Here Comes the Half Trillion Dollar Fannie/Freddie Bailout!

Friday, September 05, 2008 | 07:53 PM

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?


U.S. Near Deal on Fannie, Freddie
Options Include Injecting  Capital in Mortgage Giants; Management Shakeup Coming
WSJ, September 6, 2008

Paulson Meets With Bernanke, Fannie Mae, Freddie Mac Chiefs
By John Brinsley and Dawn Kopecki
Bloomberg, Sept. 5 2008

Friday, September 05, 2008 | 07:53 PM | Permalink | Comments (128) | TrackBack (3) add to | digg digg this! | technorati add to technorati | email email this post



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» Government may soon back troubled mortgage giants from 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 3:15:22 AM

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Last evening, we asked what are the costs and consequences, as well as the market reaction to, the imminent bailout of Fannie Mae (FNM) and Freddie Mac (FRE). Your responses were inspired and informative. (For a brief history of the GSEs, see this earl... [Read More]

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By Fester: The Highway Trust fund is just about broke. This is due to a combination of higher raw material costs and more importantly declining revenue. The Trust Fund is funded by the federal gasoline tax per gallon of fuel [Read More]

Tracked on Sep 6, 2008 3:29:46 PM


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

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