Posted on 09/07/2008 2:16:29 PM PDT by NormsRevenge
WASHINGTON (Reuters) – The U.S. government on Sunday seized control of mortgage finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N), in what could be the biggest federal bailout in U.S. history in a bid to support the U.S. housing market and ward off more global financial market turbulence.
"Our economy and our markets will not recover until the bulk of this housing correction is behind us," U.S. Treasury Secretary Henry Paulson said at a news conference. "Fannie Mae and Freddie Mac are critical to turning the corner on housing."
The two companies, publicly traded but also serving a government mission to support housing, were put in a conservatorship that allows their stock to keep trading but puts common shareholders last in any claims.
Their top executives were ousted. Freddie Mac chief executive Richard Syron and Fannie Mae's CEO, Daniel Mudd, were replaced by David Moffett, a former top official at US Bancorp (USB.N) and Herb Allison, a former top official at both Merrill Lynch and pension fund TIAA-CREF.
In addition, the U.S. Treasury will immediately take $1 billion equity stakes in each company that could grow to be as large as $100 billion each and which would be senior to both existing preferred and common shares. The senior preferred stock in each GSE will carry warrants that will give the government an ownership stake of 79.9 percent.
(Excerpt) Read more at news.yahoo.com ...
Finally.
You ask, what is a GSE?
Who created them?
What is their purpose?
What is their benefit?
What is the risk involved?
I don’t normally use wiki as a source but..
for starters.
http://en.wikipedia.org/wiki/Government_sponsored_enterprise
There sure is a hodgepodge of ‘em.
GSE = Government Sponsored Enterprise. Really. How’s that for Orwellian Newspeak?
>> U.S. Treasury will immediately take $1 billion equity stakes in each company that could grow to be as large as $100 billion each and which would be senior to both existing preferred and common shares.
The government hands thieves the citizens’ money and takes back a worthless IOU.
Sweet.
Why don’t they do these things during normal business hours?;)
Oh, goody, we just nationalized two corporations.
Looks like electing Obama would represent “Bush’s Third Term”: nationalizing companies, intruding the feds into K-12 education, recognizing terrorist states in Europe. Except for the (R) after the name, what’s a leftist not to like.
Until the election my usual tag-line, Slobodan Milosevic’s darkly prophetic remark before the Kangaroo Court for the Former Yugoslavia will be replaced with:
For real change stop electing lawyers: Fighter-Pilot/Hockey-Mom ‘08.
To prevent a run on the financial institutions market and currency.
The idea is that after a weekend, cool heads will prevail
It’s the end of FDR’s New Deal.
Fannie Mae was created way back in 1938 as part of President Franklin D. Roosevelt’s New Deal plan.
It racked up astounding levels of debt.
With the Vietnam War, Apollo Program, and LBJ’s War On Poverty pressuring the federal budget 30 years later, LBJ split Fannie Mae from the government in 1968, and shares in the company (FNMA) were sold to the American public via our stock exchanges.
Proceeds from that IPO capitalized FNMA and provided a financial lifeline to both FNMA as well as to our government (which no longer had to keep FNMA’s massive debt on our Public books). This was the largest, most fraudulent “off balance sheet” event in global financial History.
Not to put too fine a point on the matter, but FNMA has been insolvent since at least 1968, save for that 1968 IPO that bailed it out with investor money re-captializing it.
It’s taken 40 years for LBJ’s slight of hand to be exposed. By 1968, FDR’s New Deal was bankrupt. LBJ cooked the books, spun off FNMA to let honest American shareholders take the bait, and now those shares are worthless. In September of 2008, FNMA was placed into conservatorship (see article above for this thread).
From FDR to LBJ to your local pension fund: With Love! Oh, sorry about your investment portfolios, Jane Q Public.
Social Security is next. LBJ also tapped the physical SS reserves to pay for his War On Poverty, replacing that *cash* surplus with paper IOU’s. Now the Baby Boomers are retiring. Soon SS turns cash-flow-negative, with no cash surplus fund available to compensate.
This is the dramatic death of the New Deal, played out in slow motion over generations. Not that the “elites” who control most news media will grasp it, but all of the above illustrates that Socialism never remains solvent.
Lord how I hate no-nothing whiners!
Also I note that these agencies worked just fine for decades as semi-public institutions. It was when they were fully privatized and run on a profit motive that they became incompetent and blew up. The FDIC, the FHA, the home loan banks, Ginnae Maes - haven't blown up, because they are managed competently by the government.
And the "insolvant since birth" claim is horsefeathers start to finish.
BOY, GOOD THING OUR MONEY IS FAKE, THIS WOULD HAVE BEEN EXPENSIVE!
BOY, GOOD THING OUR MONEY IS FAKE, THIS WOULD HAVE BEEN EXPENSIVE!
FNMA took years to become insolvent, but by 1968 our government could no longer afford FNMA’s debt. That’s why LBJ spun FNMA off into the private market, which recapitalized FNMA with investor monies...an act that took FNMA’s oversized debt off of our Federal balance books (well, until tomorrow/Monday, anyway).
In contrast, FHA has been around forever making sub-prime loans before the term “sub-prime” was even invented. You can still score 3% down FHA loans even today.
But FHA is competently managed. FHA is solvent. FHA doesn’t do ARMs. What a concept!
The LBM not only won't grasp this concept, they won't even report on it, lest the sheeple start demanding specific performance on all the wunnerful New Deal/Great Society BS programmes.
The original 13 colonies were British corporations with government charters.
Through about 1850, it took an act of a state legislature to create a corporation.
The Federal government financed the railroads in the push west in large part by giving them outright a quarter of the western states.
Utilities were overwhelmingly local government sponsored enterprises for most of US history. Since the "progressive" era, they have instead been heavily regulated by privately funded.
Since the wars, an alphabet soup of agencies have operated on business lines, and the ones that so operate are the most effective parts of the federal government. It is the parts funded by general taxation that are incompetent featherbedded boondoggles.
There are smart and stupid men running government agencies just as there are smart and stupid private ones. The Fed, FDIC, home loan banks etc are all very well run. HUD is not. Goldman Sachs, US Bancorp, and Wells Fargo are well run. Bear Stearns, Washington Mutual, and New Century were not.
Merit exists and it isn't determined by an ideological hat color. Conservatives recognize that. Ideologues do not.
Wow. Touchy.
>> Lord how I hate no-nothing whiners!
About as much as I hate arrogant gasbag self-appointed wizards who think government bailouts are “sweeee—eeet” when their industry is the one fleecing taxpayers.
So by way of full disclosure, gasbag, what’s in YOUR wallet? A mortgage banker’s namecard?
I bought my first house with an FHA ARM.
First, the goobermint ordered the extension of hundreds of billions in credit to credit-unworthy individuals.
Second, the execs at Fan and Fred (most of them lifelong goobermint hacks, btw, the notorious Jamie Gorelick of 'Chinese Wall' fame being a perfect example of same), decided to hold the risk of a great stack of these dodgy loans instead of continuing their long-standing practice of dishing them off to other parties. When a banker starts being a player (i.e. accepting more than minimal risk) instead of being the bookie (i.e. laying off the risk to others), trouble invariably ensues.
Nothing new here, this has happened some hundreds of times in investment/mortgage banking throughout history, going back to at least Emperor Claudius of Rome. Equally, certainly nothing to do with 'privatisation'. In fact, were Fan and Fred actually private, a la Citicorp in the 1970s for instance, the goobermint wouldn't be bailing them out right this minute. You can find more detailed commentary on this point in the book Trading Options to Win, wherein the relationship between banking and bookmaking is discussed in detail in chapter one.
BTW again, know-nothing, the term is 'know-nothing', not 'no-nothing'.
'Competently managed by the government'??? Stop it, stop it, you're killin' me!!
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