Wall St Journal Reports Govt to take over Freddie and Fannie

[Beachduck]

I meant share holders left holding bag not domestic debt security holders. I feel the stock would be worthless unless we bail it out also. Monday is going to be sticky. What will happen if a Cat 4 or 5 came and wiped out a portion of some state or other natural disaster. Who would finance the new infrastructure and homes ? Gov't will be neck deep with old mortgages from Fannie and Freddie and regional banks have the credit crunch. Hope it never happens but it could. Foreign buyers of our debt are going to take a serious look now. Watch the next treasury auction.

 

[Miss Critter]

...mild outrage would suffice.

.

Pretty much my natural state for some time now, regarding this and many other issues. :roll:

 

[goofer]

Indeed!

But hey, all is just peachy according to some

The fannie and freddie shareholders are wiped out. the debt holders of fannie and freddie are golden. the banks and financials will rally monday. a major uncertainty is removed from the mkt. this is a possitive for the stock mkt. the mkt will be up triple digits on monday. i will either look brilliant monday or look like a fool.

 

[SHELLY]

The fannie and freddie shareholders are wiped out. the debt holders of fannie and freddie are golden. the banks and financials will rally monday. a major uncertainty is removed from the mkt. this is a possitive for the stock mkt. the mkt will be up triple digits on monday. i will either look brilliant monday or look like a fool.

...said like a true hedgie.

.

 

[Miss Critter]

http://www.nakedcapitalism.com/2008/09/bye-bye-banks-freddie-and-fannie.html

Sunday, September 7, 2008

Bye Bye Banks: Freddie and Fannie Preferred Holders to Take Big Hits?

The reporting on the main elements of the Freddie and Fannie rescue plan is converging as the content of official briefings leaks out.

The stunner, which contradicts preliminary reports, is that the preferred shareholders in the GSEs will take losses. The Wall Street Journal reports that dividends on common will be eliminated and those on preferred will be suspended (Bloomberg, Reuters, and the New York Times were less specific, but indicated that preferred shareholders would suffer).

Justin Fox summarized why this outcome, of wiping our or otherwise damaging the preferred shareholders, had been considered highly undesirable:

Lots of small and mid-sized banks in the U.S. have, with encouragement from regulators, built up big holdings in Fannie and Freddie preferred stock, which they use to satisfy their capital requirements. If Fannie and Freddie preferred shares become worthless, a lot of banks will become insolvent. Which, with the FDIC insurance fund already being depleted by bank failure, could end up costing taxpayers a ton.


Now admittedly, the preferred shares have already inflicted sizable losses to those who bought them when issued. For instance, Freddie Mac's Z preferred was sold for $25 and has traded in the $10 to $14 range recently. But even at that level, its rich dividend (at these level, the yield is 15%+) is a support for the price. Adjustable rate preferred is trading at a bigger discount, 80+%. Where do they go once that prop is removed? Readers who can provide insight are encouraged to speak up.

 

[YoungFT]

Dont believe the $25B

Headline in the local Atlanta Journal Constitution fish wrapper states the cost of the bailout could be $25B based on an analysis by Congressional Budget Office.

$25B is baloney.

That number, created in July, is a "probability weighted expected loss" - CBO assumed a better than 50% chance Treasury would never need to bail out Fan or Fred and therefore the taxpayer would have no liability. That is now no longer true, the probability they wont bail out Fan and Fred is 0% and the taxpayer will most certainly be held for any losses to debt holders going forward.

How big will those losses be? Fan and Fred guarantee over $5 trillion in mortgages. The risky stuff is about 15% of that (750B), losses there could be as high as 20% (150B) . Maybe we'll hear more this afternoon when the announcement is official.

Just remember Humphrey Bogarts famous last words "I should never have switched from Scotch to Martinis."

 

[30ashopper]

All I have to say is GOOD RIDDANCE! Painful at first, good for the long term.

 

[SHELLY]

All I have to say is GOOD RIDDANCE! Painful at first, good for the long term.

NEW YORK, April 20, 2007 (Reuters) - U.S. Treasury Secretary Henry Paulson said on Friday the housing market correction appears to be at or near its bottom and that troubles in the subprime mortgage market will not likely spread throughout the economy.

"We've clearly had a big correction in the housing market. Retail housing was growing for some time at a level that was not sustainable," Paulson said in a speech to The Committee of 100, a business group in New York promoting better Chinese relations.

"I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained," he added.

 

[robertsondavies]

For fnm, fre. I think the banks should rally.

Ditto... Bank stocks shall rally hard for a short while.. maybe longer

 

[Bob]

Blog post attached just goes to show how slippery this entire Fannie / Freddie fiasco really is. Every mortgage pass through certificate sold has the following disclaimer on the 1st page of the Investor disclosure...

?ARE NOT GUARANTEED BY THE UNITED STATES, AND DO NOT CONSTITUTE A DEBT OR OBLIGATION OF THE UNITED STATES OR ANY OF ITS AGENCIES OR INSTRUMENTALITIES OTHER THAN FANNIE MAE?

$700B in sub-prime and Alt-A paper @ 20% loss rates = $140B cost to taxpayers, not to mention the cost to the economy, entire neighborhoods, American families today and the costs this will impose on future generations.

If the USA was public not only would we be shorting stock in the USA like crazy but we would be storming Congress and "frog marching" every member off to prison who failed to take action years ago.

http://mrmortgage.ml-implode.com/20...e-you-ever-seen-one-bill-gross-must-not-have/

it was a quasi-govt. entity....was