Here Comes the Half Trillion Dollar Fannie/Freddie Bailout!
A series of high-level meetings between Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and the chief executives of Fannie Mae (FNM) and Freddie Mac (FRE), along with the companies' new regulator, the Federal Housing Finance Agency took place today.
Rumors of the meetings had obviously leaked out earlier in the day, as the Financials and Homebuilders ramped up into the afternoon. Beazer Homes gained +8%, and Lennar popped 8.5%, despite the 4 million plus homes in inventory.
The announcement is more likely to be modest -- $35-50 Billion dollars -- but that is a mere bandaid. Once the initial bolt is shot, it will be back to the well, over and over again. $5 to 6 Trillion move back on to Uncle Sam's balance sheet, plus whatever losses that accrued from buying the bum mortgages -- figure a few $100 billion. (Hey, it must be nice to be Pimco!)
As to the crappy derivatives that Phony and Fraudy bought when they thought of themselves as giant hedge funds -- the first person in government that suggests taxpayer money be used to cover those losses, I will personally feed into a wood chipper . . . Feet first . . . Slowly.
Bloomberg reported some of the rumored details:
"The Treasury Department is close to finalizing a plan to help shore up mortgage giants Fannie Mae and Freddie Mac, according to people familiar with the matter. Precise details of Treasury's plan couldn't be learned. The plan is expected to involve a creative use of Treasury's new authority to make a capital injection into the beleaguered giants. The plan includes changes to senior management at both companies, according to a person familiar with the plans. An announcement could come as early as this weekend. Treasury Secretary Henry Paulson met with regulators and executives of Fannie Mae and Freddie Mac today amid speculation the Bush administration is near completing a plan for an injection of government funds in the companies. Paulson gathered with Federal Reserve Chairman Ben S. Bernanke, Fannie Mae Chief Executive Officer Daniel Mudd, Freddie Mac CEO Richard Syron and Federal Housing Finance Agency director James Lockhart in Washington. Mudd and his aides have also been meeting at the FHFA, which oversees the two firms, with catered food scheduled for delivery at the agency through the weekend."
I suspect this will be another hugely expensive and ultimately unsuccessful attempt to bailout our prior irresponsible profligacy. Ultimately, we pay for this through 1) the massive printing of more dollars; 2) some corresponding form of hyper inflation; and 3) the kindness of not strangers but our overseas overlords.
That's right -- we have no money for rebuilding our infrastructure, for any form of National Heath Care, for fixing/saving social security, but a bunch of rogue traders and Alan Greenspan, under the guise of "Deregulation" can leverage up and lose trillions, which you the taxpayer is on the hook for!
Free market my arse!
~~~
Here are your weekend questions:
How much is this going to cost the taxpayer?
Is this anything more than a temporary band aid?
Does this do anything for the Housing Market? For other Financials?
What is the political fall out from this?
What say ye?
>
Sources:
U.S. Near Deal on Fannie, Freddie
Options Include Injecting Capital in Mortgage Giants; Management Shakeup Coming
By DEBORAH SOLOMON and DAMIAN PALETTA
WSJ, September 6, 2008
http://online.wsj.com/article/SB122064650145404781.html
Paulson Meets With Bernanke, Fannie Mae, Freddie Mac Chiefs
By John Brinsley and Dawn Kopecki
Bloomberg, Sept. 5 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=ax0ft0S9hVYk&
Friday, September 05, 2008 | 07:53 PM | Permalink
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Comments
This is disgusting. Fed and Treasury doing this to save Bill Gross.
Surprising to see XLF up after hours...hmmm
Posted by: Manhattanguy | Sep 5, 2008 7:54:55 PM
Ever see Wile E. Coyote put his umbrella up as a massive boulder was about to hit him? Same effect.
Posted by: Steve Barry | Sep 5, 2008 8:02:24 PM
in after hours trading, Freddie and Fannie were getting slaughtered but SKF was also getting slaughtered, that's counter intuitive and not sure what this means?
Posted by: c b k | Sep 5, 2008 8:03:50 PM
This has me pitchfork and torches angry.
But part of that is probably because of BAC (and the rest of the financial scumbags) surging today -- on WHAT positive news? Only sliver of hope is that the jobs numbers this morning clears the way for a rate cut.
Posted by: Mike J | Sep 5, 2008 8:11:41 PM
This is appalling. It gives me even less confidence in the financial system then I had before. Why now? The GSEs can place their debt.
Posted by: SM | Sep 5, 2008 8:14:50 PM
"Once the initial bolt is shot, it will be back to the well, over and over again."
This reminded me of a section of an At The Drive-In song:
cloak a dagger plot her sovereign majesty
pacifier pacifies, yeah it pacifies
bullet ridden with vermin be it the peasant stark frenzy
pacifier pacifies, yeah it pacifies
held onto its tusks, naked and disrobed
pacifier pacifies, yeah it pacifies
and the emperor still wears no clothes
pacifier pacifies, yeah it pacifies
"Sleepwalk Capsules"
Posted by: Mike J | Sep 5, 2008 8:20:08 PM
I'd add an additional question to ponder and perhaps Barry will weigh in on the topic at some point.
In the afterhours session on Friday, FNM and FRE stock prices both took a big hit but every other financial stock rallied fairly significantly (the XLF gain 3% in after hours trading). Is this bailout bullish or bearish for financials as a group?
Posted by: jason in charlotte | Sep 5, 2008 8:30:02 PM
The New American Exceptionalism
We can fix anything except that, and that, and, of course, that, and probably not that, either, and I'm pretty sure we can't do that, too, or that....
Posted by: Winston Munn | Sep 5, 2008 8:30:57 PM
I know this will be perceived as naive, but is there ANYthing that can be done in an organized fashion to protest this? Any ideas, anyone? My fat lazy ass is 45, but damn if this doesn't make me as angry as a superhormonal teenager who hates all authority. For the first time in 20 years, I'm ready to march.
Posted by: bk | Sep 5, 2008 8:33:24 PM
So what will this do to the dollar? Weaken it or strengthen it? Seems to me that all it really does is kick the can down the road, pushing the day of reckoning further into the future. Won't that ultimately devalue the dollar?
Posted by: BobC | Sep 5, 2008 8:35:30 PM
Geez.
It must be really, Really, REALLY, bad.
I thought for sure they would try and drag it past the election, unless the bottom fell out first.
.
Posted by: VJ | Sep 5, 2008 8:37:22 PM
Jason, I'm assuming you mean bullish or bearish for maybe Monday, possibly next week, or maybe possibly just Gross? Long term, or maybe the week after next, everything is going to hit the crapper so badly that our heads are going to implode. But, PIMPco might be happy.
Posted by: bk | Sep 5, 2008 8:40:07 PM
Gotta ask - doesn't the government have to get congressional approval for this sort of expenditure? Or at least raise the debt ceiling for finding foreigners dumb enough to pay for this bailout? Are there foreigners that foolish at this point? Couldn't they invest in something more practical? Half a trillion?
Posted by: Mysticdog | Sep 5, 2008 8:43:22 PM
As BobC suggests, it will erode the value of the dollar -- and will fuel inflation. Which will knock the already beleaguered middle class on its ass. The markets will tumble, people on fixed incomes, will feel the pain. And then people will start to get angry, not just annoyed. When that happens, f*ck Obama, f*ck McCain, f*ck the MSM and the idiots on CNBC. The shit will hit the fan, and we all better have a safe place to hide.
Posted by: Mitchn | Sep 5, 2008 8:46:40 PM
This weekend I am going to go an invest in some precious metals (a box of 0.40 cals).
I already see where this is going...
Dollar got some strength.. Oil subsided a bit...
Let print and run the dollar in the ground.. Oil through the sky...
They forgot some things though....
Freddie/fannie <- last $$$$ goes to them...
What over the rampant unemployment? What about those who expect infrastructure spending? National healthcare...
Dell is set to close and send all manuf. overseas in the next 18 months.
Boeing strike is getting ready to go down...
Hurricane Ike is about to finish what the other one started...
Unemployment gets worse...
A big bank finally blows... Run on the back.. FDIC overwhelmed...
The lemmings get their heads out their behinds and realize Obama's promises will not be fulfilled as all their taxes/future taxes/future kids taxes have been forked away to some greedy arseholes on wallstreet who create nothing of substance .. Don't contribute anything to society..
O' it is going to be grand.... A grand ol affair. I will continue going to work.. Making my $$$$ .. Saving and sleeping w/ a gun by my side.
I am pretty irrate though.. Anyone want to start a site? I am all about protesting and getting the word out on this one.. This is just f'in ridiculous
Posted by: jambi | Sep 5, 2008 8:47:56 PM
Yes, I meant bullish/bearish for financials over the intermediate term (which I consider to be 3-8 weeks).
Posted by: jason in charlotte | Sep 5, 2008 8:54:28 PM
Read Tim Woods rap up he has about 20 points to ponder that we have not entered yet one is "Social Upheavel and Society Becomes Negative"
Posted by: POOCH | Sep 5, 2008 8:55:31 PM
Ok. I'll put aside the rants for a second. I have a real question that has been bothering me for some time. It seems as though the US is rapidly becoming, for myriad reasons, a less than prime borrower. Deficits, witin reason, run by relatively healthy economies are non-issues. But what happens when a large country has huge debt and that debt becomes increasingly expensive? What if certain entities decided to treat us as we viewed the USSR at the end? Unworthy of the money needed to survive? Before you scoff, just think SWNs unite!!! Eye on Dubai. The world is full of many potential consumers. Now they, with their relative lack of debt, may seem like better potential customers to the companies who care about nothing more than profits and shareholder dividends.
OK. so I'm ranting, this week hasn't been good for my equilibrium.
Posted by: bk | Sep 5, 2008 8:58:12 PM
Trouble is that for 20-30 years we have all been more interested in listening to snakeoil salesman tell us how wonderful is our future while we ignored and derided people who told us the truth.
From PBS, Bill Moyers interview of Andrew J. Bacevich:
"ANDREW BACEVICH: ....President Carter says in that speech, oil, our dependence on oil, poses a looming threat to the country. If we act now, we may be able to fix this problem. If we don't act now, we're headed down a path in which not only will we become increasingly dependent upon foreign oil, but we will have opted for a false model of freedom. A freedom of materialism, a freedom of self-indulgence, a freedom of collective recklessness."
We are simply reaping what we have sown - our leaders are our leaders because we have not demanded better.
"They" didn't do this to us - we did this to ourselves. We demanded unlimited credit and low-cost fuel.
We got it, all right. Like the saying goes, be careful what you wish for....
Posted by: Winston Munn | Sep 5, 2008 8:59:18 PM
It won't cost current taxpayers a dime - we're getting tax cuts! Our children and grandchildren, on the other hand...
Posted by: Marcus Aurelius | Sep 5, 2008 8:59:45 PM
If the government would nationalize these, it would likely turn a profit over the next twenty years. Screw a bailout. Nationalize them, eject management, clean them up and then sell them off in pieces as rapidly as possible. Impact to taxpayers? Probably next to nothing. HOLC turned a profit in the Great Depression so this effort would likely be similar.
Posted by: bdg123 | Sep 5, 2008 8:59:53 PM
If the government would nationalize these, it would likely turn a profit over the next twenty years. Screw a bailout. Nationalize them, eject management, clean them up and then sell them off in pieces as rapidly as possible. Impact to taxpayers? Probably next to nothing. HOLC turned a profit in the Great Depression so this effort would likely be similar.
Posted by: bdg123 | Sep 5, 2008 9:00:17 PM
Investing has become a matter of placing your bets
before the house makes up the rules to the game.
There is a serious danger that they will precipitate
a system crash, while trying to "save" it....(or at
least save their favorite players from losing)
Trust is much harder to rebuild than it is to lose....
Posted by: KnotRP | Sep 5, 2008 9:00:41 PM
Political fallout? Zero. The Democrats already acquiesced, probably having been promised the money would never be needed. Shades of the Iraq War Resolution.
Two historic failures of the political system.
Posted by: rww | Sep 5, 2008 9:09:27 PM
So if this take all the risk off the table if every failing institution will be bailed out, will that not cause a sell off in treasuries and cause interest rates to rise rapidly, putting further pressure on this sorry housing market.
Posted by: Eric | Sep 5, 2008 9:15:58 PM
