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U.S. Plans to Seize Fannie and Freddie
- Thread starter razf1
- Start date
looks like the Russians, Chinese, and Arabs will be 'openin' up shop' here soon, and we can get our mortgages financed from them!
It's either them, or any hedge funds left standing.
Where's George Bailey when we need him??
At first blush, I thought this may somehow be bullish, (and it may be, who knows), on the thought that (more of) the cancerous tissue is being removed, but this may be more like the complete amputation sans anesthiesia of a major limb.
Likely Thursdays selloff was due in no small measure to advance knowledge of the above.
I wonder if Bill Gross is coming out ok on this deal...he was smiling wider than usual this afternoon, on the news.
Likely to be some yet-to-be-seen ramifications (that word makes me think somebodies are going to get-rammed) from this.
Any thoughts of implications for further specific damages, (or benefits)?
It's either them, or any hedge funds left standing.
Where's George Bailey when we need him??
At first blush, I thought this may somehow be bullish, (and it may be, who knows), on the thought that (more of) the cancerous tissue is being removed, but this may be more like the complete amputation sans anesthiesia of a major limb.
Likely Thursdays selloff was due in no small measure to advance knowledge of the above.
I wonder if Bill Gross is coming out ok on this deal...he was smiling wider than usual this afternoon, on the news.
Likely to be some yet-to-be-seen ramifications (that word makes me think somebodies are going to get-rammed) from this.
Any thoughts of implications for further specific damages, (or benefits)?
I think the relative strength of financials the last two days was previous knowledge.
This could give big holders of toxic MBS a get out of jail free card. With the government guaranteeing payment to the bond holders - the likes of LEH, C, JPM, BAC could get a huge lift.
Companies that own a big chunk of the common like LM could get hammered.
Dollar could lose some value as U.S. takes on more debt - adding power to today's beginning of commodities turn around.
This is huge news - opinions?
This could give big holders of toxic MBS a get out of jail free card. With the government guaranteeing payment to the bond holders - the likes of LEH, C, JPM, BAC could get a huge lift.
Companies that own a big chunk of the common like LM could get hammered.
Dollar could lose some value as U.S. takes on more debt - adding power to today's beginning of commodities turn around.
This is huge news - opinions?
Quote from timscott:
I think the relative strength of financials the last two days was previous knowledge.
This could give big holders of toxic MBS a get out of jail free card. With the government guaranteeing payment to the bond holders - the likes of LEH, C, JPM, BAC could get a huge lift.
Companies that own a big chunk of the common like LM could get hammered.
Dollar could lose some value as U.S. takes on more debt - adding power to today's beginning of commodities turn around.
This is huge news - opinions?
Fannie & Freddie have dibs on half the Mortgages in America. The good half - not the toxic half.
Who ever is holding the "bad half" (Alt-A, Option ARMs, Jumbo, Super Jumbo, etc...) ... is going to go down hard.
It appears, everyone might be using misleading, if not fraudulent, accounting methods to overstate their capital base.
The storm is not over, until all the fraud is revealed.
Quote from ChkitOut:
I honestly can't believe what has transpired here.
US tax payers foot the bill for douche bag lenders and borrowers.
I guess its the only way but ultimately who gets punished here besides the tax payer.
The biggest problem with this entire situation is there is Sooooooooooooo many people to blame that you can no way single any one entity or person out for getting us into this crap.
Nuts i tell ya!
Does this mean the housing market is gona be fucked for another 10 years?
agreed - this is insanity. when the banks and fnm, fre, were making record profits - was the taxpayer ever given a bonus? a break on his/her mortgage? a toaster?
i wonder what Bill Gross's hair is going to think of this...
Pardon my ignorance,but how in the world is FRE/ FNM paper rated AAA by S&P,and they are now essentially in a pre bankruptcy??
Am I missing something??
Nice to know that the equity holders are going to be wiped out,and its good old folk like you and I theoretically guaranteeing the debt with no upside.
Am I missing something??
Nice to know that the equity holders are going to be wiped out,and its good old folk like you and I theoretically guaranteeing the debt with no upside.
Quote from timscott:
I think the relative strength of financials the last two days was previous knowledge.
This could give big holders of toxic MBS a get out of jail free card. With the government guaranteeing payment to the bond holders - the likes of LEH, C, JPM, BAC could get a huge lift.
Companies that own a big chunk of the common like LM could get hammered.
Dollar could lose some value as U.S. takes on more debt - adding power to today's beginning of commodities turn around.
This is huge news - opinions?
http://online.wsj.com/article/SB122079276849707821.html?mod=yahoo_hs&ru=yahoo
The Treasury said its senior preferred stock purchase agreement includes and upfront $1 billion issuance of senior preferred stock with a 10% coupon from each GSE, quarterly dividend payments, warrants representing an ownership stake of 79.9% in each firm going forward, and a quarterly fee starting in 2010.
***
My initial thoughts that this values the GSEs at a market cap of $1.25 billion (1 billion / 0.799) each, made up of
1 billion Treasury senior preferred + 250 million pre-existing equity.
647 million shares oustanding for FRE and 1.07 billion shares oustanding for FNM
so an approximate "value" for FRE of 39 cents (250 / 647) and a "value" for FNM of 23 cents (250 / 1,070).
I also note that the above WSJ article is timestamped 11.14am, which suggests that it was written well before the 11am news conference.
Furthermore, the article contains detail about the senior preferred stock that
(1) is not contained in the US Treas web site announcement (thanks to GTS for the link)
http://www.ustreas.gov/press/releases/hp1129.htm
and
(2)
Paulson started talking about at about 11.25am
The Treasury said its senior preferred stock purchase agreement includes and upfront $1 billion issuance of senior preferred stock with a 10% coupon from each GSE, quarterly dividend payments, warrants representing an ownership stake of 79.9% in each firm going forward, and a quarterly fee starting in 2010.
***
My initial thoughts that this values the GSEs at a market cap of $1.25 billion (1 billion / 0.799) each, made up of
1 billion Treasury senior preferred + 250 million pre-existing equity.
647 million shares oustanding for FRE and 1.07 billion shares oustanding for FNM
so an approximate "value" for FRE of 39 cents (250 / 647) and a "value" for FNM of 23 cents (250 / 1,070).
I also note that the above WSJ article is timestamped 11.14am, which suggests that it was written well before the 11am news conference.
Furthermore, the article contains detail about the senior preferred stock that
(1) is not contained in the US Treas web site announcement (thanks to GTS for the link)
http://www.ustreas.gov/press/releases/hp1129.htm
and
(2)
Paulson started talking about at about 11.25am
US Treasury policy = take money by force from the taxpaying middle class during an economic slump when they are struggling to get by, and give it to foreigners, incompetent CEOs, and wealthy financial institutions as a reward for disastrously failed speculation that caused the slump in the first place.
Even Don Corleone wouldn't stoop to this level of fleecing and extortion of the little guy.
Even Don Corleone wouldn't stoop to this level of fleecing and extortion of the little guy.
Details of senior preferred stock
http://www.treasury.gov/press/releases/reports/pspa_factsheet_090708 hp1128.pdf
OFHEO release
http://www.ofheo.gov/newsroom.aspx?ID=456&q1=1&q2=None
WSJ article with details of senior preferred stock
http://online.wsj.com/article/SB122079276849707821.html
The Treasury said its senior preferred stock purchase agreement includes and upfront $1 billion issuance of senior preferred stock with a 10% coupon from each GSE, quarterly dividend payments, warrants representing an ownership stake of 79.9% in each firm going forward, and a quarterly fee starting in 2010.
***
My initial thoughts that this values the GSEs at a market cap of $1.25 billion (1 billion / 0.799) each, made up of
1 billion Treasury senior preferred + 250 million pre-existing equity.
647 million shares oustanding for FRE and 1.07 billion shares oustanding for FNM
so an approximate "value" for FRE of 39 cents (250 / 647) and a "value" for FNM of 23 cents (250 / 1,070).
I also note that the above WSJ article was initially released at 11.14am, which suggests that it was written well before the 11am news conference.
http://www.treasury.gov/press/releases/reports/pspa_factsheet_090708 hp1128.pdf
OFHEO release
http://www.ofheo.gov/newsroom.aspx?ID=456&q1=1&q2=None
WSJ article with details of senior preferred stock
http://online.wsj.com/article/SB122079276849707821.html
The Treasury said its senior preferred stock purchase agreement includes and upfront $1 billion issuance of senior preferred stock with a 10% coupon from each GSE, quarterly dividend payments, warrants representing an ownership stake of 79.9% in each firm going forward, and a quarterly fee starting in 2010.
***
My initial thoughts that this values the GSEs at a market cap of $1.25 billion (1 billion / 0.799) each, made up of
1 billion Treasury senior preferred + 250 million pre-existing equity.
647 million shares oustanding for FRE and 1.07 billion shares oustanding for FNM
so an approximate "value" for FRE of 39 cents (250 / 647) and a "value" for FNM of 23 cents (250 / 1,070).
I also note that the above WSJ article was initially released at 11.14am, which suggests that it was written well before the 11am news conference.
If you haven't read the press release, you might want to. As bad as it is to have to bailout FRE and FNM, the plan is about as good as can be imo. As I read it, all losses go to common equity first, then current preferred shareholders, before the government's new preferred shares take any loss. And while they will buy more mortgage's until the end of 2009, after that, they are going to lower the amount of mortgages they hold by 10% year after year.
So, I could be wrong here and the plan could change down the road, but it really looks like they are protecting the taxpayer dollars as much as they can. And imo, it reads like they will eventually shut down FRE and FNM. They are not going to be run to make money for shareholders any more. They are trying to get the economy through the crisis, and hopefully once that is over, they are going to become smaller with each passing year.
That being said, it's probable that IF this plan works and 10 years down the road FRE and FNM are in great shape as much smaller entities, some gov't official will decide to take em public again and we can go through this 40 years from now all over again. But for now, it actually reads pretty well.
Here's link: http://www.bloomberg.com/apps/news?pid=20601087&sid=aDipiKDdhfSI&refer=home
So, I could be wrong here and the plan could change down the road, but it really looks like they are protecting the taxpayer dollars as much as they can. And imo, it reads like they will eventually shut down FRE and FNM. They are not going to be run to make money for shareholders any more. They are trying to get the economy through the crisis, and hopefully once that is over, they are going to become smaller with each passing year.
That being said, it's probable that IF this plan works and 10 years down the road FRE and FNM are in great shape as much smaller entities, some gov't official will decide to take em public again and we can go through this 40 years from now all over again. But for now, it actually reads pretty well.
Here's link: http://www.bloomberg.com/apps/news?pid=20601087&sid=aDipiKDdhfSI&refer=home