Fannie, Freddie and the markets in general promptly tank.
Freddie: 4.23 (-47%) Fannie: 7.40 (-44%) WHEEEEEEEEEEEEEEEEEEEEE!
The Reps are gonna be a-squealin' soon. WHEEEEEEEEEEEEEEEEEEEEE!
They seem to have recovered a bit, but still looking at about 1/3 drops. WHEEEEEEEEEEEEEEEEEEEEE!
At this point it's all bookkeeping, accounting, and other mathematical valuating calculations.
IF the dummies go around foreclosing on these properties then the US economy will (almost certainly) tip into *D*epression. A doo run-run-run, a doo run-run
It is a leading market-maker in the U.S. secondary mortgage market, which helps to replenish the supply of lendable money for mortgages and ensures that money continues to be available for new home purchases. The name "Fannie Mae" is a pronunciation of the company's initialism that has been adopted officially for ease of identification.
Remember Fannie Mae was created as part of the New Deal to fix the mortgage market during the Depression. Like I said the other day, if Fannie Mae fails, they'll have to reinvent it. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
The mortgage market has, of course, gone to shit. Without Fannie and Freddie, rates will go up, which will accelerate the crash in housing. WHEEEEEEEEEEEEEEEEEEEEE!
A trillion here, a trillion there.... WHEEEEEEEEEEEEEEEEEEEEE!
<...Yet it might be increasingly difficult to secure enough equity from private sources if US house prices continue to fall and investor confidence in Fannie and Freddie plummets further.Many observers, including Doug Elmendorf of the Brookings Institution, a Washington think-tank, believe the US government would end up taking a large stake in Fannie and Freddie in the event of a potential insolvency. This could minimise the cost to taxpayers by paying as little as possible to public shareholders. Chip MacDonald, a partner at law firm Jones Day, says any government investment should be a "distant second" to raising private capital, but believes it could be done in conjunction. A public-private approach may be the only workable solution, says Len Blum, managing director at Westwood Capital, an investment bank. He says a rights offering to shareholders, with any rights not exercised to be bought by the US government, would be one of the only ways for the groups to raise capital in the current market. "This is a step short of outright nationalisation that may, if sufficient capital is raised, result in a profit for the taxpayer," he says. Some think that if necessary, the Fed would use the discount lending facility extended to troubled investment banks also to help the mortgage groups. "The Fed can and will do whatever is needed to stabilise the market," said Karen Petrou, managing partner at Federal Financial Analytics.
Yet it might be increasingly difficult to secure enough equity from private sources if US house prices continue to fall and investor confidence in Fannie and Freddie plummets further.
Many observers, including Doug Elmendorf of the Brookings Institution, a Washington think-tank, believe the US government would end up taking a large stake in Fannie and Freddie in the event of a potential insolvency. This could minimise the cost to taxpayers by paying as little as possible to public shareholders.
Chip MacDonald, a partner at law firm Jones Day, says any government investment should be a "distant second" to raising private capital, but believes it could be done in conjunction.
A public-private approach may be the only workable solution, says Len Blum, managing director at Westwood Capital, an investment bank. He says a rights offering to shareholders, with any rights not exercised to be bought by the US government, would be one of the only ways for the groups to raise capital in the current market. "This is a step short of outright nationalisation that may, if sufficient capital is raised, result in a profit for the taxpayer," he says. Some think that if necessary, the Fed would use the discount lending facility extended to troubled investment banks also to help the mortgage groups. "The Fed can and will do whatever is needed to stabilise the market," said Karen Petrou, managing partner at Federal Financial Analytics.
How to fix Fannie Mae and Freddie Mac: Nationalize 'em 9:02 PM, July 10, 2008 William Poole has long warned that mortgage titans Fannie Mae and Freddie Mac had grown so large that they posed a serious threat to the U.S. financial system. It looks like the former Federal Reserve policymaker had it right. Stocks of both companies are in meltdown mode this week, sending ripples through U.S. markets, on fears that they don't have the capital they'll need to survive rising mortgage defaults. So let's admit the obvious, Poole suggests: Fannie and Freddie should be nationalized. In America, nationalization is among the dirtiest of words. It conjures the image of the government grabbing control of private-sector assets. But Fannie and Freddie, which buy or guarantee mortgages to support the housing market, are strange animals. They are owned by shareholders, but they were chartered by the government, and they've grown to their gargantuan sizes ($843 billion in assets at Fannie, $803 billion at Freddie) because investors worldwide believe their debts have the implicit backing of the U.S. Treasury.
William Poole has long warned that mortgage titans Fannie Mae and Freddie Mac had grown so large that they posed a serious threat to the U.S. financial system.
It looks like the former Federal Reserve policymaker had it right. Stocks of both companies are in meltdown mode this week, sending ripples through U.S. markets, on fears that they don't have the capital they'll need to survive rising mortgage defaults.
So let's admit the obvious, Poole suggests: Fannie and Freddie should be nationalized.
In America, nationalization is among the dirtiest of words. It conjures the image of the government grabbing control of private-sector assets.
But Fannie and Freddie, which buy or guarantee mortgages to support the housing market, are strange animals. They are owned by shareholders, but they were chartered by the government, and they've grown to their gargantuan sizes ($843 billion in assets at Fannie, $803 billion at Freddie) because investors worldwide believe their debts have the implicit backing of the U.S. Treasury.
Now we will see if they make it into a column in the Business section. He makes a bunch of common sense arguments in favor of the move later in the blog. If sanity be culturally normative, then by the norms of this culture I claim insanity.
Either they're private companies that should be allowed to fail, or we're going to nationalize our housing market. We need to stop pussyfooting around and make it official one way or another. WHEEEEEEEEEEEEEEEEEEEEE!
Fannie Mae was founded as a government agency in 1938 as part of Franklin Delano Roosevelt's New Deal to provide liquidity to the mortgage market. For the next 30 years, Fannie Mae held a virtual monopoly on the secondary mortgage market in the United States. In 1968, to remove the activity of Fannie Mae from the federal budget, Fannie Mae was converted into a private corporation.[1] Fannie Mae ceased to be the guarantor of government-issued mortgages, and that responsibility was transferred to the new Government National Mortgage Association (Ginnie Mae).
Fannie Mae was founded as a government agency in 1938 as part of Franklin Delano Roosevelt's New Deal to provide liquidity to the mortgage market. For the next 30 years, Fannie Mae held a virtual monopoly on the secondary mortgage market in the United States.
In 1968, to remove the activity of Fannie Mae from the federal budget, Fannie Mae was converted into a private corporation.[1] Fannie Mae ceased to be the guarantor of government-issued mortgages, and that responsibility was transferred to the new Government National Mortgage Association (Ginnie Mae).
The Bush administration on Friday attempted to quash suggestions that the US government might have to nationalise Freddie Macand Fannie Mae, the giant mortgage companies that have unsettled the financial markets, as their shares plummeted to their lowest levels in nineteen years.Hank Paulson, US treasury secretary, said: "Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission," signalling that the Bush administration was not contemplating a rescue takeover of the two groups and wanted public shareholders to continue owning them.Describing Freddie Mac and Fannie Mae as "very important institutions", President George W. Bush said that Secretary Paulson and Ben Bernanke, head of the Federal Reserve, would be "working this issue very hard".Fears that Fannie Mae and Freddie Mac could become the latest victims of the credit crisis have gripped investors this week. The two institutions are pillars of the US financial system, between them holding or guaranteeing nearly half of the $12,000bn in outstanding US mortgages and accounting for nearly three-quarters of new mortgages. On Friday their shares fell 29 per cent and 23 per cent respectively in morning trading, after suffering losses of 14 per cent and 22 per cent on Thursday. Meanwhile, the Dow Jones Industrial Average fell below 11,000 for the first time in two years and crude oil prices spiked to a record above $147 per barrel on the New York Mercantile Exchange before falling back to about $144 per barrel.
Hank Paulson, US treasury secretary, said: "Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission," signalling that the Bush administration was not contemplating a rescue takeover of the two groups and wanted public shareholders to continue owning them.
Describing Freddie Mac and Fannie Mae as "very important institutions", President George W. Bush said that Secretary Paulson and Ben Bernanke, head of the Federal Reserve, would be "working this issue very hard".
Fears that Fannie Mae and Freddie Mac could become the latest victims of the credit crisis have gripped investors this week. The two institutions are pillars of the US financial system, between them holding or guaranteeing nearly half of the $12,000bn in outstanding US mortgages and accounting for nearly three-quarters of new mortgages.
On Friday their shares fell 29 per cent and 23 per cent respectively in morning trading, after suffering losses of 14 per cent and 22 per cent on Thursday. Meanwhile, the Dow Jones Industrial Average fell below 11,000 for the first time in two years and crude oil prices spiked to a record above $147 per barrel on the New York Mercantile Exchange before falling back to about $144 per barrel.
Am I the only one who's deeply annoyed by the way ideology gets in the way of what should be a technocratic decision? When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
But - no.
Nationalisation can work very well. During WWII there was top down control of almost everything in the US, from rents to wages to production targets.
Instead of melting down, the economy turned into the proverbial well-oiled machine. Not only were production targets unequalled, but there was a spectacular increase in innovation.
It's true that war motivated everyone, and you might not get that in peace time. But still - as a plan, it worked.
The free enterprise version reliably creates disaster. There's a long history of depressions in the US, and they always happen after regulations have been relaxed and capitalism is allowed to become naked and predatory.
Serious people can't explain it. But there it is.
Migeru:
the implication being that large corporations in an industrial economy actually operate planned economies and that the "free market" of Adam Smith only applies to non-industrial sectors dominated by small companies.
How could it be otherwise? The focus on 'government' as the source of all evil is a deliberate misdirection.
Serious people can't explain it.
Because the serious people have to take the 5th. If sanity be culturally normative, then by the norms of this culture I claim insanity.
It can work. It just won't under the current regime.
Breaking news: Just announced that Indymac failed. Second-largest bank failure in history. WHEEEEEEEEEEEEEEEEEEEEE!
IndyMac Bancorp Inc. became the second-biggest federally insured financial company to fail today after a run by depositors left the California mortgage lender short on cash. The Federal Deposit Insurance Corp. will run a successor institution, IndyMac Federal Bank, starting next week, the Office of Thrift Supervision said in an e-mail today. Customers will have access to funds this weekend via automated teller machines. The Pasadena, California-based bank specialized in so-called Alt-A mortgages, which didn't require borrowers to provide documentation on their incomes. Its home state has been among the hardest hit by foreclosures.
The Federal Deposit Insurance Corp. will run a successor institution, IndyMac Federal Bank, starting next week, the Office of Thrift Supervision said in an e-mail today. Customers will have access to funds this weekend via automated teller machines.
The Pasadena, California-based bank specialized in so-called Alt-A mortgages, which didn't require borrowers to provide documentation on their incomes. Its home state has been among the hardest hit by foreclosures.
Reuters via The Guardian: IndyMac depositors pull cash as mortgage woes grow (July 8 2008)
Mortgage lender IndyMac Bancorp Inc said on Tuesday depositors had been withdrawing cash at an "elevated" pace since a key U.S. senator questioned its ability to survive the housing crisis. IndyMac shares sank 38 percent to 44 cents. A collapse of the largest independent, publicly traded U.S. mortgage lender could prove a headache for U.S. regulators since more than $17 billion of its deposits carry federal insurance. Paul Miller, a Friedman, Billings, Ramsey & Co analyst, said shareholders may be wiped out, citing IndyMac's decision to stop most mortgage lending and inability to raise capital. Miller cut his price target for the stock to zero from $1.00.
Still - right now, I don't think it's the physicists we need to run out of town on a rail.
Life should consist in at least fifty percent pure waste of time, and the rest doing what you please.
Shares of Lehman Brothers (LEH.N: Quote, Profile, Research) plunged to nine-year lows and stock in other Wall Street firms declined as new signs of distress in financial markets spooked investors. Lehman fell as much as 23 percent, before recovering to be down more than 15 percent late Friday afternoon, far outpacing the drop in rivals such as Merrill Lynch & Co (MER.N: Quote, Profile, Research), which lost 5.33 percent and Goldman Sachs Group Inc (GS.N: Quote, Profile, Research), which declined 5.15 percent. Morgan Stanley (MS.N: Quote, Profile, Research) fell 1.4 percent. In the last two weeks, Lehman has lost about a third of its market value, and the company's shares now trade at less than half their book value, or the net accounting value of its assets, which typically signals extreme distress.
Lehman fell as much as 23 percent, before recovering to be down more than 15 percent late Friday afternoon, far outpacing the drop in rivals such as Merrill Lynch & Co (MER.N: Quote, Profile, Research), which lost 5.33 percent and Goldman Sachs Group Inc (GS.N: Quote, Profile, Research), which declined 5.15 percent. Morgan Stanley (MS.N: Quote, Profile, Research) fell 1.4 percent.
In the last two weeks, Lehman has lost about a third of its market value, and the company's shares now trade at less than half their book value, or the net accounting value of its assets, which typically signals extreme distress.
*You laugh, but just wait. I give it a week until the wingers are saying this. WHEEEEEEEEEEEEEEEEEEEEE!
A useful graph:
25% might be a little too much of a discount. 10% wouldn't be shocking, taking away the saber-rattling on Iran. WHEEEEEEEEEEEEEEEEEEEEE!
and name airports and aircraft carriers after them.
Well, we do have that sewage plant in San Francisco. WHEEEEEEEEEEEEEEEEEEEEE!
