Barney Frank: Treasury GSE Intervention is a "Done Deal"
Congressman Barney Frank, Chairman of the Financial Services Committee, says this is really happening:
"Rep. Barney Frank (D., Mass.) confirmed that Treasury Secretary Henry Paulson is planning government intervention to back troubled mortgage giants Fannie Mae and Freddie Mac.
The chairman of the House Financial Services Committee, said in a statement Saturday that Mr. Paulson "intends to use the powers that Congress provided it" in a law passed in July to keep Fannie Mae and Freddie Mac stable and functioning. But Mr. Frank said he didn't "know the details of the proposed interventions," and a Treasury spokeswoman declined to comment...
It is also expected to involve the government injecting capital into Fannie and Freddie. That could happen gradually on a quarter-by-quarter basis, rather than in a single move, one person familiar with the matter said...
Among the issues with which Treasury has been wrestling is whether to make an investment at such a low price that shareholders are effectively wiped out. Mr. Paulson is cautious about any plan that appears to benefit shareholders because he doesn't want the government to be seen as bailing out investors who for years profited from the companies' success."
Any questions?
>
Source:
Frank Confirms Treasury Intervention To Shore Up Fannie Mae, Freddie Mac
DEBORAH SOLOMON and DAMIAN PALETTA
WSJ, September 6, 2008 2:39 p.m.
http://online.wsj.com/article/SB122072588739407007.html
Saturday, September 06, 2008 | 02:44 PM | Permalink
| Comments (74)
| TrackBack (1)
add to de.li.cious | 
digg this! | 
add to technorati | 
email this post
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c52a953ef00e554e8e80a8833
Listed below are links to weblogs that reference Barney Frank: Treasury GSE Intervention is a "Done Deal":
» Government may soon back troubled mortgage giants from Unpartisan.com Political News and Blog Aggregator
The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monu [Read More]
Tracked on Sep 6, 2008 11:14:20 PM
Comments
If he knows it's happening, one would assume that he knows the details, or maybe the details are still being worked out. Also interesting that Paulson wants to punish the shareholders, most of which are innocent byst5anders with no real influence, and let's the top exedcs retain all of their bonus monies and inflated salaries. That'll show 'em Paulson.
Posted by: larster | Sep 6, 2008 2:59:37 PM
let them eat cake.
Posted by: jeffg166 | Sep 6, 2008 3:09:13 PM
'Mr. Paulson "intends to use the powers that Congress provided ..." But Mr. Frank said he didn't "know the details of the proposed interventions." '
This is the very definition of a rubber-stamp parliament. They passed a "law" giving Paulson a blank check. But they have no idea what's in it, or what it does. Much like the Patriot Act, waved through unread by anybody.
What a way to run a banana republic. Death to the dollar! America number 1!
Posted by: Jim Haygood | Sep 6, 2008 3:25:07 PM
Can't reach anywhere in my brian to explain the pain, must have capital, by the Capital, to provide U.S. Zilch.
Posted by: JustinTheSkeptic | Sep 6, 2008 3:28:09 PM
larster,
The culpability of the shareholders is irrelevant. They knew the risks they were taking when they bought the stock. What is being proposed is for the government to absorb all future downside in the operation of these companies. The shareholders, common and preferred, should be wiped out before this occurs. If Uncle Sam takes the downside, no private party should take the upside.
I'm also curious as to how FNM's and FRE's subordinated debt holders and derivative counterparties will be treated. It could be that payments on some of those obligations will be delayed until the entities regain solvency and Uncle Sam is made whole.
Posted by: Terminator_X | Sep 6, 2008 3:29:12 PM
Barry, how in the heck can you suggest any of this even remotely has anything to do with a free market? When money is "fiat" (i.e. decreed by the government) and interest rates, the most important price in an economy, are set by 12 men gathering in a room? That has more to do with the Soviet Union than with free-market capitalism. When a highly-leveraged fractional reserve banking system is strongly encouraged and maintained purely by a government 'lender of last resort' (i.e. the Fed), then of *course* such a government-run monetary system is grotesquely unstable and prone to regular panics, crashes, and deleveragings. Without a lender of last resort and without the FDIC, our economy would never have gotten anywhere near as leveraged in the first place, and hence wouldn't be in danger of catastrophic *de*leveragings (any bank that took on too much risk would quickly see a "run" to put it back in its place, and giving warning to other banks to be conservative.) Give me a gold standard and pure free-banking system with no Fed -- then we can start talking about how the free market operates.
Posted by: show me a free market | Sep 6, 2008 3:29:45 PM
They passed legislation in July to pave the way for this bail-out. Why so many people are surprised by this action is, well, to be polite, odd.
Posted by: Stuart | Sep 6, 2008 3:31:44 PM
The Congress is a non-entity; we live in an Imperium.
Posted by: Paul Jones | Sep 6, 2008 3:44:04 PM
Show me free markets, I would wager to bet that your 50x the brain than me about this stuff, but didn't we have very high inflation back in the days when Spain was bringing in tons of gold from the New World? Hence what really needs to be figured out is what is the "fiat" ratio of currency to "living bodies, in global economies," that best suits a expandable, yes not too inflationary invironment. Am I right or wrong?
Posted by: JustinTheSkeptic | Sep 6, 2008 3:47:36 PM
Right on, Stuart.
Where were all these free market complainers when the problem was being created? Oh yeah, they were in line to get a below-market 2% teaser ARM, just like everyone else. Or maybe they were flipping houses. Or riding the bull market in equities.
We are where we are today, and Paulson will come up with the best possible solution, going forward.
Does anyone have a better idea? Should Paulson walk away from this whole mess? Let's discuss the downside of doing that.
What BS gets posted on these comment threads. Incredible bunch of fools out there. Scary thing is, they vote.
Posted by: JohnB | Sep 6, 2008 3:47:47 PM
I like the comment about how FRE and FNM were profitable to shareholders.
My 401k has a snippet of both FNM and FRE (because of SPY). It's only been a loser now for the last 6 years.
Posted by: John Borchers | Sep 6, 2008 3:49:01 PM
"The Congress is a non-entity; we live in an Imperium."
Excuse me, but it is well documented that Congress was thoroughly corrupted by Fan and Fred during the years when they were doing their damage to the free markets. Congress was a fully-involved co-conspirator.
Congress is now more than happy to give the Administration full power to clean up the mess and pretend that congress was in no way involved.
Dirty, dumb politics in the legislative branch is hardly an Imperium.
Posted by: JohnB | Sep 6, 2008 3:51:57 PM
Once Fannie and Freddie are "saved", their CEO's and top level officers need to be salary and compensation capped like the rest of the federal workers...the current cap is $191,300 (an no stock options or bonuses). That will free up a ton of money that can be used to buy up mortgages...
Posted by: Jeff | Sep 6, 2008 3:57:54 PM
Justin, it's true that there was inflation as a result of New World gold discoveries, but that pales in comparison to the inflation we see with fiat currency. The Spanish gold inflation averaged out to about 3% a year over that century. And that's the *worst* inflationary episode ever seen under a gold standard. In contrast, look at all the inflationary disasters over the past 100 years -- from Weimar Germany to Zimbabwe.
But more broadly: Let the people decide what they want to use for money; they will choose whatever element best serves their economic interests. Historically this has been gold, but if a better element comes along the free market will switch to that. In any case, most importantly: take our monetary system completley out of the hands of the government. Separation of State and economics -- in the same manner and for the same reason as separation of Church and State.
Posted by: show me a free market | Sep 6, 2008 3:58:10 PM
Justin, it's true that there was inflation as a result of New World gold discoveries, but that pales in comparison to the inflation we see with fiat currency. The Spanish gold inflation averaged out to about 3% a year over that century. And that's the *worst* inflationary episode ever seen under a gold standard. In contrast, look at all the inflationary disasters over the past 100 years -- from Weimar Germany to Zimbabwe.
But more broadly: Let the people decide what they want to use for money; they will choose whatever element best serves their economic interests. Historically this has been gold, but if a better element comes along the free market will switch to that. In any case, most importantly: take our monetary system completley out of the hands of the government. Separation of State and economics -- in the same manner and for the same reason as separation of Church and State.
Posted by: show me a free market | Sep 6, 2008 3:58:54 PM
i guess we know why the USD has rallied and commodities have crashed for the last 6 weeks... the central banks needed to get a running start before they launched the most coordinated and destructive phase of completely debasing our currency and hyper-inflating. surely, they couldn't do it with USD plumbing its lows and commodities heading into orbit!
Posted by: jeff d. | Sep 6, 2008 4:00:04 PM
WHAT WILL THE MARKETS DO ON MONDAY AND BEYOND???
IS THIS MOVE BAD FOR EQUITY MARKETS???
EITHER A BIG DOWN MOVE AHEAD = BAD
OR
A BIG UP MOVE NOMINALLY WITH REAL GAINS BEING NON-EXISTENT = BAD
Posted by: SINGER | Sep 6, 2008 4:04:04 PM
The Preferreds may not be wiped out. But will they get their coupon?
Posted by: Abbott_Of_Iona | Sep 6, 2008 4:06:01 PM
"But more broadly: Let the people decide what they want to use for money; they will choose whatever element best serves their economic interests. Historically this has been gold, but if a better element comes along the free market will switch to that. "
iPods. Let's agree to use iPods as our new currency.
Think about how "gold" dates you when you use it as an answer. Ask anyone under 30 if they would prefer a new iPod or its equivalent in gold. Not hard to predict their response.
Gold is only the answer if we all agree that it is the answer. I suspect most people in this world would attach greater utility to "oil" or "food" or "iPod" than to "gold".
Or maybe even "the dollar".
You know, apart from the kooks who post on BR's threads and elsewhere, I'm willing to suspect that this Fannie/Freddie transaction is not the doom and gloom driver that people think it is, but rather it is pretty much already priced in.
Disagree? Then tell me, where is the surprise in this weekend's pending news?
Posted by: JohnB | Sep 6, 2008 4:10:22 PM
JohnB, maybe we should go back to JohnC - John Calvin, and start all over down this slippery-slope...because it do seem that that is the direction of man, and your right man!
Posted by: JustinTheSkeptic | Sep 6, 2008 4:22:16 PM
JohnB,
"Gold is only the answer if we all agree that it is the answer. I suspect most people in this world would attach greater utility to "oil" or "food" or "iPod" than to "gold"."
JohnB -- we *did* all agree that gold was the answer -- until FDR made gold illegal and confiscated it all, and made it illegal to make any contracts in gold terms. In other words, the government had to *force* people to stop using gold, at the point of a gun (and threat of jail).
JohnB, you will quickly *re*discover the utility of gold when you try to carry $100 worth of oil in your pocket to buy groceries with. Or when you try to use your ipod to buy a newspaper, and you get 98% of an i-pod back as change.
Posted by: show me a free market | Sep 6, 2008 4:22:30 PM
JohnB, who's saying that this is doom-O-gloom, in itself??? This is speed-bump-to doom-O-gloom. Where tell us do you think the U.S., ah! the World Economies will be two years hence?
Posted by: JustinTheSkeptic | Sep 6, 2008 4:25:42 PM
Showmefreemarkets, but would you not agree that one man/woman today is in "total welfare terms," better off than one man/woman in the days of yore? To suggest that liquidity never needs tweeking is being a bit nievte.
Posted by: JustinTheSkeptic | Sep 6, 2008 4:30:48 PM
Hank, is that a bazooka in your pants, or are you just happy to see me.
Posted by: matt | Sep 6, 2008 4:32:01 PM
Poster above said: ..."Gold is only the answer if we all agree that it is the answer. I suspect most people in this world would attach greater utility to "oil" or "food" or "iPod" than to "gold". Or maybe even "the dollar."
I would agree to a peg that available in nature and is not man-made, like i-pods, dollars, test tube babies, and make sure that it expands at an aggregate pace that matches the real economic growth around the world...
- Layman
Posted by: free markets | Sep 6, 2008 4:32:32 PM
