The ramifications of these two mortgage giants going under is not pretty...big bailout on the way funded by you, joe taxpayer.

Fannie and Freddie on the brink
Continued sharp slide in shares of mortgage finance firms raises new concerns about need for new capital, threat of government takeover.

Last Updated: July 11, 2008: 10:59 AM EDT


Financial stocks get slammed
Read Treasury Secretary Paulson's statement
Paulson: Focused on Freddie, Fannie
The $5 trillion mess


NEW YORK (CNNMoney.com) -- The anxiety over Fannie Mae and Freddie Mac, crucial to a recovery of the battered housing market and the economy as a whole, reached fever pitch on Friday as shares plunged on speculation of a looming bailout.

Immediately after the markets opened, shares of Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) fell more than 47% from their already battered closing price the day before. They soon rebounded slightly but Fannie shares were down 43% and Freddie shares were off 45% about an hour after opening.

The two firms hold or back $5 trillion between them, or about half the mortgage debt in the country.

They play a central role in the U.S. housing market, providing a crucial source of funding for banks and other home lenders, especially since a credit market crisis last summer left them the only major players in packaging pools of mortgage loans into securities for sale to investors.

If they were unable to do so, it would significantly raise the cost and restrict the availability of mortgage loans, causing significantly more problems for already battered housing prices and sales. That in turn would be another significant problem for the overall U.S. economy, as well as global credit markets.

The New York Times reported Friday that senior Bush administration officials are considering a plan to have the government take over one or both of the companies if their problems worsen.

The shares started to erase early losses when word came that Treasury Secretary Henry Paulson was set to speak. He said that the government's primary focus is making sure that mortgage giants Fannie Mae and Freddie Mac remain as presently constituted to carry out their mission.

Even before the latest report on a possible rescue plan, speculation about the future of the firms this week sparked a run by investors away from their shares. That in turn raised questions about how difficult and expensive it will be for them to raise needed capital in the future, which fed into the stock plunge in a vicious cycle.

In the first four trading days of the week, the shares of Fannie have lost 30% of their value, while Freddie shares have tumbled 45%. For the year, Fannie is down 67% and Freddie 77%.

"Fannie Mae and Freddie Mac have lost investor confidence evidenced by the rapid brutal sell-off in their stocks, which could dramatically hinder their ability to raise any additional capital going forward," wrote Richard Hofmann of research firm CreditSights in a note Friday. He added that the firms' ability to function normally "remain at the core of government efforts to stabilize the mortgage markets."

A number of scenarios were being discussed by bankers and analysts about what the government may do to deal with investors' current crisis of confidence in the firms.

Jaret Seiberg, a financial services analyst for the Stanford Group, a Washington research firm, said Thursday options that among the options are: The Federal Reserve could purchase some of the Freddie and Fannie debt or mortgage-backed securities; the Treasury Department could make billions of dollars in loans to the companies or even buy stock in the companies.

"Government officials are always planning for worst-case scenarios and our note is intended to highlight some options that may be available to policymakers," he wrote. "We suspect hybrid versions of these plans also are possible."

Under current law, the Office of Federal Housing Enterprise Oversight (OFHEO), the regulator of Fannie and Freddie, could take control of the firms if their capital falls too far below required levels. It is unclear how the firms would operate in that situation, known as a conservatorship.

OFHEO Director James Lockhart issued a statement late Thursday saying that his agency was closely monitoring the firms' credit and capital positions. But he pointed out that they had already raised $20 billion in capital and that they adequately capitalized, holding funds well in excess of his agency's requirements.

Still investors were worried that continued problems in the housing market would cause more than the $12.7 billion losses the two firms have lost between them since last July. The decline in their stock value makes raising additional capital to cover those future losses that much more expensive and difficult.

It is also unclear if current shareholders would see their holdings wiped out under some of these government rescue options - leading to the pre-market sell-off.

A Fannie spokesman said Friday morning that the company had no comment, while a spokeswoman for Freddie was not available for immediate comment. Both firms issued statements on Thursday saying they had the necessary capital to continue operating, adding they would not comment on the decline in their stock value.

First Published: July 11, 2008: 8:35 AM EDT

I just asked BlueJay on another thread how he felt about Phil Gramm being John McCain's financial adviser. Gramm pretty much defeated the most important lending and banking regulations put in place during the great depression. So, now, you have articles like the one above.

Even if you love McCain, you better pray Gramm doesn't come along with the package for president.

"You've heard of mental depression; this is a mental recession," and "We have sort of become a nation of whiners, you just hear this constant whining, complaining about a loss of competitiveness, America in decline." - Phil Gramm - July, 2008.

FACT: Mortgage crisis brought on by people whom signed on the bottom line all by themselves. YUP that's right, no help! Imagine responsible adulthood. Even after they were explained to what could happen and the risk involved if their rate went up.

FACT: Oil prices controlled by supply/demand and market speculation. Speculation from Iran threatening to destroy the middle east.

FACT: The above are the TWO biggest factors in our economy.

*subnote - Although any racist comments on behalf of Trinnity united church of Christ are dismissed by Obama (member therein). No problems there...What meh worry!

FACT: YOU ARE COMPLETELY WRONG. Those people that are losing their houses were only allowed consideration for a loan because of the deregulation of the banking/securities industry, spearheaded by your buddy Phil Gramm. We won't even get into fraud and predatory loans from those same institutions .

The oil industry is all smoke and mirrors - they can charge whatever they want, what are we gonna do about it.

So laughing, next......

If I recall,the bill to deregulate banking was signed into law by none other than Bill Clinton. Shouldn't he share some of the burden here as well? Not to mention all of the other Congressmen and Senators that voted in favor in order to get it onto the desk of the Prez.

Why should poor Phil get all of the blame?

So when you signed (if you have a home), it was Gramm's responsibility?!? LOL. j/k =P

Ya gotta look at the glass half full. I know it's hard to do sometimes when the mentality of your side if anything remotely Republican is corrupt, wrong, evil or bad. I know, I know...People like childish Keith Olberman give you guys a bad partisan rap, but you've just got to look beyond the fences.

Mortgages were changed to give oppurtunity to people whom otherwise wouldn't have a home. What they do with that oppurtunity is their choice and their responsibility. It's like somebody handing you a second chance for the American dream of owning a house. Now I do give you the token misleading broker signing people up on rip-off loans, but every economy in the world has scammers. IF a bank or broker intentionally signed someone up for a loan knowing their client couldn't make the payments that would be one thing. But knowing it's not in their interest to own empty homes, it's highly unlikey. 99+% of American homes are NOT in foreclosure and make their payments.

Be wise, weary and do your research. It's not the sort of corruption like a Country Wide scandal where they gave out low interest rate sweetheart loans using your above mentioned spearheaded tactics to democrats like Obama and all his neighbors around him.

Because Phil is a jaca##, that's why..........................

I see goot_gay is back after his stint as a male prostitute...................at least he had a job.

The US economy is in for some very serious problems. I figured about 8 months ago the Dow would see 11 k before 14, and today I saw I was correct.

I now figure it will see 9 k before 12 k, and can't see any reason to think otherwise.

De regulation is a wingnut mantra, and so I wouldn't expect anything else from boot_gay, even though anyone with half a brain would know what happens with unregulated markets, especially those having anything to do with banks, or insurance companies.

Prepare to bail these guys out, and just like the other bailouts , it'll be done on borrowed money.

Save America, hang a Republican from your nearest lampost, and beat them with your shoe.

Obama got his rate because he was
!. not in debt, 0 credit card balances (As opposed to McCaint's, who carry about 500k)
2. Excellent credit, with a bunch of money in savings
3. Large down after he got paid for his book.

Anyone else who had that sort of record would have also got 50 basis points less.

boot_gay, you're still lousy at this, don't you have a street corner to stand on , or an airport restroom stall you have to 'visit'.

You know it's funny to listen to people talk about market deregulation like they actually know the regulations which you know damned well they don't LOL.

Male prostitutes make more money then female.

Obama got his loan from his neighbor. Google it.

All of the states have been trying deregulation since the '70s. WA did it in '85. Deregulation doesn't hurt businesses that make wise decisions with their money.

Stay tuned for bailouts of major U.S. businesses to come. I think G.M. will be up for some of that action in the not too distant future as well. They are now giving 7 year 0 interest loans to anyone that will take a Hummer or other gas guzzler off their hands.

Yeah I figure 5 or so large banks and corps will be lining up for 'help'. so they can 'keep jobs in America'.

This , of course will be the same group of banks and corps that lobbied hard for de regulation, and wanted the 'government off their back' so they could 'compete' in the 'global economy'.

They should simply be allowed to fail, and the government should stay out of it, same goes for Bear Stearns, never should have been allowed to happen.

The US economy is on much shakier ground than the average American has even a clue about.

Gald to hear you were making a living as a gay hooker bootster...............don't forget to declare those 'tips' from your Republican male clients as income, you know they'll report the tips as 'expenses'...........

[quote=blue_jay]"FACT: Oil prices controlled by supply/demand and market speculation. Speculation from Iran threatening to destroy the middle east.



Not totally correct. The fact is oil is priced in U.S. dollars. Our dollar is in the toilet, hence the cost of oil goes up. Yeah, worldwide demand is growing but a crappy U.S. fiscal policy is also a major factor.

Did you know that 70% of U.S. Treasury Bonds are bought by foreign investors? If the dollar wasn't in such poor shape I would think some of those people would try to dump those bonds. We would be in some very serious trouble if that were to happen. Not that we aren't on the verge of that now.

I read last week about how some major EU banks and investors were pulling large amounts of cash and investments in the US. They would like to be 'out' by the Fall. I think it was in the IHT.

BTW, anyone out there still buying the 'Inflation is at 4%' line around here ?

:roll:

CNN.com...front page. 2nd biggest bank failure in US history just happened today at 3pm. Get ready for more ie WAMU and Wachovia are the two biggest being mentioned right now...

I see a serious recession lasting for years. There is simply no way our economy can absorb $4.00 gas without huge disruptions. Everything from RV sales, to cars, trucks, campgrounds, gas stations etc. etc. will be negatively effected. Add the mortgage mess to the mix and we are in for a loooong tough time.

I do not blame Bush for this but certainly can't credit his team with doing much to help either.

I doubt either candidate can do much about it, but the loser will undoubtedly blame the winner for not fixing everything in a flash.

We will never again see cheap oil and that will significantly affect almost every aspect of our lives.

I agree DV, we are in a recession and its going to be a long one. Ya KK, 4% inflation my ass...try 14%+ in reality. IF Fannie and or Freddie bite it and their 5 TRILLION in mortgages along with it we are hearing the word DEPRESSION being mentioned seriously for the first time in 75 years from respected voices in the financial world.

Hope the doomsdayers are wrong but if those two go down it will make these bank failures pale in comparison. One lesson to be learned from IMB implosion today is if you are fortunate enough to have 100k+ liquid make sure it is in various locales and not locked up in any one bank as if what happened today happens to WAMU or Wachovia or whoever next week or month anything over that 100k could easily just disappear...ah screw this im gonna go have a beer...cheers

Keep smilin boys--we still live in America!

thats true, we coulda been born in somalia

If the price of fuel stays the same or goes higher, DV is right. Our oil based economy will crash like a house of cards. In our area, Boeing being a big employer will get hit hard. Price of fuel goes up, airlines cut back on flights, raise prices, buy less parts, cancel orders. Can you imagine a large chunk of those folks losing their jobs and not being able to pay for those houses? Ouch!

Drill now!

The inertia in Congress during the election cycle will prevent anything being done to curb increasing fuel costs. The Dems plans for alternative fuels are several years,if not decades,down the road. The Repubs plans for drilling now are at least two years wait for production from new wells. With the lack of refinery capabilities,new wells are not likely to be of benefit in any case. That being said,the American public will not stand for,nor will our economy survive, at least the appearance of action. The Dems will have increased power after the election without any viable,immediate solution to increased costs. This will probably mean a changing of the guard a la '94. Get used to high fuel costs. WASS (We Are So Screwed).

It's so obvious the partisan battle taking place in congress with special interest lining the deep pockets of democrat congressmen. No drilling or you lose their support. Somehow some of these greencommies convinced them that these new light bulbs containing mercury were environmentally sound. Yet go to the EPA's website and if you bust one on your floor they've got to call in a hazmat crew! Go figure.

But raise da roof! Obama! W()()T W()()T! He's our hero. Heck people faint just thinking about him!




No crooks here! What meh worry!

There are so many sad things wrong with this guy and he's not even in office yet!

Just curious...in the background, are those the same people holding the change signs in each city? LOL

Take the price per barrel, and multiply it times the annual production of oil.
That's how much of a 'wealth transfer' is occuring each year from western industrialized nations, to oil producing nations.


Take the individual nations consumption of oil on a yearly basis, do the same math above, and then compare it to that nations GDP , and see what you think the break point is.

One commodity capturing 15% or so of a nations GDP should be enough to push that nations economy over the edge.

Say..................hows around 250 a barrel sound to you ?

At 300 per barrel................................

There's no money for anything else...............

Bin Laden wanted to drive the price of oil to 144 per barrel, he said this years ago. Evidently that number he spoke of was where someone (him, his 'help', whatever) figured that real, lasting economic damage would begin to occur in western democracies.

Mission Accomplished.................

Meanwhile the US Treasury Secretary is a former currency trader, brought in to 'manage' the decline of the dollar, thus ensuring a continued rise in commodity prices of all sorts, not just oil.

Mission Accomplished.................

All the while the President chases the 'ghost of terrorism' as Bin Laden likes to say, to the tune of who knows how much a year, borrowed money of course.

Mission Accomplished..................

Now ask yourself one question, who has gotten what they wanted after 7 years of the 'War on Terrah' , Bush or Bin Laden ?

With that percentage of GDP going to oil, it would seem to me there would be more of a push for alternative fuels. The fact there is no alternative fuel in wide production and circulation more or less tells me that the technology for this is presently more costly than oil and is on the distant horizon at best.

When the Japanese controlled the rubber plantations in Southeast Asia during WW2 we got our heads together and made synthetic rubber. Why isn't that happening now?

Maybe because a lot of Americans are sitting on their couch (high on pot or crack) waiting for their Welfare check...

On the average, we don't hold a candle to the work ethic/ambition of the Americans present during WW2........let alone the patriotism.

Kef Kid was doing great there until he started grasping for conspiracy theory at the treasury secretary. No surprise there, leftards are always good for those.

Meanwhile Americans continue to pump gas at $4/gallon + like its no big deal. $200 barrel = $7 /gallon btw. Doesn't look like that's too far off. Expecially if we get someone in there like Obama to withdrawal troops and create some instability issues.

No conspiracy theory boot_gay.

When the dollar ( or any other currency) slides, an 'orderly' decline is preferred over a 'disorderly' decline. "Orderly' is generally defined as around less 20% than a year, 'disorderly' declines greater than that. Given that some other central banks were raising interest rates last fall/late summer, putting additional pressure on the dollar, having a currency trader manage the decline would seem the option to choose.
However, Since 1980, no G7 currency has fallen by more than 30 percent against another G7 member in a year. The closest I can remember was the 50% decline the dollar had against they yen and mark during 85-87. I believe the dollar is off about 30% ('disorderly decline' of the dollar, or 'disorderly rise' of the loonie) with our biggest trading partner, Canada, although the Canadian Central Bank is likely to cut interest rates more to cool off the loonie a bit more.

'Orderly' and 'disorderly' declines are terms currency traders and economists ( and others) understand.......................you evidently not so much. Managing currency declines/rises is tricky business, and evidently 'managing' a 'decline' in your feeble mind is a 'conspiracy theory'......................

''As gas prices continue to set records, Americans are driving less and using public transit more, a trend that has lasted the past six months.

U.S. Transportation Secretary Mary Peters said that Americans drove 1.4 billion fewer highway miles in April 2008 than April 2007. There is a decline of almost 20 billion miles travelled this year.

Peters said that midsize SUV sales were down last month 38 percent over May 2007, while car sales -- which had accounted for less than half of the industry volume in 2007 -- rose to 57 percent in May.''

So.................while Americans 'continue to pump gas at 4 a gallon', as you say, obviously they are pumping less, and doing so into more fuel efficient cars.......................

You're not real bright, are ya boot_gay ?

B-J!

You're a funny guy:

http://youtube.com/watch?v=twW_riHWz_4

Still laughing, next....

good call Hankster! I will not defend Clinton, but it is important to note that Gramm got the Commodity Futures Modernization Act (a 262 page document)attached to the already contentious $384 billion budget spending package hammered out at the last minute. No one read it or really knew what was in it (ignorance is no excuse) so it passed as an attachment. Among other things, the bill did the following:

Exempted energy trading from regulatory oversight. As a result, Enron wrecked the California electricty market and cost consumers billions before it collapsed. Approximately eight years before this, Gramm's Wife, Wendy Gramm was Chairperson of the Commodity Futures Trading Commision. She pushed through a rule excluding Enron's energy futures contracts from government oversight. Wendy later joined Enron's board and received anywhere between $915,000 and $1.8 million.

Made Credit Default Swaps unregulated. These are essentially insurance policies covering losses on securities in the event of a default. With no regulation, no one made sure that banks and hedge funds had the assets to cover the losses the CDS's were to guarantee. This was supported by Alan Greenspan and Fed Chairman Larry Summers - a $62 trillion market which is about four times the size of the stock market. If this doesn't scare you, you are beyond reach.

McCain should drop Gramm like plutonium. I won't bore any of you with more facts as it is all too depressing.

I'm not defending Gramm and if there is a whiff of impropriety, McCain should drop him like a soiled condom. I have many times said that if you scratch ANY politician, you will come away with dirty fingernails. It's all a power trip and these people will lay down with the scum of the earth to obtain the power they think they need. The seemingly most idealogical politician didn't get to where they are by emulating Mother Theresa.

Before you get too caught up in the Gramm thing, balance your information with these links too and tell me if there aren't more people to share the blame.

www.nationalreview.com/daily/nr020502.shtml



The National Review piece more or less exonerates Gramm. Going back over this I found the other links I edited out were no longer active. You can find them by typing "Clinton and Enron" in your browser and read the ones from Media Research and NewsMax......and yes, I did read the one from Mother Jones too. Fair and balanced is what I like and I don't get all of my info from conservative scribes.

National Review.

NewsMax.

Media Research. (As in Brent... Bozo... Bozell?)

That list right there sounds pretty "fair and balanced" to me Hank!

Captain Obvious strikes again...


dumber than a whole box of really stupid rocks.

probably has a breathmaker installed reminding him when to breathe

just another leach that whines about paying taxes

would sell his soul just for the chance to have rush's baby

named his buttplug *W*

Nice to see the hang over has worn off--------your alive!

Thats right !!! Don't you owe us a picture of you in a Tux Stam ?? I for one would be proud to see it.

You gotta love someone that dumb....thanks for being a good sport b_j


yeah, jim I felt pretty damn bad yesterday, even today I was a little ragged, then I read just a couple of b_j's posts and realized that I just had a hangover, terminal stupidity is well.....terminal, a hangover will go away.


Thanks b_j again for reminding me how good I have it, America is a wonderful place..you should learn to appreciate it.

stam

Mike had already come up with the liberal resource.....I added the conservative. That is what is commonly called fair and balanced. I leave it to you to separate the wheat from the chaff. I also said I had read the Mother Jones piece too.

Brent me Boy!!

*if* Parker, Bucket, Neal or Gilly have a pic I 'spect they would have posted it by now, I certainly don't, though I must say I was quite dashing.....all my youngest daughters friends thought ...and I quote "I was hot".

Here is the only pic I snuck in during a photo session...glad I saved some dough during the Clinton years...or my sweet daughter would have wound up getting married in the courthouse.



stamerican

A lovely bride and a bridsmaid with an attitude. I wish i had made it there - looks like fun.

Seems to me Dave that old Stammeroo didn't invite anyone that might me competition to his "hotness".

I had alway's taken you for a "non dancer" but you cranked it out for hours on end. Good job DAD, we had a blast!

Thsi tread took a while to read through but it is pretty impressive how this became McCains problem thruogh Gramm. Have any of you ever heard of Jim Johnson? Former CEO of Fannie Mae who single handed managed to get these "exemptions" past that you all credit Gramm for. He was head of the team looking for Obama's VP until last week. Found out about his "friendly" rates to others and resiegned. He was slated to become a top Obama cabinate member until last week. Amazing how that dirty SOB McCain, how dare he, has Gramm in his advisors but Obama gets a pass for Johnson.
Take the liberal blinders off because this problem is much deeper than Gramm or Johnson and runs deep in both compaigns. Equal op blame to go around wether you like it or not.

See?

A vote for Ron Paul ISN'T a wasted vote........it's the ONLY responsible vote.

But you "party first, country second" types can spend the next 4 months trying to justify your votes for the other two goats.

Have fun, and sleep well.

I was way to drunk to take any photos, and I still have not recovered. Spent the next day out on hood canal soaking my head in the cool water and teasing back coors lights Stam looked suprisingly comfortable in the tux!