Quote :

The US government formally announced today that it was taking control of mortgage giants Fannie Mae and Freddie Mac in an effort to avert the potential for major financial turmoil.

Bush administration officials announced today that the executives of both institutions had been replaced.

Herb Allison, a former vice chairman of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.

Treasury Secretary Henry Paulson said the actions were being taken because “Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe”.

(Breaking News today)

This is big enough (bigger than the UK economy) to warrant its own thread.

http://www.msnbc.msn.com/id/26591359/

The conspiracy theorists may be correct. First we had the repeal of the Glass-Steagal Act which separated the risky investment bank sector from the traditional lending bank sector and now we have the largest quasi-governmental lending institutions, which were created to provide liquidity to the traditional mortgage lenders, coming under the effective control of the Treasury. The Treasury secretary has saw fit to prop up the Investment banks while allowing traditional banks to sink under the property bubble tidal wave. How long before Freddie and Fannie are taken over from common shareholders and their effective economic control allocated to large private Investment banks?

Also, given that the big three US auto makers are going cap in hand to the Treasury and Congress for a hand out, we now know the full extent of the malaise in the US economy. IT'S FECKED. How much longer can it bankroll two wars, allow the super rich to avoid tax and still be able to stay in business? This is no longer an economic "cold" but a full blown influenza epidemic. Can the rest of the world avoid the pandemic which has been created in order for an elite to take full control of the US financial system? Watch out for news on the SEC (Securities Exchange commission). Paulson, the sectretary of the US Treasury, is gunning to have their oversight regulations and powers taken away and given to the Treasury where the elites can rule by "gentlemen's" agreement and the last independent monitoring of the Investment banks will be dismantled.

We are probably living in one of the most important moments in modern history and the devil will be in the detail. If Paulson and Bernake's long term plans come to fruition, we are probably seeing the demise of the US Republic as we know it. Those who control the finances control the government. While the US government has acted like a beggar for the past thirty years by going to the US Fed for deficit funding, it will have effectively given legal control of every facit of its financial system to the private sector. The US tax payer is no longer funding a government but is funding the very financial conglomerate, governed by a few elite shareholders, who will become the de facto leaders of the United States.

rockyracoon wrote:

The conspiracy theorists may be correct. First we had the repeal of the Glass-Steagal Act which separated the risky investment bank sector from the traditional lending bank sector and now we have the largest quasi-governmental lending institutions, which were created to provide liquidity to the traditional mortgage lenders, coming under the effective control of the Treasury. The Treasury secretary has saw fit to prop up the Investment banks while allowing traditional banks to sink under the property bubble tidal wave. How long before Freddie and Fannie are taken over from common shareholders and their effective economic control allocated to large private Investment banks?

Also, given that the big three US auto makers are going cap in hand to the Treasury and Congress for a hand out, we now know the full extent of the malaise in the US economy. IT'S FECKED. How much longer can it bankroll two wars, allow the super rich to avoid tax and still be able to stay in business? This is no longer an economic "cold" but a full blown influenza epidemic. Can the rest of the world avoid the pandemic which has been created in order for an elite to take full control of the US financial system? Watch out for news on the SEC (Securities Exchange commission). Paulson, the sectretary of the US Treasury, is gunning to have their oversight regulations and powers taken away and given to the Treasury where the elites can rule by "gentlemen's" agreement and the last independent monitoring of the Investment banks will be dismantled.

We are probably living in one of the most important moments in modern history and the devil will be in the detail. If Paulson and Bernake's long term plans come to fruition, we are probably seeing the demise of the US Republic as we know it. Those who control the finances control the government. While the US government has acted like a beggar for the past thirty years by going to the US Fed for deficit funding, it will have effectively given legal control of every facit of its financial system to the private sector. The US tax payer is no longer funding a government but is funding the very financial conglomerate, governed by a few elite shareholders, who will become the de facto leaders of the United States.

The US has exported the "golden straightjacket" - will it now come home to roost ? What about default - it seems there is pretty much nothing at the moment to stop people in the US defaulting from their mortgages with no major penalties. Is there the prospect of default by towns and cities and the US government itself ?

The lack of an alternative is a difficulty. There seems to be a spate of factory and farm occupations starting in some countries, as yet I haven't heard of squatting on an organised scale in the US.

Why don't they open their borders a bit more and allow tons more people in to fill/share those McMansions they've built?

Now there's a thought.

Great time to buy a gaff in Florida.

johnfás wrote:

Great time to buy a gaff in Florida.

Just the one?

cookiemonster wrote:

johnfás wrote:

Great time to buy a gaff in Florida.

Just the one?

Family friends of ours bought 3 there about 5 years ago. I'm sure the value has gone down alot but they borrowed in dollars so the amount they owe has dropped alot too. You can make money regardless of the market conditions if you get lucky - or are clever as some people call it.

Auditor #9 wrote:

Why don't they open their borders a bit more and allow tons more people in to fill/share those McMansions they've built?

The problem is you need jobs for immigrants to fill. That's a hard ask as unemployment is rising, and given the revisions which will come along next year for this year's US unemployment, the numbers out of work may be startling. How many minimum wage jobs can any economy accomodate? How many minimum wage earners can afford mortgages? Is Ireland really any better? There are a dozen empty McMansions around me at the moment and I live in a remote part of the county.

I've also been reading that although $500 billion in loans have been written off there is a clear consensus that at least another $500 billion will have to be written off world wide this year and early next year. And didn't the ECB put some dampers on the Irish, UK and Spanish banks who were borrowing billions in temporary loan facilities to prop up the developers loans? One has to wonder how it's all going to end. I fully expect the crisis to diminish over the next couple of years but it will be a far different world that we have been inhabiting. Our democracies depended on a broad base of business and finance opportunities in order to create a broad base of wealth and general well being throughout society. Imo, we are seeing the contraction of economic opportunity; the creation of a permanent minimum wage sub-class; barriers to entry for economic opportunity due to the necessity of the extraodinarily wealth/cash required to start any type of business; and last but not least the intense competition for natural resources. Will the US become the role model for other Western democracies whereby a virtual financial cartel effectively runs every country?

Helium Three wrote:

As part of the bailout scheme the Government has fired the CEO of Fannie Mae. His name is Mudd. Daniel H. Mudd

Is Helium Three joking? Thread on p.ie

Fannie, Indy and Freddie going down?

Thanks for your interesting posts rockyracoon. Its not possible to know how it will end, but this is a life changing time for most people, whether they are aware of it or not.

I didn't catch the ECB warning to the banks on property loans. Do you have a link? We all know I suppose that the main banks here are paying the interest on massive property loans and maybe taking a share in landholdings in the hopes that another year will see things move again.

Apart from the seriousness of the situation, I am disturbed to hear members of the Government talking about "getting through this" as though all that was happening was that we are going through some kind of little tunnel, and on the other side of it is another ten years of boom.

There seems to be no grasp of reality there. The fact that they seem to think that Ireland can revert to a functioning economy down the line simply by trimming back a little fat in a random way is scary. As is the idea that things were all going fine until one or two years ago, when they have run what real productive strength there was into the ground for the last six or seven years at least.

Auditor #9 wrote:

Helium Three wrote:

As part of the bailout scheme the Government has fired the CEO of Fannie Mae. His name is Mudd. Daniel H. Mudd

Is Helium Three joking? Thread on p.ie

Fannie, Indy and Freddie going down?

Not joking. His name is Mudd.

rockyracoon wrote:

I've also been reading that although $500 billion in loans have been written off there is a clear consensus that at least another $500 billion will have to be written off world wide this year and early next year. And didn't the ECB put some dampers on the Irish, UK and Spanish banks who were borrowing billions in temporary loan facilities to prop up the developers loans? One has to wonder how it's all going to end. I fully expect the crisis to diminish over the next couple of years but it will be a far different world that we have been inhabiting. Our democracies depended on a broad base of business and finance opportunities in order to create a broad base of wealth and general well being throughout society. Imo, we are seeing the contraction of economic opportunity; the creation of a permanent minimum wage sub-class; barriers to entry for economic opportunity due to the necessity of the extraodinarily wealth/cash required to start any type of business; and last but not least the intense competition for natural resources. Will the US become the role model for other Western democracies whereby a virtual financial cartel effectively runs every country?

Scary stuff there - hope you're wrong about most of it unless there are plenty of opportunities for travel and education in the near future alongside the grimness.

These banks going down like this - the general fear is that they will cost the taxpayer but worse, it's a sign of ineptitude or worser it's evidence of manipulation by a financial cartel (Stiglitz blames the IMF for propping them up) which is solely driven by profit. Where are the profits these banks have made? Should they not cough up anything they have in safes, products, Swiss bank accounts, the AIB branch in O'Connell Street, wherever? Any assets they have now go to the state and are disposed of in whatever way the state sees fit. The property is also taken by the state. They may sell it on cheaply or dearly or whatever but it is theirs.

Builders - what happens them?

This is a very detailed and clear report on F and F.

http://www.bloomberg.com/apps/news?pid=20601103&sid=ajcw4yxxPGJ8&refer=us

Its not only F and F that have been subbed by the Fed:

http://www.bloomberg.com/apps/news?pid=20601087&sid=af5C3f6SpmFo&refer=home

The prospect is there of them being split up and privatised, or kept in public ownership.

There will be much less mortgage lending, either way.

cactus flower wrote:

This is a very detailed and clear report on F and F.

http://www.bloomberg.com/apps/news?pid=20601103&sid=ajcw4yxxPGJ8&refer=us.

Woho! that's pretty detailed alright I don't understand the half of it i.e. who's getting screwed and so on. I'll have to read it tomorrow.

Anyone any idea how the markets'll react tomorrow? I'd say there'll be rallies all around.

Auditor #9 wrote:

Anyone any idea how the markets'll react tomorrow? I'd say there'll be rallies all around.

Finspreads (spread betting company). FTSE 100 +90, Dax +90, DJIA (Wall Street) +240.

Both Paddy Power and Finspreads have the Euro up over 1.25 cents on the dollar and the GB£ up by nearly 2 cents.

Gold is up $12+

These are only "betting" sites, and not the real markets, but it give you a flavour of what we might expect tomorrow.

The markets seem to love a good bail out!

Will the dollar finally sink below the waves?

Property is a strange beast, it is not a liability it is an asset.

You may have paid too much for it, but still it is an asset. One of the problems is that Banks really are not good at handling or managing property to obtain an income stream or minimise loss. At its basics it is plain tedious, but to maximise it often requires imagination. Empty house, repair, rent it, knock it down, get approvals, that sort of assessment and action is needed on thousands of properties. Sounds simple, but the trick is to see opportunity among the dross and generally to act with speed.

Sitting back and hoping for bail outs is not the sane way forward.

cactus flower wrote:

The US has exported the "golden straightjacket" - will it now come home to roost ? What about default - it seems there is pretty much nothing at the moment to stop people in the US defaulting from their mortgages with no major penalties. Is there the prospect of default by towns and cities and the US government itself ?

The lack of an alternative is a difficulty. There seems to be a spate of factory and farm occupations starting in some countries, as yet I haven't heard of squatting on an organised scale in the US.

In repsonse to the second part of the underlined question: Yes. A municipality in the US is going into a to receivership, of a sorts, at the moment.

As far as penalising the consumer, especially with regard to mortgage products, the US is reluctant to impose draconian legislation. Many of the first Americans arrived in the colonies as indentured servants and a certain stigma is attached to applying indentures via loan products onto ordinary individual citizens.

I worked in the mortgage industry in the US at both the lending level and at the securitisation level with an Investment bank. When I worked at the lending level I shared an office with an underwriter who took care of loans that were sold onto Fannie or Freddie. This underwriter had to jump through hoops in order to get the loans sold. The criteria was extremely stringent and all sale stipulations had to be met. No compromising. If a i wasn't dotted or a t not crossed, Fannie or Freddie would send the loan back. Simple as.

When I worked in the industry, fiduciary responsibility was the over-riding concern. The strict adherance to fiduciary responsbility was created in order to protect the bank and the banking industry by ensuring that a certain level of professionalism and integrity was gauranteed throughout the lending system. The regulators had specific roles to play and a set of criteria by which every lending institution had to conduct business. This, of course, protected the consumer from taking onto too much debt as well.

Under the vile Bush administration and the republican lead Congress, they must have jettisoned every bit of fiduciary responsibility and conduct they could come across and of course regulation must have been non-existent in order for so many dodgy loans to have been underwritten over the past decade. Why worry about attaching indentures to loan products when a few financiers have essentially taken over the entire system and Congress is essentially signing away all responsibilty and control. The entire tax paying nation is now at the mercy of the financiers, and the tax payer is paying for the priviledge of going into nationwide indenture.

I also had a gander at the Bloomberg article you cite below. What struck me is that the Treasury's first act is to run down the loan books of Freddie and Fannie as quickly as possilble under the guise of bringing them back to financial health. Wall street has been clamouring for this mortage business for decades. As someone who punts for a living, I'm betting Wall Street will get its wish.

I may have overstated the conspiracy theory bit. Not so long ago Warren Buffet, hardly a proprietor of conspiracy theories, stated that the US was in danger of becoming an oligarchy. He seems to be right.

[The source for the ECB bank lending changes can be found in Finfacts, Bloomberg and Yahoo from last week's neews tories. I'm sure the ECB website has Trichet's full statements as well. gl]

rockyracoon wrote:

cactus flower wrote:

The US has exported the "golden straightjacket" - will it now come home to roost ? What about default - it seems there is pretty much nothing at the moment to stop people in the US defaulting from their mortgages with no major penalties. Is there the prospect of default by towns and cities and the US government itself ?

The lack of an alternative is a difficulty. There seems to be a spate of factory and farm occupations starting in some countries, as yet I haven't heard of squatting on an organised scale in the US.

In repsonse to the second part of the underlined question: Yes. A municipality in the US is going into a to receivership, of a sorts, at the moment.

As far as penalising the consumer, especially with regard to mortgage products, the US is reluctant to impose draconian legislation. Many of the first Americans arrived in the colonies as indentured servants and a certain stigma is attached to applying indentures via loan products onto ordinary individual citizens.

I worked in the mortgage industry in the US at both the lending level and at the securitisation level with an Investment bank. When I worked at the lending level I shared an office with an underwriter who took care of loans that were sold onto Fannie or Freddie. This underwriter had to jump through hoops in order to get the loans sold. The criteria was extremely stringent and all sale stipulations had to be met. No compromising. If a i wasn't dotted or a t not crossed, Fannie or Freddie would send the loan back. Simple as.

When I worked in the industry, fiduciary responsibility was the over-riding concern. The strict adherance to fiduciary responsbility was created in order to protect the bank and the banking industry by ensuring that a certain level of professionalism and integrity was gauranteed throughout the lending system. The regulators had specific roles to play and a set of criteria by which every lending institution had to conduct business. This, of course, protected the consumer from taking onto too much debt as well.
Under the vile Bush administration and the republican lead Congress, they must have jettisoned every bit of fiduciary responsibility and conduct they could come across and of course regulation must have been non-existent in order for so many dodgy loans to have been underwritten over the past decade. Why worry about attaching indentures to loan products when a few financiers have essentially taken over the entire system and Congress is essentially signing away all responsibilty and control. The entire tax paying nation is now at the mercy of the financiers, and the tax payer is paying for the priviledge of going into nationwide indenture.

I also had a gander at the Bloomberg article you cite below. What struck me is that the Treasury's first act is to run down the loan books of Freddie and Fannie as quickly as possilble under the guise of bringing them back to financial health. Wall street has been clamouring for this mortage business for decades. As someone who punts for a living, I'm betting Wall Street will get its wish.

I may have overstated the conspiracy theory bit. Not so long ago Warren Buffet, hardly a proprietor of conspiracy theories, stated that the US was in danger of becoming an oligarchy. He seems to be right.

[The source for the ECB bank lending changes can be found in Finfacts, Bloomberg and Yahoo from last week's neews tories. I'm sure the ECB website has Trichet's full statements as well. gl]

Is the Fed a group of private banks, that have the "license" to issue money (and to obtain interest on it) that the US Government then backs, ?
I am trying to understand if essentially F and F has been nationalised or privatised or a weird mixture of both. Or are they in a "holding pen"?. I noticed the objective of shrinking F and F but thought it was to do with the credit crunch - I didn't recognise the "asset stripping" potential.

Did the deregulation come before or after the bursting of the dot.com bubble burst? Is this all part of a long slide contested with inflationary booms going on since the seventies?

People are saying US manufacture is doing well because of the low dollar - is that the case? Is there restructuring and investment going on or is its just a passsing manipulation of markets?

It seems to me that there are a few things that may explain why deregulation occurred - firstly, that solid, real profits were getting scarce and a fake substitute was sought - secondly, periodic amnesia, in which people forget what happened the last time there was deregulation - thirdly, end of the Cold War brought a political readiness to shaft the middle and working class - fourthly - OPEC and the increasing difficulty of extracting resources from abroad without fighting costly wars. You may well have better suggestions.

The US is grossly dependent on imported oil as it is such a crazy user of the stuff. There seems to be a turning of faces towards this problem with a view to self sufficiency rather than wars. It won't be easy but it seems to be a very positive project to engage in.

Europe seems much slower to recognise the same problem. I wonder why.

** cactus post before this

rockyracoon wrote:

I worked in the mortgage industry in the US at both the lending level and at the securitisation level with an Investment bank. When I worked at the lending level I shared an office with an underwriter who took care of loans that were sold onto Fannie or Freddie. This underwriter had to jump through hoops in order to get the loans sold. The criteria was extremely stringent and all sale stipulations had to be met. No compromising. If a i wasn't dotted or a t not crossed, Fannie or Freddie would send the loan back. Simple as.

When I worked in the industry, fiduciary responsibility was the over-riding concern. The strict adherance to fiduciary responsbility was created in order to protect the bank and the banking industry by ensuring that a certain level of professionalism and integrity was gauranteed throughout the lending system. The regulators had specific roles to play and a set of criteria by which every lending institution had to conduct business. This, of course, protected the consumer from taking onto too much debt as well.

Under the vile Bush administration and the republican lead Congress, they must have jettisoned every bit of fiduciary responsibility and conduct they could come across and of course regulation must have been non-existent in order for so many dodgy loans to have been underwritten over the past decade. Why worry about attaching indentures to loan products when a few financiers have essentially taken over the entire system and Congress is essentially signing away all responsibilty and control. The entire tax paying nation is now at the mercy of the financiers, and the tax payer is paying for the priviledge of going into nationwide indenture.

I may have overstated the conspiracy theory bit. Not so long ago Warren Buffet, hardly a proprietor of conspiracy theories, stated that the US was in danger of becoming an oligarchy. He seems to be right.

Did you work in the industry before Bush came in? They must have lent an awful lot of bad loans - by accident or design? youngdan on p.ie believes it might have been in order to stimulate the economy ... war being the other option. Bad loans better than war any day. Maybe the bad loans were just incompetence though?

Quote :

Fannie Mae and Freddie Mac, which own or guarantee almost half of the country's $12 trillion in outstanding home mortgage debt, were so large that "a failure of either of them would cause great turmoil in our financial markets here at home and around the globe," Paulson said.

Reuters article this morning explains it well. Japan and China they say are positive about this decision and why wouldn't they be - China has $376 billion and Japan $229 billion in this bank stock. The U.S. has only partially 'bailed out' the bank though ..

Quote :

"What you have is the U.S. government not putting in immediate cash, but putting its credibility on the line. It's a tremendous

help, but it doesn't solve all the problems," said Scott Bennett, a fund manager at Aberdeen Asset Management in Singapore.

"This news will likely be displaced going forward by other credit negative news. I still remain cautious," he added.

U.S. government debt prices fell, reflecting market caution about longer-term consequences of the rescue -- in particular the increased exposure of the U.S. Treasury to risky assets and possible greater debt burden. The dollar traded gained against the yen but lost against the euro and several other currencies.

The Treasury took $1 billion in preferred senior stock in each company, but its equity stake could reach as much as $100 billion in each.

The article says that mortgage rates will reduce now ... which means that either getting the money from somewhere else or punishing the banks investors - probably the former, the source being the taxpayer.

Bizarrely, because of this bailout stocks have risen so there is more confidence and more cash heading America's way. That means more liquidity overall, surely i.e. more investment, more jobs, more ability to pay back those mortgages...

Anyway, the iseq is up 300 points already and looks like a walking stick ...

I'm not too sure about all this. Who is carrying the risk now, the private owners of the Fed or the US government ?

Is Lehmans part of the Fed?

Is this not all just rearranging the cards on the house or the deckchairs on the Titanic ?

cactus flower wrote:

I'm not too sure about all this. Who is carrying the risk now, the private owners of the Fed or the US government ?

Is Lehmans part of the Fed?

Is this not all just rearranging the cards on the house or the deckchairs on the Titanic ?

Quote :

The Treasury took $1 billion in preferred senior stock in each company, but its equity stake could reach as much as $100 billion in each.

Reuters

Is it more of a confidence exercise with some restructuring involved and an injection of some liquidity into the banks? If there are so many mortgages with Fannie and Freddie then the 90% of them that are still paying must generate huge revenue for the government each month. That article does say that F & F have half of the $12 trillion mortgage market and 9% of those are bad loans..

Taking the liberty of copying youngdan's interesting post across here. When all else fails economically, try war - either abroad or at home. I would like to know who youndan things the troops will be used against when they are brought home from Iraq?.

The question with the liquidity is where does it come from. If it is "new money" backed by nothing then it is inflationary.

Quote :

Re: Fannie and Freddie stock will be wiped out Monday
by youngdan 8 hours ago

Here is something to twist arround in your heads. Over the past several weeks the dollar has risen from 1.60 to 1.43. This period has seen one heck of a deflation as well with all commodities falling faster and further than I have seen in years

A fractional reserve banking system can not survive a deflation and whatever can be done will be done to avert this. This bailout and creation of 3 trillion dollars will go some way to hold deflation at bay for a while sure enough.

3 trillion is in the ballpark of what 7 years of wars have cost. It is often heard said that the wars have ruined the economy. Those who say this do not understand the advantage of the dollar being the reserve currency. The truth is the wars have kept the economy from crashing years ago into the deflation that we now see. That 3 trillion war money was created out of thin air and spent into the economy. It has kept wholesale bankruptcies at bay till now.

The system needs another 3 trillion injection and that may be the real reason for the bailout

The old saying is "something has to give" That something is Faith in the dollar and the continueing of investors buying US Treasury Bonds. When the Fed is left to buy the bonds then we shall see what happens.

What to look out for is the gold price and the interest rates on Treasuries. If interest rates rise then Paulson will have bitten off more than he can chew.

cactus flower wrote:

The question with the liquidity is where does it come from. If it is "new money" backed by nothing then it is inflationary.

Could that liquidity come from other banks, will we see a drop in the gold hedge, more private investors getting involved in those mortgages ...? There is a shitload of interest owed on 90% of SIX trillion dollars worth of mortgages ... for the people who have the money, it might be a good bet to try to get into some of it.

Bank Stock are Rallying - No Joke But it may not last according to CNN today.

Quote :

NEW YORK (CNNMoney.com) -- Don't look now, but bank stocks are in the midst of a big rally.

Notwithstanding Thursday's painful broader market selloff, shares of some of the largest names in banking are up significantly since mid-July when fears about the health of mortgage giants Freddie Mac and Fannie Mae and institutional failures were at a fever pitch.

Shares of Citigroup (C, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) have risen more than 20%. Others like regional banks Wells Fargo (WFC, Fortune 500) and U.S. Bancorp (USB, Fortune 500), which are both mentioned frequently by analysts as being among the better-managed banks during the credit crunch, have gained close to 40%.

And even beaten down shares of Wachovia (WB, Fortune 500) have recovered nicely, gaining 71% since July 15.

I think it is the teddy bear confort factor