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Last Tues the 10yr bond yield was at 37.69 when Frank Paulson said "We need to support Freddie and Fannie Mae"

Today (this Tuesday) the 10 yr bond yield closed at 41.28 which basically is saying "Go to hel_l Frank"

its coming....................

Edited by bingobongo
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Why is Paulson involved in this?

Although he may not be a teenager, blank check to trillions, I don't think so. These kind of things establish policies, it may not be Paulson using that check next time.

Banks are failing in the US OK that's happened before, what does that really mean unless you have more the a 100K in an account your safe. When they fail the Feds take them over they don't stop existing.

Yes Freddie and Fannie are important but they are also businesses, when I had business that failed I took the loss, not my next door nieghbor through his taxes.

Give them access to better borrowing OK, blank check for a bail out no way.

There are things that these businesses can do to reduce thier loses, if they are really in that bad of shape. They ceated it they should fix it.

Values of housing down nothing new about that, they were over valued in the first place. Really a normal correction in the market.

What can they do, reduce the interest amount and recover as much as they can. Who hasn't had a buiness and nogoiated on a bill in troubled times.

If you owe more on the house then it's worth you ride it out till the market comes back, it will. What's messing that up variable rate loans, instead of seeing a break in bad times the interest rates are increased leaving people without enough to make the house payment. Can someone explain to me why when loan rates on the commercial levels are down why are individual rates being raised. Personally I think we are trying to get money to investors. Well the last I Time I looked the Stock Market doesn't go up all the time it has down turns. You want to play you might pay, you might make a bunch of money.

I have never been in the market simply because I don't understand it. So that means I have never made a dime from that. So why should I be paying for thier screw ups. Were they going to give me part of thier profits I doubt that.

In any business I have been in if thing went bad you get innovative and work through it, for those good times again. Thats just business. If profits were guaranteed every time why would anyone have a job and listen to a grouchy boss.

I'm sorry these busnesses need to get innovative and work thier way through this. Uncle has enough problems of his own deal with. Don't increase the rates and if you have to go interest free for awhile till this works it's way through, well that is just life Will the investors take a hit Yep. But they choose to play the game and knew going in they could suffer a loss.

Banks really don't want the properties they lose big time on that, the values go down and the properties are subject to damage, that need to be repaired not a good deal. Investors still don't get money. This mentality gets you the same thing we have seen in Thailand for years, Bank takes the property back carries it and try to sale it at the loan value which was inflated in the first place. Result builder gets his money out of the loan. The property is over priced for the market, doesnt move. Carried as a NPL forever here. Just doesn't work

Lawmakers Balk at Paulson's Fannie, Freddie Plan (Update1)

By Dawn Kopecki and Craig Torres

July 15 (Bloomberg) -- Lawmakers balked at giving Treasury Secretary Henry Paulson unprecedented power to use government funds to rescue Fannie Mae and Freddie Mac, the U.S. mortgage- finance companies grappling with a collapse of confidence.

``I'm uneasy about giving this blanket authority without having any kind of checks,'' Senate Banking Committee Chairman Christopher Dodd said in a Bloomberg Television interview after a hearing his panel held today. Senator Richard Shelby, the committee's top Republican, told reporters ``I've never known Congress'' to give ``an open-ended blank check for somebody to fill in.''

The skepticism forced Paulson to stress he would protect taxpayer funds and assert his authority over Fannie and Freddie, the biggest sources of U.S. home financing, in case of a government intervention. Federal Reserve Chairman Ben S. Bernanke said Paulson would have the right to overhaul the companies' management under the Bush administration's proposals.

Today's hearing indicates Congress may not approve a plan to provide a backstop for the companies this week, as Paulson had counted on when he announced his rescue package July 13. Shares of the companies dropped and bondholders demanded higher premiums on their debt.

Drop in Stocks

Fannie Mae slid 27 percent, its biggest drop since at least 1980, to $7.07 in New York Stock Exchange composite trading, bringing its slump in the past week to 60 percent. Freddie Mac fell 26 percent to $5.26, and is down 61 percent from a week ago.

Paulson repeatedly said he had no intention of using the authority to buy unlimited equity in Fannie Mae and Freddie Mac, and the proposal was aimed instead at bolstering confidence in the firms so such emergency action wouldn't be needed.

``When you're dealing with the taxpayer's money I don't think ambiguity has a place,'' Shelby, of Alabama, told reporters after the hearing, which featured Paulson, Bernanke and Securities and Exchange Commission Chairman Christopher Cox. ``We are potentially layering taxpayer resources on top of massive systemic risk,'' Shelby said at the hearing.

Dodd's reaction was a sharp contrast with that of his counterpart in the House, who yesterday said he was comfortable with giving Paulson power to use unlimited funds.

Not a `Teenager'

``I trust him,'' Democratic Representative Barney Frank of Massachusetts, the chairman of the House Financial Services Committee, said in an interview with Bloomberg Television yesterday. ``This is not some irresponsible teenager.''

Republicans in the House today said they want to postpone consideration of the proposals because they haven't had enough time to vet them.

House Minority Leader John Boehner, along with No. 2 Republican Roy Blunt, said in a joint statement today that Democrats ought to hold hearings on the plan so lawmakers can get a better understanding of how it would work and how much it would cost.

``There is little question that action is necessary, but there are also important questions that must be answered,'' they said. ``It would be irresponsible for Congress to provide the proposed new authority without due diligence on the mechanics of the Treasury proposal and its potential implications for taxpayers.''

Bipartisan Reaction

In the Senate today, Paulson found skepticism on both sides of the aisle.

Democratic Senator Jon Tester of Montana demanded that Paulson detail in writing the consequences for the economy if Congress doesn't act to help Fannie Mae and Freddie Mac.

``It could be a trillion bucks'' that Paulson could appropriate under his proposed authority, Tester said.

Paulson, appointed by Republican President George W. Bush, received the most hostile reception from other Republicans.

``The taxpayers have reacted and the market has reacted to your plan by driving down Fannie Mae shares 26 percent today, right now,'' said Senator Jim Bunning, a Kentucky Republican. ``Freddie Mac's are down 29 percent at this moment, just in case you are interested in how the markets are reacting to your wonderful plan.''

Bunning pledged to oppose the measure, indicating the Senate may need 60 votes to enact it, rather than a simple majority. A single senator can block legislation unless 60 other members vote to stop his so-called filibuster.

`Essential' Role

Bernanke told lawmakers it's ``important'' for Fannie Mae and Freddie Mac bonds and stocks to rise so they can keep raising capital and aid the mortgage market. Paulson said the two companies are ``essential'' because they represent the only ``functioning'' part of the home loan market. The firms own or guarantee about half of the $12 trillion in U.S. mortgages.

The extra yield investors demand to buy Fannie Mae's five- year debt over U.S. Treasuries with a similar maturity rose 5.2 basis points to 85.2 basis points today, compared with 64 basis points two months ago, according to Bloomberg data. Spreads on five-year Freddie Mac notes widened to 85.3 basis points, from 66 basis points in mid-May.

The Treasury chief's proposals also included unlimited lines of credit for the companies and bringing the Fed into a ``consultative'' role over the firms' capital.

Dodd, a Connecticut Democrat, said he was ``uneasy about what we're trying to achieve here'' by bringing the Fed into some supervisory role.

Dodd said he planned to work with other lawmakers on the committee in coming days on some sort of measure, because ``inaction is not an option.'' He said some plan would probably be attached to an existing bill that's aimed at stemming foreclosures and setting up a stronger regulator for Fannie Mae and Freddie Mac.

To contact the reporter on this story: Dawn Kopecki in Washington at [email protected]; Craig Torres in Washington at [email protected]

Last Updated: July 15, 2008 16:54 EDT

Fannie and Freddie are at the crux of the U.S. housing market problems and gave unscrupulous lenders ammunition to provide false loans. Who in their right mind would allow such mismanaged, unregulated and irresponsible organizations like this to take endless transfers of bad loans - the corrupt U.S. gov't of course! A recipe for disaster and it's now baking at 500 F. The only thing worse will be a public bailout to the tune of hundreds of billions. Look who's running the show in the U.S. - Paulson and all his cronies from Goldman Sachs. Wall Street owns Washington and its monkey politicians just like the London Exchange owns England and its people.

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as long as money buys any product the adjective "fiat" is not really justified. goldbugs of course love the expression but are not able to buy groceries with gold coins or bars without changing their gold first into "fiat money" :o

Ohh but it is.. Your looking at money purely as a 'medium of exchange' and conveniently forgetting the 'store of wealth' aspect.

The whole point is that fiat money can be created with the printing press or digital equivalent.. So when combined with human nature and politicians inflation is always present. Add in politicians and a desire to be re-elected, panem et circenses policies... and you know the value of money will diminish over time. Gold has proven to hold its value through the ages, up or down marginal amounts but never to zero, the history of 100's of fiats.

As to not buying groceries.. While I dont do it, there are actually gold online accounts, which offer you a visa card, which debits the amount and converts the spot gold price to deduct gold grammes from your account, the same as spending THB on a GBP credit card. I would also hazard that as long as yoru not bothered about the exchange rate gold would be accepted in most corners of the word for any goods and services, which is not always the fact with those VISA cards or any other currency. Theres no mystery why many 'emergency packs' contain gold for barter.

Edited by LivinLOS
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Thats ok :D Its almost there now anyway. The black line I marked on the chart is when the FED was created in 1913...

what about presenting a graph "purchase power of British Pound or German Mark" dating back till 1913 and comparing it with USD? :o

may i remind you that at the height of german inflation in the '20s ONE US-Dollar fetched 4.2 Billion (as per U.S. mathematics 4.2 TRILLION) Marks? what happened to Mark (presently backbone of the €UR) and British Pound after WWII?

Yes thats my point..

Show the purchase power of any fiat.. And it goes down, to tiny fractions of its purchasing power..

Show the same in gold per ounce.. From Roman times to now.. Still buys a toga or two and an amphora or two of wine for the gentleman about town :D

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Thats ok :D Its almost there now anyway. The black line I marked on the chart is when the FED was created in 1913...

what about presenting a graph "purchase power of British Pound or German Mark" dating back till 1913 and comparing it with USD? :o

may i remind you that at the height of german inflation in the '20s ONE US-Dollar fetched 4.2 Billion (as per U.S. mathematics 4.2 TRILLION) Marks? what happened to Mark (presently backbone of the €UR) and British Pound after WWII?

Yes thats my point..

Show the purchase power of any fiat.. And it goes down, to tiny fractions of its purchasing power..

Show the same in gold per ounce.. From Roman times to now.. Still buys a toga or two and an amphora or two of wine for the gentleman about town :D

one thing goldbugs always seem to forget is that fiat money earns interest, gold does not. in theory a penny invested at 3% in roman times would have increased to a principal that buys all the gold and all the wine for sale on this planet :D

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as long as money buys any product the adjective "fiat" is not really justified. goldbugs of course love the expression but are not able to buy groceries with gold coins or bars without changing their gold first into "fiat money" :D

Ohh but it is.. Your looking at money purely as a 'medium of exchange' and conveniently forgetting the 'store of wealth' aspect.

never the twain shall meet :o

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Thats ok :D Its almost there now anyway. The black line I marked on the chart is when the FED was created in 1913...

what about presenting a graph "purchase power of British Pound or German Mark" dating back till 1913 and comparing it with USD? :o

may i remind you that at the height of german inflation in the '20s ONE US-Dollar fetched 4.2 Billion (as per U.S. mathematics 4.2 TRILLION) Marks? what happened to Mark (presently backbone of the €UR) and British Pound after WWII?

Yes thats my point..

Show the purchase power of any fiat.. And it goes down, to tiny fractions of its purchasing power..

Show the same in gold per ounce.. From Roman times to now.. Still buys a toga or two and an amphora or two of wine for the gentleman about town :D

one thing goldbugs always seem to forget is that fiat money earns interest, gold does not. in theory a penny invested at 3% in roman times would have increased to a principal that buys all the gold and all the wine for sale on this planet :D

It does earn interest.. as long as the currency survives..

How many unbacked currencies have survived between Roman times and now.. Doesnt matter how much interest you get if its paid in Weimarchs :D !!

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Thats ok :D Its almost there now anyway. The black line I marked on the chart is when the FED was created in 1913...

what about presenting a graph "purchase power of British Pound or German Mark" dating back till 1913 and comparing it with USD? :D

may i remind you that at the height of german inflation in the '20s ONE US-Dollar fetched 4.2 Billion (as per U.S. mathematics 4.2 TRILLION) Marks? what happened to Mark (presently backbone of the €UR) and British Pound after WWII?

Yes thats my point..

Show the purchase power of any fiat.. And it goes down, to tiny fractions of its purchasing power..

Show the same in gold per ounce.. From Roman times to now.. Still buys a toga or two and an amphora or two of wine for the gentleman about town :D

one thing goldbugs always seem to forget is that fiat money earns interest, gold does not. in theory a penny invested at 3% in roman times would have increased to a principal that buys all the gold and all the wine for sale on this planet :D

It does earn interest.. as long as the currency survives..

How many unbacked currencies have survived between Roman times and now.. Doesnt matter how much interest you get if its paid in Weimarchs :( !!

the israeli Shekel :o

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Thats ok :D Its almost there now anyway. The black line I marked on the chart is when the FED was created in 1913...

what about presenting a graph "purchase power of British Pound or German Mark" dating back till 1913 and comparing it with USD? :D

may i remind you that at the height of german inflation in the '20s ONE US-Dollar fetched 4.2 Billion (as per U.S. mathematics 4.2 TRILLION) Marks? what happened to Mark (presently backbone of the €UR) and British Pound after WWII?

Yes thats my point..

Show the purchase power of any fiat.. And it goes down, to tiny fractions of its purchasing power..

Show the same in gold per ounce.. From Roman times to now.. Still buys a toga or two and an amphora or two of wine for the gentleman about town :D

one thing goldbugs always seem to forget is that fiat money earns interest, gold does not. in theory a penny invested at 3% in roman times would have increased to a principal that buys all the gold and all the wine for sale on this planet :D

It does earn interest.. as long as the currency survives..

How many unbacked currencies have survived between Roman times and now.. Doesnt matter how much interest you get if its paid in Weimarchs :( !!

the israeli Shekel :o

Not bad for a 60 year old country !! a 2000 year old currency !!

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I thought the current article on Yahoo, about the OVER half-trillion US federal one-year deficit was very scary. http://news.yahoo.com/s/ap/20080729/ap_on_.../budget_deficit

Mind you, the federal government does not use GAAP. Annual deficits, and overall debt, ignore future liabilities such as unfunded federal pensions, underfunded SSA pensions and Medicare liabilities. Ignores them.

Scary? The only hope for fiscal responsibility comes from McCain, who promises what a president cannot deliver. Congress refuses, and will always refuse, to take its hand out of the cookie jar.

Sorry if this was off-topic or too political; I can delete it.

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I thought the current article on Yahoo, about the OVER half-trillion US federal one-year deficit was very scary. http://news.yahoo.com/s/ap/20080729/ap_on_.../budget_deficit

Mind you, the federal government does not use GAAP. Annual deficits, and overall debt, ignore future liabilities such as unfunded federal pensions, underfunded SSA pensions and Medicare liabilities. Ignores them.

Scary? The only hope for fiscal responsibility comes from McCain, who promises what a president cannot deliver. Congress refuses, and will always refuse, to take its hand out of the cookie jar.

Sorry if this was off-topic or too political; I can delete it.

PB we agree on something, How about that :o

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  • 2 weeks later...

By J.W. ELPHINSTONE, AP Business Writer

1 hour, 2 minutes ago

NEW YORK - Freddie Mac on Wednesday posted a second-quarter loss that was more than three-times larger than Wall Street expected as a huge number of borrowers with good credit fell behind on their exotic and risky mortgages.

Freddie's financial losses were concentrated in a handful of states — notably California, Florida, Nevada, and Arizona — where speculation was rampant, prices skyrocketed, and buyers stretched to the financial limit to afford a home.

Freddie is now reeling from loans — made in 2006 and 2007 as the market turned sour — to borrowers with solid credit but little proof of their income, or small or no down payments.

These so-called Alt-A loans make up about 10 percent of Freddie's portfolio, but accounted for more than half of the company's credit losses in the quarter.

"(Freddie) bought loans that ... were on some level just as risky as what was subprime," said Ritch Workman, co-owner of Workman Mortgage Co. in Melbourne, Fla.

And the pain is nowhere near over.

Freddie Chief Executive Richard Syron said Wednesday he expects home prices nationwide to fall 18 percent from peak to trough, according to their measure, and that the market is only halfway through the descent.

"We expected credit would continue to deteriorate, and it has, admittedly, even faster than we thought," Syron said.

Freddie lost $821 million, or $1.63 a share, for the quarter that ended June 30, compared with a profit of $729 million, or 96 cents a share, in the year-ago period.

Revenue fell to $1.69 billion from $2.34 billion.

Stock analysts surveyed by Thomson Financial expected a loss of just 53 cents a share.

The dismal financial results come just weeks after the government threw a financial lifeline to Freddie and its sister company Fannie Mae to ward off fears the pair could collapse and take down the U.S. mortgage market. Together, the two hold or guarantee nearly half of outstanding U.S. mortgage debt.

During the quarter, Freddie set aside $2.5 billion for losses — more than double what it had reserved in the first quarter.

Freddie's cash cushion against losses also shrank during the quarter, falling to $37.1 billion, or $2.7 billion more than the 20 percent surplus required by its federal regulator. But Syron said the company has "no intention to get down below the minimum capital level."

To try to stem the red ink, Freddie said last week it would increase payments to loan servicers who helped borrowers work out their loan problems and avoid foreclosure.

In a bold move to preserve capital, the government-sponsored company said it expects to cut its dividend this quarter to 5 cents or less a share from 25 cents a share.

The McLean, Va.-based company also said it would raise at least $5.5 billion in capital.

But Paul Miller, an analyst at Friedman, Billings, Ramsey & Co., said Freddie needs to raise about twice that amount to strengthen its financial position, and it "needs to raise capital today, not wait and hope for a chance to raise cheaper capital in the future."

As part of a sweeping housing rescue bill signed last week by President Bush, the Treasury Department gained unlimited power through 2009 to lend money to Freddie and Fannie or buy their stock if needed.

And the Federal Reserve said it would offer a special lending option to the pair and will take on a new role overseeing the two companies.

Buddy Piszel, Freddie's chief financial officer, said, "We're managing the firm to not have to access the government support."

Freddie's stock tumbled more than 19 percent to $6.49. Shares of Fannie Mae, which reports earnings on Friday, slid almost 15 percent to $11.60.

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  • 5 weeks later...
Why is Paulson involved in this?

Paulson Plans to Bring Fannie, Freddie Under Government Control

By Alison Vekshin and Dawn Kopecki

Sept. 6 (Bloomberg) -- Treasury Secretary Henry Paulson is preparing to announce plans to bring Fannie Mae and Freddie Mac under government control, seeking to halt the crisis of confidence in the companies that make up almost half the U.S. mortgage market.

Paulson met with Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron yesterday to brief them on the decision to put the companies into a conservatorship, where they would be removed from their jobs, according to a person briefed on the discussions. A public announcement is expected this weekend, the person said.

The decision follows the Treasury chief's repeated comments to lawmakers in July that he wasn't likely to use taxpayer funds to prop up the federally chartered, shareholder-owned firms hit by $14.9 billion in losses the past year. The shares of both companies slid since Paulson won powers to inject unlimited funds in the companies, and their borrowing costs rose.

Pacific Investment Management Co., manager of the world's biggest bond fund, and other large investors may put in their own money once the Treasury decides to inject government funds, said Newport Beach, California-based Pimco fund manager Bill Gross, in a Bloomberg Television interview.

``They have to open their wallet,'' Gross said, predicting that the Treasury will act this weekend before the Federal Housing Finance Agency releases an assessment of Fannie's and Freddie's capital.

Briefing Campaigns

Paulson gathered with Federal Reserve Chairman Ben S. Bernanke, FHFA director James Lockhart, Syron and Mudd in Washington. The Treasury plans to brief Democratic presidential candidate Barack Obama's campaign team today and has contacted Republican contender John McCain's staff about its intentions.

The meetings come a month after Paulson hired Morgan Stanley to advise on any use of taxpayer funds to recapitalize Fannie and Freddie, which account for almost half of the $12 trillion mortgage market. A government takeover would be the latest attempt to blunt the impact of the yearlong credit crisis, after the Fed provided financing for Bear Stearns Cos.'s takeover by JPMorgan Chase & Co.

Washington-based Fannie and Freddie dropped in after-hours trading. Fannie fell $2.25, or 32 percent, to $4.79 at 5:50 p.m. in New York Stock Exchange trading and Freddie slumped $1.40, or 27 percent, to $3.70.

Shareholder Fate

The Washington Post reported that the government would make quarterly injections of funds as the companies' losses warranted, avoiding a large up-front taxpayer cost, citing sources it didn't name. Debt and preferred shares would be protected, and common stock would be diluted while not wiped out, the Post said.

The New York Times said most or all of both the common and preferred shares would be worth little or nothing.

``We are making progress on our work with Morgan Stanley, FHFA and the Fed,'' Treasury spokeswoman Brookly Mclaughlin said yesterday in Washington, declining to comment on any specific plans. FHFA spokeswoman Stefanie Mullin declined to comment, as did Mark Lake at Morgan Stanley.

Bernanke participated in yesterday's meetings because the central bank was given a consultative role in overseeing Fannie's and Freddie's capital under legislation approved in July. Paulson's decision won the approval of Bernanke and Lockhart, the person briefed on the discussions said.

The FHFA has the authority to place Fannie or Freddie into conservatorships or receiverships under the law. The legislation that President George W. Bush signed July 30 also gave the Treasury the power through the end of next year to extend unlimited credit to or make equity purchases in the firms.

Conserve Assets

Under a conservatorship, the authorities would aim to preserve Fannie and Freddie assets, rather than dispose of them, the law says.

The FHFA was scheduled to release its assessment of the companies' capital levels as early as this week as part of a quarterly appraisal of their finances.

Analysts have speculated that the Treasury would wipe out common shareholders, while seeking to shield preferred stockowners from total loss. Fannie and Freddie preferred shares are typically owned by banks and insurance companies. Their $5.2 trillion of debt outstanding is held by investors including Asian central banks, and would probably be guaranteed, analysts said.

``Treasury's main concern is the debt markets, and if it was to say that it will do whatever is necessary to keep Fannie and Freddie running, the better it is for their funding,'' said Alex Pollock, fellow at the American Enterprise Institute in Washington and former president of the Chicago Federal Home Loan Bank.

The two companies need to sell billions of dollars of bonds each month to pay off maturing debt, and have continued to issue securities this week.

Losses Mount

Fannie and Freddie have reported $14.9 billion in net losses for the past four quarters as loan delinquencies rose. Fannie had $47 billion of capital as of June 30, according to company filings. The company is required by its regulator to hold $37.5 billion. Freddie's capital stood at $37.1 billion, compared with a requirement of $34.5 billion, filings show.

Mudd was accompanied in his meetings at FHFA yesterday by Fannie General Counsel Beth Wilkinson and Chairman Stephen Ashley. Last week, he shook up the company's management in an effort to restore investor confidence, replacing three top deputies.

The market capitalizations of Fannie and Freddie slid with their shares this year as investors lost confidence in their ability to offset losses. Fannie's is now $7.6 billion, down from $38.9 billion at the end of last year. Freddie's has fallen to $3.3 billion, from $22 billion over the same period.

Fannie Mae was created in 1938 as part of President Franklin D. Roosevelt's New Deal plan. With the Vietnam War pressuring the federal budget, Fannie Mae was split from the government in 1968, and shares in the company were sold to the public. Freddie Mac was created in 1970 to provide competition for Fannie Mae.

Note:

In the past 12 months 90% of the stock value was wiped away - erased -, from Freddie Mac & Fannie Mae; those 2 companies alone are 'responsible' for some 50% of ALL American mortgages... :o

And now the American taxpayers can pay for the mismanagement.... :D

LaoPo

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I thought the current article on Yahoo, about the OVER half-trillion US federal one-year deficit was very scary. http://news.yahoo.com/s/ap/20080729/ap_on_.../budget_deficit

Mind you, the federal government does not use GAAP. Annual deficits, and overall debt, ignore future liabilities such as unfunded federal pensions, underfunded SSA pensions and Medicare liabilities. Ignores them.

Scary? The only hope for fiscal responsibility comes from McCain, who promises what a president cannot deliver. Congress refuses, and will always refuse, to take its hand out of the cookie jar.

Sorry if this was off-topic or too political; I can delete it.

100% right PB.

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Key US lenders to face new curbs

US mortgage giants Freddie Mac and Fannie Mae face being put under government control in an attempt to rescue the firms, media reports say.

Top bosses would be removed under the US Treasury plans - which could see the US's largest ever financial bail-out.

The shareholder-owned companies, which are mandated to provide funding to the US housing market, hold or guarantee half the country's mortgage debt.

In July, Congress approved a plan aimed at offering them more liquidity.

This followed huge losses by the two firms as result of a big increase in defaults and repossessions in the US housing market.

'Management told'

The Washington Post, citing senior administration sources, said the firms would be put under a legal status known as "conservatorship" which would greatly reduce the value of the two companies' common stock.

Other securities - including company debt and preferred shares - would be guaranteed by the government, the paper added.

The New York Times reported that senior executives at Freddie Mac and Fannie Mae were informed about the plan on Friday.

The Wall Street Journal said it would include changes in the top management.

There would also be quarterly infusions of cash to keep both firms afloat, the papers say. The total cost to taxpayers is not known but could amount to billions of dollars, they add.

The Associated Press news agency said official confirmation of the plan could come this weekend.

Fragile

On Friday America's Mortgage Bankers Association reported that at the end of June, about four million homeowners with a mortgage - representing a record 9% - either were behind in their payments or faced repossession.

In the past year, the financial crisis have taken a heavy toll on both Fannie Mae and Freddie Mac.

The country's two largest buyers and backers of mortgages lost a combined $3.1bn between April and June.

Both companies say they have the resources to weather the losses, but their shares have fallen sharply on fears that they could go bankrupt as borrowers default.

The rescue plan passed by Congress in July gave the US government the authority to buy shares and offer liquidity to companies to keep them afloat.

Many analysts believe their collapse would be a major shock to the already fragile global financial system.

Together, the two firms own or guarantee about $5.3 trillion worth of home loans - about half the outstanding mortgages in the US.

That is about 25 times as big as the obligations of Northern Rock - which was nationalised by the UK government earlier this year, and twice the size of the UK economy.

WHO are Freddie Mac and Fannie Mae ?

http://news.bbc.co.uk/2/hi/business/7502310.stm

LaoPo

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Why is Paulson involved in this?

Paulson Plans to Bring Fannie, Freddie Under Government Control

By Alison Vekshin and Dawn Kopecki

Sept. 6 (Bloomberg) -- Treasury Secretary Henry Paulson is preparing to announce plans to bring Fannie Mae and Freddie Mac under government control, seeking to halt the crisis of confidence in the companies that make up almost half the U.S. mortgage market.

Paulson met with Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron yesterday to brief them on the decision to put the companies into a conservatorship, where they would be removed from their jobs, according to a person briefed on the discussions. A public announcement is expected this weekend, the person said.

The decision follows the Treasury chief's repeated comments to lawmakers in July that he wasn't likely to use taxpayer funds to prop up the federally chartered, shareholder-owned firms hit by $14.9 billion in losses the past year. The shares of both companies slid since Paulson won powers to inject unlimited funds in the companies, and their borrowing costs rose.

Pacific Investment Management Co., manager of the world's biggest bond fund, and other large investors may put in their own money once the Treasury decides to inject government funds, said Newport Beach, California-based Pimco fund manager Bill Gross, in a Bloomberg Television interview.

``They have to open their wallet,'' Gross said, predicting that the Treasury will act this weekend before the Federal Housing Finance Agency releases an assessment of Fannie's and Freddie's capital.

Briefing Campaigns

Paulson gathered with Federal Reserve Chairman Ben S. Bernanke, FHFA director James Lockhart, Syron and Mudd in Washington. The Treasury plans to brief Democratic presidential candidate Barack Obama's campaign team today and has contacted Republican contender John McCain's staff about its intentions.

The meetings come a month after Paulson hired Morgan Stanley to advise on any use of taxpayer funds to recapitalize Fannie and Freddie, which account for almost half of the $12 trillion mortgage market. A government takeover would be the latest attempt to blunt the impact of the yearlong credit crisis, after the Fed provided financing for Bear Stearns Cos.'s takeover by JPMorgan Chase & Co.

Washington-based Fannie and Freddie dropped in after-hours trading. Fannie fell $2.25, or 32 percent, to $4.79 at 5:50 p.m. in New York Stock Exchange trading and Freddie slumped $1.40, or 27 percent, to $3.70.

Shareholder Fate

The Washington Post reported that the government would make quarterly injections of funds as the companies' losses warranted, avoiding a large up-front taxpayer cost, citing sources it didn't name. Debt and preferred shares would be protected, and common stock would be diluted while not wiped out, the Post said.

The New York Times said most or all of both the common and preferred shares would be worth little or nothing.

``We are making progress on our work with Morgan Stanley, FHFA and the Fed,'' Treasury spokeswoman Brookly Mclaughlin said yesterday in Washington, declining to comment on any specific plans. FHFA spokeswoman Stefanie Mullin declined to comment, as did Mark Lake at Morgan Stanley.

Bernanke participated in yesterday's meetings because the central bank was given a consultative role in overseeing Fannie's and Freddie's capital under legislation approved in July. Paulson's decision won the approval of Bernanke and Lockhart, the person briefed on the discussions said.

The FHFA has the authority to place Fannie or Freddie into conservatorships or receiverships under the law. The legislation that President George W. Bush signed July 30 also gave the Treasury the power through the end of next year to extend unlimited credit to or make equity purchases in the firms.

Conserve Assets

Under a conservatorship, the authorities would aim to preserve Fannie and Freddie assets, rather than dispose of them, the law says.

The FHFA was scheduled to release its assessment of the companies' capital levels as early as this week as part of a quarterly appraisal of their finances.

Analysts have speculated that the Treasury would wipe out common shareholders, while seeking to shield preferred stockowners from total loss. Fannie and Freddie preferred shares are typically owned by banks and insurance companies. Their $5.2 trillion of debt outstanding is held by investors including Asian central banks, and would probably be guaranteed, analysts said.

``Treasury's main concern is the debt markets, and if it was to say that it will do whatever is necessary to keep Fannie and Freddie running, the better it is for their funding,'' said Alex Pollock, fellow at the American Enterprise Institute in Washington and former president of the Chicago Federal Home Loan Bank.

The two companies need to sell billions of dollars of bonds each month to pay off maturing debt, and have continued to issue securities this week.

Losses Mount

Fannie and Freddie have reported $14.9 billion in net losses for the past four quarters as loan delinquencies rose. Fannie had $47 billion of capital as of June 30, according to company filings. The company is required by its regulator to hold $37.5 billion. Freddie's capital stood at $37.1 billion, compared with a requirement of $34.5 billion, filings show.

Mudd was accompanied in his meetings at FHFA yesterday by Fannie General Counsel Beth Wilkinson and Chairman Stephen Ashley. Last week, he shook up the company's management in an effort to restore investor confidence, replacing three top deputies.

The market capitalizations of Fannie and Freddie slid with their shares this year as investors lost confidence in their ability to offset losses. Fannie's is now $7.6 billion, down from $38.9 billion at the end of last year. Freddie's has fallen to $3.3 billion, from $22 billion over the same period.

Fannie Mae was created in 1938 as part of President Franklin D. Roosevelt's New Deal plan. With the Vietnam War pressuring the federal budget, Fannie Mae was split from the government in 1968, and shares in the company were sold to the public. Freddie Mac was created in 1970 to provide competition for Fannie Mae.

Note:

In the past 12 months 90% of the stock value was wiped away - erased -, from Freddie Mac & Fannie Mae; those 2 companies alone are 'responsible' for some 50% of ALL American mortgages... :o

And now the American taxpayers can pay for the mismanagement.... :D

LaoPo

I assume that both Mudd and Syron will get golden parachutes for a few 10's of millions each. They were making 10 or 12 Million each, their pay was obviously based on how well they did the job. :D:D:D

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I assume that both Mudd and Syron will get golden parachutes for a few 10's of millions each. They were making 10 or 12 Million each, their pay was obviously based on how well they did the job. :D:D:D

So far this fiscal year:

Richard Syron - Freddie Mac: US$ 14,733,063 - that's including his annual compensation of $ 3,500,000.

Daniel Mudd - Fannie Mae: US $ 11,648,409 - that's including his annual compensation of (a mere) $ 986,923

Apart from that both hold quite a bit of shares and I'm sure they don't have to knock on social security doors :D

source: Google Finance.

Treasury set to bail out Fannie Mae, Freddie Mac

SAN FRANCISCO (MarketWatch) -- The Treasury Department is expected to announce as early as this weekend a plan to bail out and recapitalize collapsing home mortgage giants Fannie Mae and Freddie Mac in one of the biggest government rescues in U.S. history.

http://www.marketwatch.com/news/story/trea...&dist=msr_4

NOTE:

I remember the US having such a big mouth about European countries when they were, legal or not, supporting and/or helping their own industries, agriculture and the like.....

Yeah right ? :o

LaoPo

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Richard Syron - Freddie Mac: US$ 14,733,063 - that's including his annual compensation of $ 3,500,000.

Daniel Mudd - Fannie Mae: US $ 11,648,409 - that's including his annual compensation of (a mere) $ 986,923

Apart from that both hold quite a bit of shares and I'm sure they don't have to knock on social security doors :D

And hopefully when all this is over in future years and people have learnt

lots of lessons one those lessons will be you dont reward failure in this way :o

It is vulgar when ordinary homeowners are struggling ........................

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END OF AN ERA

Regulators take over Fannie Mae, Freddie Mac

NEW YORK (MarketWatch) -- The Treasury Department announced Sunday a plan to bail out and recapitalize collapsing home mortgage giants Fannie Mae and Freddie Mac in one of the biggest government rescues in U.S. history.

The end of the era came when Treasury Secretary Henry Paulson told reporters that a careful review of the two mortgage giant's books made it "necessary to take action."

Paulson said he had decided, along with the Federal Reserve and the Federal Housing Finance Agency, that his initial plan just to take an equity investment in the two firms was unworkable.

Instead, Paulson engineered a four-part full scale bailout and takeover of the two firms.

"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," Paulson said.

There were reports that auditors called in by Treasury had found accounting irregularities at the two firms and that their capital base was smaller than expected.

The plan ends a long downward spiral for the firms, which the government created to help expand home ownership and provide a secondary market for home loans.

Plan details

One aspect of the plan call for the U.S. Treasury to buy mortgage-backed securities from the firms in the open market, with a lending facility held at the Federal Reserve Bank of New York.

Rest article:

http://www.marketwatch.com/news/story/us-g...284A9A4D5C85%7D

LaoPo

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Massive debt is deflationary. Deflation is a magnet for currency inflows. Many people in Thailand have large portions of their assets denominated in foreign currencies. Hence it's a relevant thread, just like "where's the GBP or USD or THB going?".

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hi lanna... it's me... :o

did any of you guys trading the Asian markets think it would pan out like it did?

On friday, I put on a front-month fly because I... well just because. I had no reason to do it, really, but I thought Monday was gonna be a bad day...

Do the carry-trades look normal to you as it stands right now?

And I dunno which markets you check volatility on lanna, but Hang Seng volatility once again did the opposite of what I thought it would do re:front/back month. I only made money out of pure dumb luck and now I'm confused.

Somebody make a 1-2 week predictions... Guesses are fine (well that's all they are, anyway right Naam :D ), I just wanna hear some input because today stunk to high heaven IMO.

Vegas, bingo, and everybody in the middle can chime in too!

edit: and don't you think Paulson is just hiding something huge? Just listen to him (on Squawk right now)... GS must have whole division dedicated on how to lie.

Edited by teejay
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Hi TJ,

I don't trade any asian markets, only take a look daily, but never at the internals. I see Shanghai took a pretty good hit today.

My rule is, when I'm confused I get out. I have a roadmap for what I expect to happen, when it doesn't I get out or reverse my position.

While you know I like volatility I place liquidity at much higher premiun. The Hang Seng, for me, is to volatile without sufficient liquidity. Even if one is right one might have to take a drawdown that I would find unacceptable.

Not haven't sufficient background in the area you're talking about, my only advice is, if you feel you've lost your bearings, or if the reasons you entered the trade are no longer extant, get out. Best of luck.

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