Aces High Bulletin Board
General Forums => The O' Club => Topic started by: rabbidrabbit on September 05, 2008, 09:43:44 PM
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Ramifications?
P.S. If you are shareholder you will get a chance to offset some gains going forward.. :(
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It's no different than airline bailouts... Hey, let's make retarded investment/business decisions in a market that is critical to the welfare of the country. We'll make some bucks, and the govt will bail us out when the bubble we've created bursts.
Just like everyone seems surprised that airlines go under when they sell airline tickets below cost, why is anyone surprised that lenders need a bailout when they give the same low cost loans to both high and low risk borrowers?
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Buddy had sent this to me earlier tonight though I would share. Seems like the share holders are going to take a beating.. :O
NYTimes: Freddie, Fannie shareholders to be wiped out
Submitted by cpowell on 06:58PM ET Friday, September 5, 2008. Section: Daily Dispatches U.S. Rescue Seen at Hand for 2 Mortgage Giants
By Stephen Labaton and Andrew Ross Sorkin
The New York Times
Saturday, September 6, 2008
http://www.nytimes.com/2008/09/06/business/06fannie.html?_r=1&hp&o
WASHINGTON -- Senior officials from the Bush administration and the Federal Reserve on Friday informed top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, that the government was preparing to seize the two companies and place them in a conservatorship, officials and company executives briefed on the discussions said.
The plan, effectively a government bailout, was outlined in separate meetings that the chief executives were summoned to attend on Friday at the office of the companies' new regulator. The executives were told that, under the plan, they and their boards would be replaced, shareholders would be virtually wiped out, but the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.
It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation's history.
The drastic effort follows the bailout this year of Bear Stearns, the investment bank, as government officials continue to grapple with how to stem the credit crisis and housing crisis that have hobbled the economy. With Bear Stearns, the government provided guarantees and the bulk of its assets were transferred to JPMorgan Chase, leaving shareholders with a nominal amount.
Under a conservatorship, the remaining common and preferred shares of Fannie and Freddie would be worth little, and any losses on mortgages they own or guarantee could be paid by taxpayers. A conservatorship would operate much like a pre-packaged bankruptcy, similar to what smaller companies use to clean up their books and then emerge with stronger balance sheets.
The executives were told that the government had been planning to announce the decision as early as Sunday, before the Asian markets reopen, the officials said.
For months, administration officials have grappled with the steady erosion of the books of the two mortgage finance giants. A fierce behind the scenes debate among policy makers has considered whether to seize the companies or let them work out their problems.
But the declining housing and financial markets have apparently now forced the administration’s hand. With foreign governments growing increasingly skittish about holding billions of dollars in securities issued by the companies, no sign that their losses will abate any time soon, and the inability of the companies to raise new capital, the administration apparently decided it would be better to act now rather than closer to the presidential election in two months.
Just five weeks ago, President Bush signed a law to give the administration the authority to inject billions of dollars into the companies through investments or loans. In proposing the legislation, Treasury Secretary Henry M. Paulson Jr. said that he had no plan to provide loans or investments, and that merely giving the government the authority to backstop the companies would provide a strong shot of confidence to the markets. But the thin capital reserves that have kept the two companies afloat have continued to erode as the housing market has steadily declined and the number of foreclosures has soared.
As their problems have deepened -- and the marketplace has come to expect some sort of government rescue -- both companies have found it difficult to raise new capital to absorb future losses. In recent weeks, Mr. Paulson has been reaching out to foreign governments that hold billions of dollars of Fannie and Freddie securities to reassure them that the United States stands behind the companies.
In issuing their quarterly financial statements last month, the two companies reported huge losses and predicted that home prices would fall more than previously projected.
The debt securities the companies issue to finance their operations are widely owned by mutual funds, pension funds, foreign governments and big companies.
Officials said the participants at the meetings included Mr. Paulson, Ben S. Bernanke, the chairman of the Fed, and James Lockhart, the head of both the old and new agency that regulates the companies. The companies were represented by Daniel H. Mudd, the chief executive of Fannie Mae, and Richard F. Syron, chief executive of Freddie Mac. Also participating was H. Rodgin Cohen, the chairman of the law firm, Sullivan & Cromwell, who was representing Fannie.
Officials and executives briefed on the meetings said that Mr. Mudd and Mr. Syron were told that they would have to leave the companies.
Spokesmen at the two companies did not return telephone calls seeking comment.
The meetings reflected the reality that senior administration officials did not believe they could wait for some kind of financial tipping point, as happened with Bear Stearns, which was saved from insolvency in March by government intervention after its stock plummeted and lenders withheld their capital.
Instead, Mr. Paulson has struggled to navigate through potentially conflicting goals -- stabilizing the financial markets, making mortgages more widely available in a tightening credit environment, and protecting taxpayers from possibly enormous losses.
Publicly, administration officials have tried to bolster the companies because the nation's mortgage system relies on their continued ability to purchase mortgages from commercial lenders and pull the housing markets out of their slump.
But privately, senior officials have been critical of top executives at the companies, particularly Freddie Mac. They have raised concerns about major risks to taxpayers of a bailout of companies whose executives have received huge compensation packages. Mr. Syron, for instance, collected more than $38 million in compensation since he joined the company in 2003.
Although Mr. Syron promised regulators earlier this year that he would raise $5.5 billion from investors, he has repeatedly failed to make good on that promise -- even as Fannie Mae raised more than $7 billion. Mr. Syron was slated to step down from the chief executive position last year, but that was delayed when his appointed successor, Eugene McQuade, chose to leave the company.
With the possible removal of the top management and the board, it is no longer clear who would appoint new management.
Mr. Paulson had hoped that merely having the authority to bail out the two companies, which Congress provided in its recent housing bill, would be enough to calm the markets, but if anything anxiety has been increasing. The clearest measure of that anxiety has been the gradually widening spread between interest rates on Fannie- or Freddie-backed mortgage securities and rates for Treasury securities, making home mortgages more expensive. The stock price of the companies has also plunged over the last year.
After stock markets closed on Friday, the shares of Fannie and Freddie plummeted. Fannie was trading around $5.50, down from $70 a year ago. Freddie was trading at about $4, down from about $65 a year ago.
With Fannie and Freddie guaranteeing about $5 trillion in mortgage-backed securities, and a big share of those securities held by central banks and investors around the world, Mr. Paulson appears to have decided that the stakes are too high to take any chances.
The Treasury Department is required by the new law to obtain agreement from the boards of Fannie and Freddie for a capital infusion. The exception is if the companies’ regulator, Mr. Lockhart, determines that the companies are insolvent or deeply undercapitalized it could take the companies over anyway.
Experts said that the longer the administration waited, the greater the potential risks and costs. Charles Calomiris, a professor of economics at Columbia University's School of Business, said delaying a government rescue would only increase the risks and costs.
"The last thing you want to do is give a distressed borrower more time, because when people are in distress they tend to take a lot of risks," he said. "You don't want zombie institutions floating around with time on their hands."
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Yea I was wondering why it dropped a buck after hours today. I still have some stock in FRE so I guess it just turned into a looooong term investment lol.
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Its about to turn into a long term loss to offset future gains. Just make sure you carry forward what you can't use this year. BTW, might want to sell it immediately to recover something.
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The CEOS will be ousted too...they are laughing all the way to the bank!
Maybe the ceos will give back the millions they made from their bad dealings. :rolleyes:
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Its about to turn into a long term loss to offset future gains. Just make sure you carry forward what you can't use this year. BTW, might want to sell it immediately to recover something.
Na I'm quite sure the stock will tank before the bell opens Monday.. I'm not that worried about it wasn't that much money, I'll just leave it in there long term and wait a year or two or three. I knew it was a risk when I bought it, so I was expecting to see it go either way.
What I don't get is FRE at least seemed to be on a rebound, a few weeks ago I would have expected the take over more likely but the stock had been steadily going back up as they sold off debit. I was a bit surprised to see the news about the govt planning to go through with the bail out.
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It's getting harder and harder not to accept govt. regulation in these markets if you don't allow the market to operate with ramifications for bad decision making.
Charon
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Na I'm quite sure the stock will tank before the bell opens Monday.. I'm not that worried about it wasn't that much money, I'll just leave it in there long term and wait a year or two or three. I knew it was a risk when I bought it, so I was expecting to see it go either way.
What I don't get is FRE at least seemed to be on a rebound, a few weeks ago I would have expected the take over more likely but the stock had been steadily going back up as they sold off debit. I was a bit surprised to see the news about the govt planning to go through with the bail out.
bummer. sorry to hear about your financial loss.
really.
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It's getting harder and harder not to accept govt. regulation in these markets if you don't allow the market to operate with ramifications for bad decision making.
Charon
Well in reality these problems came about because of a "lack" of govt regulation. The Enron problems and the current housing mess all came about after the markets were deregulated, so it wasn't really the market not running it's self. This stuff happened because these companies were able to manipulate the market because they wern't properly regulated.
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Well in reality these problems came about because of a "lack" of govt regulation. The Enron problems and the current housing mess all came about after the markets were deregulated, so it wasn't really the market not running it's self. This stuff happened because these companies were able to manipulate the market because they wern't properly regulated.
Freddie and Fannie are not regulated by the gov?
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Regulated, yes. Controlled, no, at least not until now. It's official, the govt. has seized control of and will be administrating both of them until the credit crisis is over or at least stabilized.
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Self-regulation with government bailout. It's like the farmer giving the chicken run keys to the foxes, and then filling up the chicken run when all the chickens dissappear. Pathetic.
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Regulated, yes. Controlled, no, at least not until now. It's official, the govt. has seized control of and will be administrating both of them until the credit crisis is over or at least stabilized.
These punks actually used tax-payer money to LOBBY the congress to reduce their regulation that they might relax lending constraints (What the hell do THEY care, they have the US government backing up their questionable practices) :mad:
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It's called privatizing profits and socializing losses, its the rage these days.
shamus
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redistribution of wealth.
First you get the every single penny you can outta the poor suckers, milk 'em white and then kick 'em out on the street. Then you redistribute it to corporate financial institutions that should never have been permitted to rape the guy to begin with. Then, when the thieves discover they screwed themselves in the process of screwing the public the government steps in to back up the stockholders that thought the whole process was just 'business as usual' by printing more money.
Brilliant.
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Freddie and Fannie are not regulated by the gov?
The govt backs loans in the US and uses Freddie and Fannie to do so.. When the markets were deregulated in the 90's it opened up the lenders to take more risky loans. (ie APR's and the sub prime stuff) This in turn put Freddie and Fannie in a more vulnerable position because they were securing these loans and that is what has led to much of the problems we have today.
It was the same thing that allowed Enron to "cook the books" with out the regulation that we "used" to have the CEO have been able to keep everyone in the dark about this stuff but now that the problems arise it all comes out to hit us all.
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Not a huge fan of this move, but im afraid it had to be done. The consequence to the national and international banks, finanical institutions and the world economy in general would be to great if they had collapsed.
Ive said it and lived by it for 15 years. Far too many people borrow far too much money to have a lifestyle that they cannot really afford. Those who borrow beyond their means, or even borrow based on their current means without consideration for the fact that their income may dip because of natural or unnatural fluctuations in the economy are just as much to blame as those that issue the loans. Its a personal responsobility that every person has and that can not be blamed on the government and the institutions ALONE.
Beeing a good consumer is not shopping houses, cars or whatnot to help stimulate any economy if it means you use your bank or credit card to do so. They (governments and/or institutions) may try to tell you that its a smart way to invest or buy goods, but that is only the case if you are 100% sure that your income will never change in the foreseeable future and you always are able to pay every bill you get.
Beeing a good consumer is about beeing a responsible consumer.
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the government steps in to back up the stockholders that thought the whole process was just 'business as usual' by printing more money.
You're aware that the common stock holders are most likely getting screwed in this deal right? Doesn't look like anybody's bailing us out.
I rode FRE down, now it looks like the government's stepping in and pretty much screwing anybody who had hoped to ride it back up.
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You're aware that the common stock holders are most likely getting screwed in this deal right? Doesn't look like anybody's bailing us out.
I rode FRE down, now it looks like the government's stepping in and pretty much screwing anybody who had hoped to ride it back up.
You played the wrong side, the big boys were and are in the debt end of it, not the equity side, its that way in all the financials , the mutual funds buy the equities, the hedge funds are big in debt.
shamus
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You're aware that the common stock holders are most likely getting screwed in this deal right? Doesn't look like anybody's bailing us out.
I rode FRE down, now it looks like the government's stepping in and pretty much screwing anybody who had hoped to ride it back up.
Yeah exactly.. I've seen people blaming the share holders and I have no clue where they come up with that. The shareholders are the guys that held this company and kept it a float. Shareholders are the ones that kept these companies alive the last few weeks by buying stocks with the govt telling us all along there was no real need to worry about a take over. What were the quotes.. "the bill is just in case they need help".
This will be just like Enron in the fact the shareholder gets bent over and screwed meanwhile the CEO's & brokers from all the mortgage companies walk away making millions and will never see a day in jail. Much less the shareholders and tax payers get left holding the bag.
Like I said before I didn't have that much money in them, and I was in it knowing it was a risk. However I'd like to know why the govt suddenly decided to come in a wipe out the shareholders out of the blue when they didn't do it weeks ago? Both companies were selling their debit with pretty good success just like normal. Hell the stock was even on a steady rise all last week.
In short the investors gets punished because the govt let big business be irresponsible. Talk about the take over of America and there you have it Big Business once again gets out of a mess and the govt gives to them while taking from the tax paying peasants.
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Well in reality these problems came about because of a "lack" of govt regulation. The Enron problems and the current housing mess all came about after the markets were deregulated, so it wasn't really the market not running it's self. This stuff happened because these companies were able to manipulate the market because they wern't properly regulated.
These problems exist because of mismanagement and the lack of consequences for the people who mismanaged it. Government regulation is the fastest way to ensure inefficiency, high cost, and bad return.
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GREED!!! Our tax money at work!! Government bails them out, we the tax payers
eat it!! Another example of Corporate greed! Bumping peoples income..bumping values
of property's. Many people getting rich. Ceos making millions...and when the sheet
hits the fan...we the tax payers pay the bill. Unfreeking believable!!
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These problems exist because of mismanagement and the lack of consequences for the people who mismanaged it. Government regulation is the fastest way to ensure inefficiency, high cost, and bad return.
Yet we didn't have these problems when the market was regulated properly.. go figure.
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But Glass-Steagall was such a pain and it came from that socialist Roosevelt.
shamus
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Yet we didn't have these problems when the market was regulated properly.. go figure.
Regulation has nothing to do with it. The regulators rarely understand what they regulate and create a system of mismanagement and checks and balances that impede but do little to promote (unless of course it allows government aid to big business). It all comes down to the management and the ignorance of investors who fail to realize that it is their duty (if they wish to be a successful investor) to watch what is going on in companies which they have a share in.
Liberals are always about regulation and government hand outs until it comes out of their pockets.
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It's no different than airline bailouts... Hey, let's make retarded investment/business decisions in a market that is critical to the welfare of the country. We'll make some bucks, and the govt will bail us out when the bubble we've created bursts.
Just like everyone seems surprised that airlines go under when they sell airline tickets below cost, why is anyone surprised that lenders need a bailout when they give the same low cost loans to both high and low risk borrowers?
The reverse darwinism these days is really taking its toll. I personally believe we need to ban warning labels.
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its just a rumor. dont believe it.