lower mean price increase. 

However, I don't see any good "safe" place to hide either.  While I think the markets will rally hard and shoot up this week the reality is that this is very bad news for equities.   This in no way resolves anything, infact it places more liabilities and encourages more fraud.  This is giving the heroin addict more heroin.  The stock market always seems to be slow in figuring these things out, but they get there eventually. 

Not advising anyone to do anything, but my own person plan is as follows:
go short TLT Monday morning. 
consider physical metals if I can source them locally on a cash/carry basis without paperwork. 
look into buying land outside of the us, my wife is originally from central america - going to see what options are open.   

[muldoon]

Thanks for the insight Muldoon. What you are saying is nothing is really changed in a material way that will help anyone out. It seems the Fed has already purchased $30B worth of MBS paper at par value when the deal was cut with JP Morgan Chase to take over the Bear Stearns fiasco. Remember the name BlackRock from earlier posts. It shows up here again as a Delaware LLC formed by JPM and the Fed for the purpose of holding the Bear Stearns MBS paper.
http://www.urbandigs.com/2008/03/fed_is_buying_mbs_paper_in_for.html Click on the link for Interfluidity, in the article for more info.
I don't have the background to understand all of the complex workings of money, all I know is when I don't have enough. Sassy I hope your retirement savings didn't get knackered in this process. Have you ever noticed that all these kind of things take place over a weekend.

Des, I dont believe thats the same thing, perhaps the difference being nitpicky.

The federal reserve and the treasury are not the same entity.  The federal reserve is a bank, a banks bank.  They did not buy 30B in MBS back in the Bear Stearns.  The treasury and the Fed loaned 30B against Bear Stearns Collateral.  The money is still to be paid back, with interest.  The bailout was not for BSC, but for JPM - who had  a large counterparty risk with Bear Stearns.  Simply put, if BSC went under the hard way JPM would stand to lose billions.  Letting them buy BSC out in a treasury/fed sponsored event let them clear the swaps and keep going. 

This weekends event is 100x bear stearns. 

[Sassy]

"To me, this should have the effect of raising the yield on treasuries.  When yield increases price falls because as they pay a higher return it requires lower upfront cost to lure in investors.  All bonds have this relationship, yields lower mean price increase. "

So, let me see if I understand, that means my money in the TSP (Thrift Savings Plan) will increase in value?  (I'm thinking positive...) It's probably the other way around, but I don't want to think that way.

I realize you can't predict & aren't advising me.  Problem with the TSP, the gov't has pretty much locked us into the plan...  I can't take the money out early unless I have a big financial or medical loss, I can only borrow a small % of the total - years ago you used to be able to borrow about 50% of the balance you have in it.  I realize there really isn't any money in TSP anymore, the gov't has borrowed & spent it all, just like Social Security.  I still have 2 more years. 

Property in another country sounds like the ticket...  because anything we own here could be easily confiscated by the gov't or with the changes that will come about if the Security & Prosperity Partnership becomes the reality through the North American Union...  or if we tick Russia off too much or Pakistan or China... who knows - all I can do is pray & trust that whatever happens God will bring me through it or I'll go on to my eternal reward which will happen to us all one day or another.  I like to be aware of what is happening to be prepared as much as possible as well as be mentally & spiritually prepared... 

Reminds me of the aristocracy & the slave classes in France when the Huguenots  & Catholics fought during the reign of Cardinal Richelieu - reminds me of a verse by King Solomon in Ecclesiastes "there's nothing new under the sun"... 

[desdawg]

Like I said I don't pretend to understand how money works at that level. I can however balance my checkbook. By the way Muldoon you can't leave the country. I need you here to straighten out my profundity of misnomers.

[glenn kangiser]

muldoon, be aware - Dubya has land in south America also for when it is no longer safe for him here.

I also have thought of going somewhere else but I doubt I will... 

Hopefully the fall of the feds will happen fast and they will soon be powerless.

[Sassy]

Globalist Ultimatum: Pay up or Collapse       Print        E-mail

By Patrick Wood, Editor
September 10, 2008

There's going to be no end of controversy over the bailout of Fannie Mae and Freddie Mac.

On September 9, 2008, CNBC's popular financial show "Squawk Box Europe" interviewed Jim Rogers (CEO of Rogers Holding) on his view of the government takeover of Fannie and Freddie:

    "You can see that this is welfare for the rich. This is socialism for the rich. It's bailing out the financiers, the banks, the Wall Streeters... This is outrageous. Who are these people who are taking our money and doing this and ruining America?"

Who, indeed!

On March 21, 2008, The August Review wrote,

    "As the global financial crisis unfolds, one thing is certain: The major investment and commercial banks who have wrecked our economy and financial system are now successfully sucking unlimited amounts of money from the people's Treasury to bail themselves out."

The August Review has demonstrated repeatedly that the net effect of the New International Economic Order (term coined by the Trilateral Commission in 1973) was to devise new and more effective ways to divert money from the public sector into certain private hands.

With their right hand, elite bankers, investors and brokers can well afford to take on all the risk they desire, knowing that their left hand can get into the U.S. treasury to bail themselves out when they hit the financial brick wall.

And with the government takeover of Fanny Mae and Freddie Mac, they have simply outdone themselves: The magnitude of this bailout is on an order higher than anything ever recorded in our planetary history.

Of course, everyone in the financial elite are feigning shock and dismay at the tragic turn of events. Saving these companies, they say, will supposedly save our financial system from utter destruction. It's an ultimatum: Pay up or collapse.
con't at link
http://www.augustreview.com/news_commentary/global_banking/globalist_ultimatum:_pay_up_or_collapse_2008090998/

[desdawg]

Socialism is upon us it would seem. Not just here in the US but in Venezuela as well. I was doing some research on Cemex since they are to build a plant in Northern AZ. Here is the story.
Cemex will seek arbitration on Venezuela nationalization
12:42p ET August 21, 2008 (MarketWatch)
NEW YORK (MarketWatch) -- Mexican cement giant Cemex will seek international arbitration at the World Bank after the Venezuelan government expropriated the company's local subsidiary this week as part of its bid to nationalize the cement industry.

Cemex said late Wednesday that it will submit a complaint seeking arbitration before the International Center for Settlement of Investment Disputes (ICSID), an institution of the World Bank.

Shares of Cemex fell 2.1% to $20.35 in New York trading.

Cemex's Venezuela assets were expropriated by President Hugo Chavez's government earlier this week after the government and the company couldn't agree on the nationalization terms. See Emerging Markets Report.

Venezuela announced in April the nationalization of at least 60% of all foreign cement producers operating in the country.

In his drive towards socialism, Chavez has already greatly expanded state control over the economy by nationalizing assets in what he considers "strategic" sectors, including oil, telecommunications, electricity, cement, steel and banking.
Cemex, the largest domestic supplier of cement and ready-mix concrete in Venezuela, has decided to challenge the nationalization of its assets, while Switzerland's Holcim and France's Lafarge struck deals with the government to sell majority stakes in their local units.

Holcim agreed to sell 85% of its Venezuelan business for $552 million and Lafarge agreed to sell 89% of its local assets for $267 million, according to media reports.

Offer "significantly undervalues" unit

"After careful analysis, Cemex determined that it could not accept the compensation proposal offered by the government of Venezuela as part of its ongoing process to nationalize its assets," Cemex said in a statement late Wednesday.

"Cemex believes that the offer of $650 million significantly undervalues its business in Venezuela," it said. Cemex had asked the Venezuelan government for about $1.3 billion for its local unit, according to media reports.

The offer presented to Cemex is "lower, proportionally, than the ones offered to the European cement companies," considering value per ton of installed capacity and EBITDA multiple, Cemex said.

Cemex said that "the confiscation and subsequent start of the expropriation process [of its assets] are a flagrant violation" of Venezuela's constitution.

The company also said that the actions of the Venezuelan government "highlight a lack of respect for the principles of international law and the treaties relating to reciprocal protection of investments."

Cemex has an annual cement production capacity of 4.6 million tons in Venezuela, where it operates three cement plants, 33 ready-mix plants, four marine terminals and other facilities.

In comparison, Holcim's annual cement production capacity in Venezuela was 2.4 million tons.

What next?

"Cemex is going to have a very tough time enforcing payment through arbitration, but it will hope to use this as a leveraging tool to speed up the negotiations and reach a compromise agreement with the Venezuelan government," said Patrick Esteruelas, an analyst at the Eurasia Group.

Arbitration procedures can last anywhere between three to five years, and even if Cemex won a ruling in its favor, it's still not certain whether the Venezuelan government will comply with the ruling, Esteruelas said.

While the Venezuelan government has significant assets abroad, it has been divesting many of these assets to protect itself in case of any adverse international rulings, he said.

"Cemex can find itself battling Venezuela in court over the next five years and then find they have no assets to seize," Esteruelas said. "Cemex is taking something of risk by foregoing the possibility of less-than-fair market value compensation immediately."

Earlier this year, Exxon Mobil Corp. tried to get a freeze on $12 billion in assets owned by Petroleos de Venezuela SA, or PdVSA, but a U.K. judge ruled against the freeze.

Oil majors Exxon and ConocoPhillips are also seeking international arbitration against Venezuela after the companies rejected the government's demands to relinquish majority stakes in two major oil projects to make room for state-run oil company PdVSA.

"As a branch of the World Bank, the ICSID is set to fall victim to the traditional anti-imperialist argument often recycled by Chavez," said Marion Barbel, an analyst at Global Insight.

Venezuela has given mixed signals about exiting the ICSID recently - it has threatened to leave it, but its dispute with Exxon is handled via the institution, she said.

"In any case, Venezuela cannot be forced to comply with ICSID's verdicts, which are non-binding in essence," she said.

[apaknad]

the fix has been in since we quit printing our own money. it is now coming to a head. let's see... i borrow money and pay alot of interest and the institution of_____(fill in the blank) becomes ultra rich. the institution makes bad decisions and is heading towards failure and i bail them out(taxes). geez, where can i get a deal like that? oh and the runners of our country say "it's this or a complete collapse of the system" to strike fear into the people. we are slaves.

[desdawg]

I think the auto makers would like to sign up for a bailout as well. Then they could play the natural gas carburation card.

[muldoon]

the fix has been in since we quit printing our own money. it is now coming to a head. let's see... i borrow money and pay alot of interest and the institution of_____(fill in the blank) becomes ultra rich. the institution makes bad decisions and is heading towards failure and i bail them out(taxes). geez, where can i get a deal like that? oh and the runners of our country say "it's this or a complete collapse of the system" to strike fear into the people. we are slaves.

apaknad,

I understand your frustration, I really do.  But I am not sure your being truly fair here either.

Our current model with the federal reserve started in 1913, however it should be noted that this is the third central bank in the US history.  The other two failed in various ways as well.  We never "printed" our own currency, and the constitution actually does not grant congress that right.  We can "coin" our money, and there was a defined ratio of grains of gold/silver to each denomination.  This system works, but has near zero inflation - for example in 1901 a carton of eggs cast the same as 1801.   It also makes economic growth very slow or outright impossible.  There are no loans for factories, stadiums, r&d technology, we might have a lifestyle of the 1940s had we not diverged from this.  (Some would say that's ok, others may like hospitals, the internet, things like tractors and chainsaws, televisions and jobs).  The fact remains that it is part of our culture however there is nothing stopping people from NOT taking out loans.  The amish live just fine without them, your paying interest by choice if you want to recognize it for what it is.  I chose to mortgage my house for 30 years, I am not a slave - I am a contract participant. 

I support the idea of a central bank, the thought of congress deciding monetary policy should scare everyone.  How much do we print this year?  eek, that could end badly.  very badly.  The concept of a central bank is not what failed us, (although they didn't help the situation), the greed, fraud, and lies are what has failed us.  It continues to do so and will until fraud and malinvestment is driven out so that fresh money can come back in.  Depressions or recessions is not the problem, it is the solution. 

The longer we put off our medicine the sicker this economy gets. 

---
I dont like any bailouts, but I would be more supportive of the auto industry than the banking.  They produce a product that increases GDP instead of the bankers that leech money from the system without producing any value.  However, I would have some rules for the auto makers if I ran things:
1) US taxpayer bails you out, we own a piece of the company.  In fact, since your a taxpayer asset you dont deserve patent protection anymore - they are given to the a foundation setup for this.  The patents you picked up and squashed along the way - batteries, efficient engines, tires, etc.  Open for all.
2) We cant be bailing out us companies just so they can build plants in Mexico and use chinese parts.  You want US dollars, you must invest them back into America. 
3) The big3 are broken, don't actually bail them out - make them file bankruptcy.  When reborn on the other side without all the entitlements give them this funding to rebuild without all those management decisions.  (That sure would make the unions mad tho). 

[peternap]

While I agree with everything you just said muldoon, but I have to veer away from any kind of government bailout for anyone.

OUR businesses have traditionally done well because of good products, good service, good marketing and good faith.
Things have gotten way too complicated and outsourcing, importation, poor quality, etc have gotten a stranglehold on out economy. Trying to fix it with a bailout a fools errand.

The simple fact is we have to run the natural gauntlet. Bad companies have to die to be replaced with good ones. Unfortunately, I think we have whistled through the graveyard too long and the natural cycle will result in a meltdown. How bad, I don't know.

[John Raabe]

Muldoon:

I appreciate your clear headed analysis and your unwillingness to go for the cheap shot at the usual suspects. (Which doesn't mean the usual suspects aren't up to their old tricks!)

I tend to see this as a deleveraging of the credit cycle economy and a nasty but natural reverse of the whole post WW2 credit expansion.

The credit cycle is a staircase of price and credit... credit is eased so that more people can borrow. Then prices go up because there is now more money chasing those products. A business can now get easier credit to build a new factory to make more product (widgets, cars, houses).

Expanding credit not only makes buying product easier, but that money is leveraged as both the baker and candlestick maker are now also making money and demanding new product - and so on, and so on. Let the good times roll!

Now, credit is hard to find, projects are difficult to start, build and sell. Businesses are closing stores and plants, people are being laid off. There is decreasing demand for product and in the face of that lower demand it is even more difficult to get the banker to extend credit. Now we are backing down the same steps we went up not so long ago.

This tends to argue for deflation winning out over inflation. This seems clearer now than a few months ago... It also looks to be a truly global deflationary cycle - perhaps the first since the 1930's???

I wonder if others are seeing it this way?

[desdawg]

Here is an article that supports your thinking John. Credit isn't all that easy to get even if you have a strong credit score in todays market.
http://www.marketwatch.com/News/Story/Story.aspx?guid={A6575BF4-9052-4A82-8512-C14FDB10856C}