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SpringHeeledJack
7th Sep 2008, 15:04
Having heard mutterings over the last week, it appears to happening

http://news.bbc.co.uk/1/hi/business/7601701.stm

This makes the bailout of Northern Rock in the UK seem like small change in comparison. For all the hot air about the 'sub prime' problem in America this last year, there has been virtually nothing in print about the bigger (and perhaps more dangerous) problem of Alt-A rated debt in the USA. That is to say the debt of mr and mrs average, who due to overstretching themselves have been "caught bathing naked as the tide went out" to paraphrase the sage of Omaha.

It would appear that both Fannie Mae and Freddie Mac are technically insolvent and the American tax payers will be left with the bill. Some analysts are seeing this as a positive development, others as a temporary band-aid on a big problem that will further undermine the American and world economies, bearing in mind how much foreign money is invested in T-bills (and in Fanny and Freddie).

Perhaps some of our American posters would like to give their view on this seemingly important subject. Other nationalities welcome also :}


Regards


SHJ

Loose rivets
7th Sep 2008, 16:12
Yes, yes, but don't tell everybody until I've got meself fully ensconced back home with a good eastern track exchange rate.

Howard Hughes
8th Sep 2008, 01:18
Is this a bail out of the company, or of Mr & Mrs Joe Average?

Reports here say that between the two they hold almost 50% of the US's home mortgages, if that is correct it is probably the only smart move!:ok:

I also note on the wire that this is an elction year...;)

Miraz
8th Sep 2008, 05:28
Here's a hint....when they talk about helping homeowners, they don't mean the people that live in them...they are referring to the banks that actually own the homes!

Der absolute Hammer
8th Sep 2008, 06:10
Possibly look for a rise in bond prices and shortening of equity prices, especially bank stock. F&F have to reduce portfolios by 10%pa from 2010. Much F&F exposure is in bank stock. This could collapse some small banks in which F&F hold stock. Not a small bank but watch Wachovia bank stock.
Let us hope that it brings inward investment and then broad economic policy otherwise potential very big problem for next administration.

angels
8th Sep 2008, 08:44
Well guess what? Central bankers at the BIS meet in Basle have welcomed the move. What a surprise.

The Japanese bank sector was up over 10 percent overnight, the European DJ bank index is presently up over seven percent. This is the knee-jerk reaction.

Now we have to work our which banks are 'too big to fail'....and which aren't.

airship
8th Sep 2008, 11:24
So, let me get this straight: the US government (and taxpayer) has just effectively nationalised these 2, after a number of weeks when the previously implicit government guarantee became an explicit one. Now the government has taken what are several trillion $ of liabilities on its shoulders, wait for it...the stock markets shoot upwards like a helium-filled balloon?!

Heck, I don't understand why Uncle Sam doesn't nationalise every US bank, car manufacturer and airline in difficulty and take on all their liabilities too. The Dow might even hit 5,000 in just a couple of days...

It's a funny old world when free markets consider nationalisation good news. Less funnier when they're apparently overjoyed that the taxpayer will take the eventual 'hit'.

angels
8th Sep 2008, 12:47
Airship - you've got it in a nutshell mate.

The thing is (and bear in mind I'm not a stock market player), I reckon this reaction is pure knee-jerk. I also reckon that some banks will fail in the next few weeks/months. I won't name names, but there are a couple in particular dire straits right now.

Quasi-nationalisation like this does not repair the damage that has been done by loose regulatory regimes (which essentially nick the odd insider trader, but ignore billions of dollars being lent very dodgily to say the least).

Some very large chickens are coming home to roost.

frostbite
8th Sep 2008, 14:50
Did the chief exec's still get huge bonuses?

They all did in the UK.

Effluent Man
8th Sep 2008, 15:25
It's absolutely essential to put ideology to one side at times like this.Both this and Northern Rock were the right thing to do.If you stand back and let banks fail everyone loses out.

ORAC
8th Sep 2008, 15:36
It's been on the cards for a while.

Freddie & Fanny were in the unusual position of being share-owner owned companies for which the government guaranteed support; leaving it in the uncomfortable position that the tax-payers picked up any debts, they could get credit at lower rates than other mortgage providers, and the share-holders would reap any subsequent benefits.

If they just stated they wouldn't guarantee the debts the two would collapse instantly with unknown knock on effects. The nationalisation was the only realistic option. Which is why the markets rallied after it occured.

They can now split it up into manageable pieces and, at the right time, sell off the parts as truly private companies without any government support - getting the government out of the mortgage business.

VH-MLE
8th Sep 2008, 15:41
Ahh, the joys of globalisation!!

As has been said previously, we no longer live in a society but in an economy where the bottom line is all that matters.

Not good when a couple of companies going by the uninspiring names of Fannie Mae and Freddie Mac can have such control over world economies.

VH-MLE

seacue
8th Sep 2008, 15:47
I just commented on TRAB that much of F&F's debt is held by non-US interests and the F&F action may be seen as a way of urging them to stay in the US market.

Richard Taylor
8th Sep 2008, 18:55
Certainly looks like the US consumers were screwed by Fanny & Freddie.

Capt.KAOS
8th Sep 2008, 19:20
Palin speaking in Colorado Springs, said Fannie and Freddie had "gotten too big and too expensive to the taxpayers." Wot?? Can someone please explain Palin the real situation?

SpringHeeledJack
8th Sep 2008, 19:43
Interestingly the FTSE went up by 4% and would probably have gone up by more if the trading system hadn't crashed for several hours. The DAX (where F&F are apparently traded/listed?) went up by 2% and the DOW only 1.5% (as of now). It would seem that the UK has had another swig of the bottle in comparison to the USA where one would expect jubilation that the world wasn't coming to an abrupt stop.

Traders are ecstatic (for the moment) that they have been able to claw back the losses on their positions from the last week/month/year and the party keeps on groovin' along. Money is moving again, hurrah!

But will this massive band-aid stop the wound from oozing ? Perhaps Angels or someone in the know could give a professional opinion. That it's yet again Joe Average that will finance this gallant act without ANY recourse could well turn out to be the biggest hoodwink of all time. So this 'takes care of the sub-prime and Alt-A' problem :rolleyes:, but what about the massive and unknown problem of the derivative products that have underpinned much of the shenanigens. And what about all the legal action(s) that were about to ensue against those (Goldxxx Sxxxx) and others who orchestrated the 'cat in the bag' investment vehicles that have proven to be oh so toxic.

Never mind, we might all be anti-matter come wednesday anyways :{


Regards


SHJ

BlooMoo
8th Sep 2008, 20:35
The secondary domestic mortgage market in the US has for at least the last couple of decades operated on the assumption that about 50% of that market was effectively underwritten by the US taxpayer. The USDtrillions involved are effectively (and long have been since an additional FM was constructed by the State to provide 'competition' to the 1st FM) considered part of the US national debt.

Nevertheless, up until yesterday there was a level of uncertainty in the global market as to whether that assumption was actually 100% kosher - it may seem to many 'obvious' in hindsight now a day later that (this particular) US Government would not allow FM or FM to default but, to me, the global bounce we see is more likely that a layer of uncertainty has been removed, nothing more. The fundamentals of concern don't seem to have changed very much.

Of course if on Wednesday the LHC generates a black hole that eats the planet from the inside and ends the existence of humanity within a month or two then I project that before Christmas world markets will move to a more 'defensive mindset'...

reynoldsno1
10th Sep 2008, 01:37
Nice to see the US adopting such good socialist principles... all property is theft:ooh:

bugg smasher
10th Sep 2008, 02:12
all property is theft

Can someone honestly tell me, has it ever been any different? As shocking as it may sound, it is my considered opinion, in America, we were taught by the best!

God bless the Queen, and for all whom she steals.

SpringHeeledJack
10th Sep 2008, 09:08
God bless the Queen, and for all whom she steals

Gentlemen please! This thread was about Freddie's fanny not Lizzies's :=

However, it is (was) true that royalty does originate from the robber barons of olden times who controlled a strategic point, extracted money from those wishing to pass through and bestowed titles upon themselves and their cohorts for their support and on and on and on. The monarch apparently pays tax on her earnings nowdays, so at least that's a step in the right direction....

Now that the US government has nationalised FM&FM (and it could be permanent, rather than temporary), the next bombshell has been dropped on the public, namely Lehman Brothers and their bare cupboard. Unbeknownst to many they were only being kept alive by the Korean Governments continued investment since incurring massive sub-prime losses and now the Koreans have declined further exposure due to their own problems at home. And it would seem that no-one wants to invest in Lehmans either judging by the 45% fall in share price yesterday. Strangely enough, when one were a nipper we played a game at school called "Lellys after us" whereby we would hide from a boy named Lehmann and keep him at arms length much to his frustration until he left the school. Kid can be cruel, but so are investors.

If LB are in the doodoo, then it could be assumed that a few more biggies are also and due to the cross-shareholding of a lot of banks and sovereign wealth funds it could get messy. I sincerely hope that other governments won't get the bright idea of nationalising the incompetence of others greed.


Regards


SHJ

angels
10th Sep 2008, 10:33
Well Lehman was one of the names I was thinking about when I posted a couple of days back.

They've brought forward their results to early this afternoon our time and are to announce some 'key strategic initiatives'. Talk on the street is that they'll sell a lot of UK real estate assets to Blackrock and spin off its investment management unit.

There's still talk of a firesale lead managed by the U.S. authorities a la Bear Stearns.

All this is talk, but what is fact is that they've already taken a $7 billion hit from securitised crud and there'll be more today.

angels
10th Sep 2008, 11:43
Lehman results out. They're bad. 5.92 loss per share, they are spinning off an investment management stake and uk mortgage portfolio to blackrock.

Binoculars
10th Sep 2008, 11:54
I have to apologise to the world for my country. A few forward thinking statesmen on these very pages forecast worldwide gloom and doom when Kevin was elected PM. It's time for those who voted for him to admit those profound thinkers ( I won't mention their names because they're all very modest types who shun the limelight) were correct and lay prostrate shouting MEA CULPA. Shame on Australia.

I know I'm deeply ashamed of my patronising remarks to these prophets. Who could ever have thought that it would be our cold that made the US sneeze?

airship
10th Sep 2008, 12:02
In case anyone missed it, is this one of the first casualties (http://news.bbc.co.uk/2/hi/business/7607809.stm) of the nationalisation? UK-listed South African insurer Old Mutual has written down $135m (76m) of Fannie Mae and Freddie Mac preferred stock held by its US life business.

You know what, I'm beginning to see another side of the coin. If all the other stock-holders also begin writing-off their investments in Freddie Mac and Fannie Mae because of the nationalisation, couldn't you begin making comparisons equating the debacle to a mini-US government default to honour its implicit / explicit obligations...?! Perhaps on a par with some of the smaller S. American defaults of yesteryears? Or at least with Venezuela's recent nationalisation tactics which presumably are done with the knowledge that the government will get the better end of the deal at the end of the day. Especially as it would appear there are so many foreign stock-holders involved...? :confused: :uhoh:

PS. Scotch may be starting to have an effect...

Binoculars
10th Sep 2008, 12:17
Keep drinking, airship, you're on the right tram. Cats are affecting your mind. Make a vow to forget them for one week and I think we could all be amazed at the results.

airship
10th Sep 2008, 12:41
I could never go without thinking of the pudicats (or the hedgehogs) that long Binos, quietly waiting under the shipping containers for a bite to eat and a little affection. The Scotch, well, there are days I go without, sometimes even several days, depends on the (PPRuNe) work-load... :ok:

frostbite
10th Sep 2008, 14:48
"there are days I go without, sometimes even several days"

Aha! So it's cold turkey that's responsible, rather than intoxication?

SpringHeeledJack
12th Sep 2008, 20:19
Bringing this thread back on course, it would seem as if Lehman's is teetering on the brink and this weekend is the end of the road unless a white knight steps in. The stock is now seen as little better than junk according to some analysts and with the FED having just bailed out / nationalised Fannie & Freddie it might really come to the inevitable/unthinkable.....

Apparently there are a few others (banks) in the USA that are in similar distress (one of which was mentioned earlier in this thread), but it's not yet common knowledge :uhoh: What say the prooners, should they be let go to the wall or supported ?

Without an overview of how it would pan out vis a vis other banks and economic ramifications it's hard to know, but in principal I say let them reap that which they have sown :ouch: I would also like the professional persons responsible taken to task and stripped of their rewards (bonuses) and made to pay back a 'negative growth' bonus akin to the amount that they have lost the bank and if they have really done something above and beyond the call of duty (negative) then criminal proceedings would be mandatory bearing in mind the staggering sums involved and what they might have been used for ( in the case of government rescue).


Regards


SHJ

arcniz
13th Sep 2008, 08:25
The private individuals who have invested in Lehman - including many long-time employees, will suffer considerably in nearly any outcome possible now. With an orderly acquisition, they might not lose all.

I'd put a nickel on BankofAmerica as the acquireor; with an announcement coming by roughly 1800 hrs GMT Sunday. If so, much of the value now buried in doubts about the LEH stock's future might be restored over a year or two. That could be a good thing, eh? Much better than a smoking hole - a private intervention with a lot of smiling and nodding from the regulators looking down from their cloud places - a result favoured by them what want the problems solved rather than gloating about their continuation.

SpringHeeledJack
13th Sep 2008, 10:28
That could be a good thing, eh? Much better than a smoking hole - a private intervention with a lot of smiling and nodding from the regulators looking down from their cloud places - a result favoured by them what want the problems solved rather than gloating about their continuation.

A solution that benefits the shareholders is always a good thing, as they are the de-facto owners of said company, but what of the persons who have due to greed, ego, avarice etc put said company into a vicarious position that affects more than just the shareholders alone ? It's a mess and for the most part non transparent to most. If, however the shareholders were protected and the (if applicable) persons or companies that acted illegally were brought to book then i'm sure it would be more palatable.


Regards


SHJ

arcniz
14th Sep 2008, 02:43
but what of the persons who have due to greed, ego, avarice etc put said company into a vicarious position that affects more than just the shareholders alone ?

Perhaps you know better, but my impression is that the sins of Lehman - including its 23,000 employes, are more in the domain of Omission than Comission. Like many others in government and finance, they accepted at face value some of the promises and assumptions about the evolution of the US mortgage resale markets that now are clearly invalid.

The originators of mortgage financing fundamentally changed over a fifteen-year span as most banks evolved from State-chartered and locally-supervised institutions to pieces of national chains that were responsible more to the Feds than to any single authority close to the scene of the crimes. The real culprits in creating a mountain of iffy loan paper seem to have been an antlike army of men and women in not-very-expensive suits who worked privately out of small offices, under little supervision, to put together a significant number of transactions based on dubious appraisals and doubtful reporting of creditor strength and accountability. The loans thus created (to prevailing industry standards) were written and immediately flogged-off by local branches of banks and loan companies for packaging by regional intermediaries and then those bits of paper were pumped into the national markets where the financial instrument traders and players ASSUMED they had substance. Lehman, I think, mostly operated at that abstracted level.

Someone should have paid better attention, for sure, but that did not happen. Nobody in government or in the private sector seems to have had the charter to methodically back-check the validity of the transactions underlying such loans, even on a sampling basis. One might have expected the "Ratings" agencies to have done this, but was na the case. Result was - an open loop at the money farm, with Destiny biding her time.

One shares your desire for some revenge or at least righteous retribution for this situation, but the folks on Wall Street, thieving bast*rds that they are, probably are not the prime culprits. Instead the righteous requirement will be to round up some of the hundreds of thousands of real-estate and loan-brokering ants, scattered all around the countryside, and chop off some limbs or hang them from local lamp-posts. Public enthusiasm for that solution has not quite reached the necessary fever-pitch.

A bit of GOOD news, tho, is that the Federal and (in many places) State statutes-of-limitation for Fraud are relatively long - ten years is a number one recalls - so there will be plenty of time to beat up on the ants, even after the main storm we're seeing now is fully sorted.

arcniz
15th Sep 2008, 00:57
Well, Time's up. Seems as tho Lehman is toast.

The jackals will grow fat on its bones as the meaty bits are plucked away at bargain prices by those who have cash and can pay at tremendous discount for the $53 billion in book assets with significant future value that is unusable for the moment because it's amount cannot be determined or realised in time to save the sinking money-house.

v6g
15th Sep 2008, 04:37
Perhaps they could throw in a free airline to whoever buys that bank

VinRouge
15th Sep 2008, 08:27
I never quite knew how debt cound be classed as an asset.

Perhaps this is why the banks are having so many problems?

Calling LEhmans assets assets is a bit naieve. Especially with toxic CDOs being valued at practically $0

angels
15th Sep 2008, 09:20
Debt is an asset in that the presumption is that it will be paid back.

That presumption is costing many people dear.