Joined: Jun 18, 2005 Posts: 3886 Location: In a van down by the river
Posted: Sun Jul 13, 2008 3:37 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
Very interesting and ominous event today IMHO.
You remember the INDY MAC FDIC take over? Well seems like the story has been put down the memory hole. This is the second largest Bank closure in US history and it can nary be found in all the major US News Paper.
The Ticker Forum has a thread going on the subject, these are investors from all around the US. They are all pretty much reporting the same thing with a very few exceptions, this front page story is either buried or not being reported at all.
The thing is that there are 90 or so other banks that are in just as bad shape, thing is quite a few of them are much bigger than indy mac.
Joined: Oct 23, 2004 Posts: 5879 Location: New Jersey
Posted: Sun Jul 13, 2008 4:20 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
Quote:
Treasury, Fed move to rescue Fannie and Freddie
By Greg Robb
Last update: 6:10 p.m. EDT July 13, 2008
WASHINGTON (MarketWatch) -- The White House and the Federal Reserve moved Sunday to prevent Fannie Mae and Freddie Mac from failing. In a statement, Treasury Secretary Henry Paulson said the global reach of Fannie [FNM] and Freddie (FRE) necessitated unprecedented action. The Treasury has moved to increase its existing line of credit to Fannie and Freddie. In addition, Treasury have been given the power to buy the two companies stock. In a separate vote, the Fed board of governors voted to open its discount window lending facility to Fannie and Freddie. In return, Paulson asked Congress to rework a measure in the housing bill moving through Congress to give the Fed a formal role to work with the new GSE regulator that the legislation would create.
Joined: Oct 23, 2004 Posts: 5879 Location: New Jersey
Posted: Sun Jul 13, 2008 4:33 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
Quote:
U.S., Fed Announce Rescue Plan To Help Fannie Mae, Freddie Mac
By JAMES R. HAGERTY, DEBORAH SOLOMON, and SUDEEP REDDY
July 13, 2008 6:25 p.m.
The U.S. Treasury and Federal Reserve, capping a weekend of high-stakes maneuvering, attempted to shore up confidence in Fannie Mae and Freddie Mac by announcing a plan that placed the federal government firmly behind the battered mortgage giants.
In a statement timed to precede the opening of markets Monday, as well as a closely watched auction of debt by Freddie, the Treasury said it plans to seek approval from Congress for a temporary increase in a long-standing Treasury line of credit for the two companies.
The Treasury also said it would seek temporary authority so that it could buy equity in either company "if needed" to ensure they have "sufficient capital to continue to serve their mission" of providing a steady flow of money into home mortgages. The plan, which requires Congressional approval, also calls for a provision to give the Federal Reserve a "consultative role" in the process of setting capital requirements and other "prudential standards" for Fannie and Freddie.
The Fed's Board of Governors met Sunday in Washington and voted to grant the New York Fed authority to lend to Fannie Mae and Freddie Mac "should such lending prove necessary," the central bank said in a statement. The move would effectively give the two companies access to the Fed's discount window if necessary, providing a backstop in case the firms were to face a short-term funding crisis down the road.
All told, the moves represent an attempt by the federal government to do as much as it can to prevent any active intervention in the companies' finances. Officials hope that by making such a public display of support, they will persuade investors that they have faith in Fannie and Freddie's long-term prospects and that they will stand behind both companies if necessary.
The City regulator will accelerate efforts to broker a potential takeover of Bradford & Bingley once the mortgage lender's crisis-hit rights issue is completed, The Sunday Telegraph has learned.
Because of the identity of the rights issue's sub-underwriters, the FSA believes that B&B will now have sufficient breathing space to hammer out a permanent solution to its problems, which could include a takeover. The regulator has also discussed the situation with potential consolidators of mid-sized banks...
This strikes me as unusual. They are not even waiting for shareholders to be diluted before destroying them. If this came out yesterday, I can only assume the rights issue failed. I do not know about last Thursday's vote, but with the share price collapsed, I assume the underwriters are going to end up holding most of it.
Bradford & Bingley The Financial Services Authority will accelerate efforts to broker a potential takeover of the bank once the mortgage lender’s crisis-hit rights issue is completed. (The Sunday Telegraph)
...even the giveaway price of £300m seems overinflated.
The six high street banks - HSBC, Lloyds TSB, HBOS, Royal Bank of Scotland, Barclays and Abbey - have all been strong-armed by the Financial Services Authority into underwriting B&B's £400m rights issue... it seems likely that they will end up owning around half of the bank's shares between them. But, while none was prepared to comment publicly on their own intentions, it seems that there is little appetite for buying the entire bank among any of them. One banking expert also suggested that rival Alliance & Leicester could be 'encouraged' to merge with B&B.
The strength of Alliance & Leicester is best illustrated by the 12% they are paying regular savers over 12 months. I expect them to be next.
Meanwhile, B&B must pour tens of millions of pounds into Aire Valley. B&B provides the vehicle with mortgages, which Aire Valley turns into a bond called a floating-rate note, with the cash raised from bondholders going back to B&B.
The bank has shouldered Aire Valley’s exposure to rising interest rates via an interest-rate swap. That is important because the rates make a significant difference to the cost of covering the note payments.
However, after Friday’s downgrade, B&B no longer qualifies as a counterparty under the terms of the swap. That means it must provide the vehicle with tens of millions of pounds in extra collateral or find another bank that is willing to take its place as the swap counterparty. That is likely to be expensive in the current market.
To my inexpert eye, it looks like they are having to find money faster than they can make it.
Posted: Sun Jul 13, 2008 8:25 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
DantesPeak wrote:
My first thoughts are that this is insufficient unless it is essentially unlimited.
Quote:
Paulson, speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence.
Joined: Sep 16, 2004 Posts: 4402 Location: Southwest WI
Posted: Sun Jul 13, 2008 8:43 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
Anheuser-Busch is getting bought by InBev... I'm guessing this will take some of the heat off Fannie and probably cause a rally tomorrow. _________________ "Oil is going up because we use too much oil, and the capacity to replace reserves is dwindling"
-President Bush 11/07/07
Joined: Mar 12, 2007 Posts: 996 Location: As close as I can get to the beginning of the pipe.
Posted: Sun Jul 13, 2008 8:56 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
That and Jim Cramer will bump the stock market tomorrow, Frank. I'm watching the ultimate in bread and circuses on TV right now, a roiling mix of Nascar, testosterone, and stocks in the form of "Jim Cramer does the American Dream." I've never seen such a turbulent mess of product-placed symbols of growth. Along with a small hand-picked clean-cut multi-colored zombie horde of nodders. With tear-jerker stories of rags to riches miracle success stories from buying Walmart and all. I just about wept myself when the guy said that he got rich from doing what Jim Cramer told him to do. The only thing missing was a couple of crosses in the background. I guess it was inferred through the Nascar setting. If there is a symbol of the American Dream of Growth, it was in there. But I've got to give Cramer credit; he said to buy energy stocks.
And the MSM news was full of chipper reassurances about FDIC and business as usual at banks tonight. The weekend news broadcasters looked like they had been heavily medicated with Prozac. All gleaming toothy crocodile smiles. While Cramer appears to have lightened up on his Lithium. _________________ "When fascism comes to America it will be wrapped in a flag and carrying a cross." --Sinclair Lewis
Joined: Oct 23, 2004 Posts: 5879 Location: New Jersey
Posted: Sun Jul 13, 2008 9:52 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
I like the allusions to Dante's Inferno:
Quote:
Look on your works, Fannie and Freddie, and despair.
Quote:
Guarantees for America’s guarantors
By Clive Crook
Published: July 13 2008 18:37 | Last updated: July 13 2008 18:37
US taxpayers are about to find out what their long-standing and (strictly speaking) non-existent guarantee of Fannie Mae and Freddie Mac will cost them. One way to think of it is this: take the US national debt of roughly $9,000bn and add $5,000bn. Not bad for an obligation still officially denied.
In the end, that astounding prospect might be the outcome. Partial or outright nationalisation of the housing lenders – colossal pseudo-private entities that own and underwrite US housing loans – would add some or all of their $5,000bn (€3,144bn, £2,513bn) in liabilities to the government’s balance sheet. While it is true that the agencies (unlike the government) own housing-related assets that roughly match those liabilities, the still-collapsing housing market makes this a lot less reassuring than one could wish.
Covering the agencies’ losses on their loans and guarantees is going to require an actual outlay, which will fall on taxpayers. You could plausibly call the rest – namely, bringing these “government-sponsored enterprises” explicitly inside the public sector – just a bookkeeping entry. But what an entry! It would surely shake financial markets, raise the government’s cost of funding and put heavy downward pressure on the dollar. Meanwhile, the turmoil impedes or paralyses the GSEs in their crucial life-support role for the housing market.
What will force the issue is the ability of the GSEs to raise new capital and credit from private sources. They must do both to keep playing the pivotal role they have been assigned in sorting out the housing-finance mess. New private stakes in the enterprises are an unenticing prospect; and private lenders will be concerned about where they stand if more drastic remedies are tried. Until the situation is resolved, the upshot is likely to be a new reduction in the supply, and increase in the cost, of mortgage finance – further lessening the chances of an early recovery in the housing market and the wider economy. Look on your works, Fannie and Freddie, and despair.
FT _________________ It's already over, now it's just a matter of adjusting.
Joined: Mar 12, 2007 Posts: 996 Location: As close as I can get to the beginning of the pipe.
Posted: Sun Jul 13, 2008 10:11 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
Quote:
"In asking the question of who gets looted and who gets the distressed pickings, I think it is important to consider who is most exposed. The answer is the investment banks who have thin capital bases relative to their fictitious capital holdings and obligations. The biggest plum of all are the assets of GSE’s Fannie Mae and Freddie Mac. Therefore I think we are going to see them dropping one by one like flies. And it really does look like the next crisis is Lehman Brothers. It is not that LEH is terribly more exposed than the others, it’s just that they apparently drew the wrong straw. I will also mention that with enormous amounts of wealth already transferred to oil sheiks and Asians that you can look for them to be the new owners of many marked down American assets. They have the purse, and the only nationality or race that is important is the green. You can count on that as much as you can count on the sun going down at night. Follow that ball.
I believe the pile on and stealing of American banks will happen at a very rapid pace, maybe even within just a few weeks. It really has to be a done deal by the end of this year. The events that tipped me off were wholesale downgrades of virtually all regional banks by Goldman Sachs, Citicorp and a chorus of lacky lapdogs in June. In addition the old Risklove rabble is running stock prices of banks into the ground with extremely aggressive short selling. For example short positions as % of float on June 15, (probably even higher now) : FHN 25.8%, CNB 36.3%, NCC 20.4%, SNV 19%, RF 12.3%, And now as if problems didn’t exist before, there is suddenly a panic recognition phase about Fannie Mae and Freddie Mac. What a coincidence! And what a coincidence that the overdue closure of IndyMac occurred this week. And next week we get a slew of 2nd quarter bank reports."
Winter Watch _________________ "When fascism comes to America it will be wrapped in a flag and carrying a cross." --Sinclair Lewis
Joined: Jun 18, 2005 Posts: 3886 Location: In a van down by the river
Posted: Sun Jul 13, 2008 10:12 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
I think that is from this poem
Ozymandius
by: Percy Bysshe Shelley
I met a traveler from an antique land
Who said: "Two vast and trunkless legs of stone
Stand in the desert... Near them, on the sand,
Half sunk a shattered visage lies, whose frown,
And wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed;
And on the pedestal these words appear:
My name is Ozymandius, King of Kings,
Look on my works, ye Mighty, and despair!
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.
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If this came out yesterday, I can only assume the rights issue failed. I do not know about last Thursday's vote, but with the share price collapsed, I assume the underwriters are going to end up holding most of it.
