Reactions to story from The New York Times

• 

  Monday links: preferred pain

  http://abnormalreturns.com/2008/09/08/monday-links-preferred...
  85 days ago in Abnormal Returns · Authority: 132

  Its weird to have these companies [Fannie and Freddie] still publicly traded. (DealBook) There are a lot of losers in the Frannie debacle.  (NYTimes.com) Credit default swaps are going to get triggered by the Frannie conservatorship.  (DealBook, Alea)
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  Monday morning links

  http://themessthatgreenspanmade.blogspot.com/2008/09/monday-...
  85 days ago in The Mess That Greenspan Made · Authority: 159

  TOP STORIES U.S. Losses on Fannie, Freddie May Be $300 Billion, Poole Says - Bloomberg Fannie, Freddie Credit-Default Swaps May Be Unwound - Bloomberg OPEC considers cutting oil production - AP S&P, Fitch slash Fannie, Freddie preferreds to junk
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  Pass The Freddie on the Left Hand Side

  http://howardlindzon.com/?p=3824
  86 days ago in Howard Lindzon · Authority: 247

  In a big handoff to the next President, a bunch of putrid insiders (Bill Gross) and Henry Paulson have decided to bail out Frannie and Freddie. Here are a couple good overviews by The New York Times . No guy or girl named Frannie Freddie has ever turned
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  Paulson Sanity Check

  http://www.nakedcapitalism.com/2008/09/paulson-sanity-check....
  87 days ago in naked capitalism · Authority: 1,439

  Sorry to be a bit heavy on Fannie and Freddie, but this is a historic event. These statements came in a five paragraph section in a New York Times article: Mr. Paulson added a mantra of his own: he privately said he didnt want to kick the can down the
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  You Are Now the Proud Owner of the Housing Crisis

  http://awearnessblog.com/2008/09/you-are-now-the-proud-owner...
  74 days ago in AWEARNESS: The Kenneth Cole Blog · Authority: 79

  Whether we realize it or not, we the people (or "the public" or "society" or whatever we are) now effectively own the majority of real-estate capital in the United States. Most don't think about it this way, but this is what happened when Hank Paulson decided to spend taxpayer money (along with some borrowed from China and some more the Fed just printed up) to bail out all those banks and mortgage lenders and take responsibility for their debt. Paulson and friends are now even considering buying up bad loans, which we means that we the people would own tons of actual houses, and not just the capital used to finance them. I don't think anyone is particularly excited about our latest collective purchase; publicly owning real estate doesn't exactly fill you with the same sense of pride you felt upon buying your first home. Indeed, the vibe I'm picking up here in the so-called "financial capital of the world" is something close to widespread panic. Well, before we get caught up in the hysteria, three important points should be made. 1) Though tons of left-leaning journalists are speaking of a general financial meltdown, of the shattering of the foundations of American capitalism, in reality most of the problems are centered on one sector -- housing. (Though "spillover" is of course taking effect.) Fannie and Freddie both did nothing but mortgages and Lehman Brothers and AIG got into dire straights due to their forays into subprime lending and those pesky mortgage-baked securities. 2) The kind of direct state intervention into the housing market like we've seen over the past few weeks is nothing new -- the federal government has been doing it for the past 75 years (and making a general mess of things along the way.) Fannie and Freddie are a great example of this. Both we're New Deal organizations established to subsidized homeownership. They were "privatized" by LBJ (with the government still there to back their loans and regulate them) and now have been, in effect, re-nationalized by Bush and Paulson. (Back in the '60s, Fannie and Freddie were replaced with yet another government lending entity, "Ginnie Mae," indicating that there must be some federal law that all government mortgage houses must have cutesy names that make them sound like genteel Southern realtors.) 3) Though conservatives like to rail against welfare and food stamps as wicked socialism, most Republicans have treated federalized lending as pure Americana -- even as "pro-market." Too few have pointed out that there might be an unintended consequence or two when the federal government compels banks to make loans to low-income Americans who, under normal market conditions, wouldn't be considered ready for the responsibility of debt and homeownership -- this is what "sub-prime" lending is all about. Just before Fannie and Freddie collapsed, Bush & Co. were ordering them to buy up all the bad paper on the market -- indeed, this might have been what send the two lending giants over the edge. The supposedly "conservative" and "free-market" Bush admin has been one of the most assiduous in trying to inflate minority and low-income home-buying through government action. And it's thus been the poor and non-white who've suffered the most once the bubble inevitably burst. Put simply, government intervention in the housing market has been a disaster. That Paulson and Bush are trying to clean up the mess by having the public buy up everything indicates that they haven't learned much.
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  Fannie/Freddie bailout: Winners and losers

  http://financeinformant.com/2008/09/19/fanniefreddie-bailout...
  74 days ago in money news blog - Just another WordPress weblog · Authority: 1

  Fannie/Freddie bailout: Winners and losers Posted by: in Companies Competitive Strategy Filed under: Competitive strategy, Federal Natl Mtge (FNM), Morgan Stanley (MS), Economic data To comprehend why as much as $800 billion in taxpayer money could be at risk in this bailout, it pays to look at its winners and losers. Last month I appeared on CNBC’s Power Lunch discussing the potential winners and losers from a bailout of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). The bailout has been announced — featuring a government takeover of their operations, receipt of senior preferred stock worth $1 billion paying 10% dividends, the promise of buying up to $200 billion more worth of senior preferred each quarter to keep their net worths positive, $5 billion worth of open-market mortgage-backed securities (MBS) buys, and a demand that they reduce their MBS holdings by two-thirds over the next several years. It is clearer today that this takeover was triggered by a report from Morgan Stanley (NYSE: MS) that Fannie and Freddie needed $50 billion in capital “to offset the companies’ combined losses,” according to the New York Times. They’d reported $84 billion in capital at the end of June, $12 billion more than the minimum required to trigger a government takeover. The Morgan Stanley report suggested that overly optimistic bookkeeping understated their capital needs. Continue reading Fannie/Freddie bailout: Winners and losers Read Share This Share This
• 

  It’s quite simple. Quite.

  http://illegiterati.com/2008/09/16/its-quite-simple-quite/
  77 days ago in The Illegiterati · Authority: 6

  So you may have noticed that the economy is, to borrow a phrase, fucked the fuck up. To people not closely involved in finance, the events of the past week are confusing. You’re probably asking yourself, what exactly is going on? And should I convert my savings to weaponry inspired by George R. R. Martin’s fantasy series A Song of Ice and Fire? (They’re only going to go up in value!) Well, luckily, while waiting in line at the taco truck, I happened to run into nine or ten op-ed columnists and that MBA guy who keeps cornering you at parties. They were generous enough to take the time to explain the whole thing to me. Turns out they’re really smart, and people should ask their opinion more often! I wrote down everything they said. So here, now, and you won’t find this anywhere else, is the complete explanation of our current financial misadventure, as told to me by people who understand this kind of thing: Alright, Henry, you’re standing in line, waiting to buy a burrito. But what if, instead of buying a burrito with four dollars, you just told the guy in the taco truck that you would pay him four dollars later? Sound like a good idea? Well guess what. You just ruined the economy. And gave four dollars to China, and by the way, I care about human rights now. This is what happens when you borrow money you can’t pay back. This is what happens when you take out a mortgage with low payments which can quickly rise. My mortgage, by the way - It’s fixed rate. Actually, it’s not really even a mortgage, I have this, uh, it’s kind of an arrangement. Anywho. It’s a house of cards, built on nothing. There’s no money holding it up, just promises to pay money later. What’s so frustrating is that it’s so. Blindingly. Obvious. My dog could have predicted this would happen. I remember, the first time I heard of a subprime mortgage, I said, this path only leads to one place. And that, I said, is a government loan to a major insurance company in exchange for a controlling stake in the company. Yes, insurance company. Well, no. Not out loud. But it’s just so plainly obvious, I didn’t think it was necessary. I mean, you’d have to be real idiot not to see this coming. A real out-of-touch, hoity-toity fancy-lad. Anyway, I hope some of that got through to you. So you there you go. I certainly feel a lot better knowing that so many people are totally on top of things.
• 

  Alan Greenspan is Right on Fannie Mae & Freddie Mac

  http://blog.adamnash.com/2008/09/12/alan-greenspan-is-right-...
  82 days ago in Psychohistory · Authority: 95

  The incredibly historic economic news keeps coming this week.  Truly momentous.  It’s as if every article, every book, every course I’ve ever taken in modern economic history and theory was to prepare to understand the events of the past 12-24 months. In some ways, I think I’m in shock.  It’s like watching history in the making.  History that will be the subject of textbooks for decades to come.  It’s really unbelievable. After 70 years, we’ve come to the realization that yes, in fact, you cannot keep the benefits of a private company with public guarantees without paying the price at some point. To rephrase, for decades, politicians from all parties have been in awe of the magic of Fannie Mae and its brethren.  Born out of the Great Depression, and spun off to raise funds for Johnson’s Great Society projects, it seemed to good to be true: Private investors provide capital to add liquidity to the mortgage market Home buyers get cheaper rates Investors get “completely safe” securities that pay slightly more than Treasuries The company generates huge profits on the debt spread between their borrowing rates and mortgage rates/defaults Well, now we know that it was, in fact, “too good to be true”. There is a lot to be concerned about in the Paulson plan.  It’s not at all clear why the sub-debt holders were left whole.  It’s not at all clear why the shareholders were left with 20% of the company. Given the magnitude of the problem and the unpredictability of the large number of parties and variables involved, however, I’m willing to assume that Paulson didn’t optimize for the “best” deal, but for the most pragmatic and least risky in the near term. (By the way, if you are looking for details, the New York Times pieces here and here have the best write-ups I’ve found to date.) My biggest fear, at this point, is that the plan really defers the final solution to this problem until the next administration, when hopefully we’re through the worst of this.  It sounds pragmatic, but in reality, it makes it much more likely that by then the crisis will have past, and Republicans and Democrats will retreat to their historic disfunction on the topic. I’ve read a multitude of proposed solutions, but in this case, I have to say, “Please listen to Alan Greenspan on this one.” Yes, I know bashing Greenspan has become popular.  I’ll address that in another blog post - I had the opportunity to read his recent auto-biography, and I thoroughly enjoyed it. Try to ignore the bashing for now, and just focus on his recommendations for Fannie, Freddie, and their ilk. Here is a WSJ story that summarizes his recommendations, made earlier this year: His quarrel is with the approach the Bush administration sold to Congress. “They should have wiped out the shareholders, nationalized the institutions with legislation that they are to be reconstituted — with necessary taxpayer support to make them financially viable — as five or 10 individual privately held units,” which the government would eventually auction off to private investors, he said. Instead, Congress granted Treasury Secretary Henry Paulson temporary authority to use an unlimited amount of taxpayer money to lend to or invest in the companies. In response to the Greenspan critique, Mr. Paulson’s spokeswoman, Michele Davis, said, “This legislation accomplished two important goals — providing confidence in the immediate term as these institutions play a critical role in weathering the housing correction, and putting in place a new regulator with all the authorities necessary to address systemic risk posed by the GSEs.” But a similar critique has been raised by several other prominent observers. “If they are too big to fail, make them smaller,” former Nixon Treasury Secretary George Shultz said. Some say the Paulson approach, even if the government never spends a nickel, entrenches current management and offers shareholders the upside if the government’s reassurance allows the companies to weather the current storm. The Treasury hasn’t said what conditions it would impose if it offers Fannie and Freddie taxpayer money. He’s right, and it’s not too late to move in this direction. There is no reason for Fannie Mae & Freddie Mac to continue in their current forms. The government should regulate strictly the requirements for securitizing and guaranteeing mortgages, the way that they regulate commercial banking, deposits, and other types of financial business.  They can define specific types of mortgages, even give the types names to make it easier for consumers to comparison shop, and let the “Baby Fannies” compete to make markets in them. By breaking them up, and auctioning them off to the mega-banks, both domestic and international, they guarantee a distributed system that will be extremely fault tolerant to the failure of any one entity.  If they structure the regulation properly, they can turn this business into a stable, predictable, profitable business. Gone is the government guarantee.  Gone is the lobby machine.  Gone is the too-big-to-fail entity. I think Rep. Barney Frank (D, New York) is an example of why I’m afraid this won’t happen: In the House, Mr. Frank, the chairman of the House Financial Services Committee, criticized the administration’s attempt to shrink the companies. He staunchly defended the companies’ ability to channel some of their profits from conventional mortgage financing to subsidize the construction of affordable rental housing and lower borrowing costs for low-income home buyers. Mr. Frank seemed confident that he could stop the effort by the administration to ultimately shrink the companies through its rescue plan over the long term. Catch that?  What Mr. Frank likes is the fact that instead of getting Congress to agree to fund affordable rental housing programs, which would have to be paid through taxes or spending cuts elsewhere, he liked having an “off the books” slush fund to pay for these projects.  He’s still at it: After repeated clashes with the White House over legislation that authorized the Treasury to bail out the companies, Mr. Frank succeeded in including a provision that required Fannie and Freddie to divert some of their profit from buying up “jumbo” mortgages for expensive houses into a fund for affordable rental housing. Great.  After all, passing a law to force Fannie Mae to spend money on a program doesn’t cost the taxpayer anything, does it? Well, it does.  Those strings came at a price.  The price was the implicit government guarantee. And now we have a better idea of what that price really was.  And it’s not worth it.
• 

  The Fall of the Freddie Mac and Fannie Mae

  http://weichounyu.blogspot.com/2008/09/fall-of-freddie-mac-a...
  82 days ago in William Yu's Blog · Authority: 2

  NYT had a good report on the fall of these two mortage giants. The story is as dramatic as the rescue of Bear Stearns in March.
• 

  Fannie and Freddie: A Lot Has Changed in 6 Months

  http://bubblemeter.blogspot.com/2008/09/fannie-and-freddie-l...
  82 days ago in Bubble Meter · Authority: 988

  Six months ago, Fannie Mae and Freddie Mac were supposed to be the saviors of the housing market. Congress even placed them at greater financial risk by raising the conforming loan limit, so they could help rescue the California housing market. These housing market superheroes don't look so super anymore. From The New York Times: The seizure of Fannie and Freddie is all the more surprising because, as recently as late March, Washington viewed the companies as saviors of the housing market and the economy, rather than as risks to them. Instead of requiring Fannie and Freddie to scale back, regulators gave them a green light to buy and guarantee more and bigger mortgages. On March 19, James B. Lockhart, their chief regulator, dismissed swirling rumors about their financial health. “The actions we’re taking today,” Mr. Lockhart declared, referring to a decision to ease restrictions on how much capital they were required to hold, “make the idea of a bailout nonsense in my mind. The companies are safe and sound, and they will continue to be safe and sound.”Bubble Meter knew better, but we don't even get paid for this. Why are the professionals so clueless?

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