rip fannie and freddie

[dalakhani]

Originally Posted by philcski

Sorry, I'm not trying to be mean here, apologies if it came off as such.

The whole financial system would not unravel if the government had allowed to FNM & FRE to continue. Both had plenty of capital and access to more. People and corporations have to learn from their mistakes, and if there's no ramafications to poor decision making where is the incentive to "do the right thing" - which in this case would be to recognize the fallacy of the assumptions in which these loans were underwritten?

So do you believe the next big Wall St sinking ship, whom will remain unnamed but with proper research can be deduced, should also be thrown a life raft as well? I don't.

I am going to take a stab at Lehman Brothers. And, no, they should be allowed to fail.

Phil, as far as fannie and freddie goes, dont you think they received the ULTIMATE punishment? In effect both were wiped out in one fell swoop. Management was replaced in both and it is just a matter of time before all the employees become government employees. I know they still have jobs but many will be offered a pittance compared to what they made when the GSE's were private. How was anyone "saved" here? The only thing that might have been saved was the mortgage market.

[PSH]

Phil:

We really are not that far apart. Yes, in theory i agree that corporations that make mistakes and in this case take on too much risk and leverage without thinking about the consequences should be allowed to go under...
However, as evidenced by the engineered takeovers of Bear Stearns and Countrywide Credit by the government there is a maze of connections within the financial system that is scaring many to allow them to go under. As was pointed out in the earlier post the equity holders are pretty much all wiped out as if the company went bankrupt. However, in the case of Bear Stearns and Lehman or Merrill Lynch or whomever there is too much counter-party risk to allow these investment banks/brokers to go under without someone coming in and swooping them up. Yes, i agree FNM had enough capital today to get to the end of the year and FRE was questionable. The ability to access additional capital in the markets has become questinable given their share price and risks. The government almost had to do what they did just to keep the financial system from taking a huge hit given the large amounts of paper outstanding. That is just my take and opinion. I understand your position....

PSH

[philcski]

Senator Bunning Says Paulson Acts Like Socialist, Should Resign
2008-09-09 17:44:34.60 GMT


By Matthew Benjamin
Sept. 9 (Bloomberg) -- Senator Jim Bunning said Treasury
Secretary Henry Paulson, by rescuing Fannie Mae and Freddie Mac,
is acting like China's finance minister and both Paulson and
Federal Reserve Chairman Ben S. Bernanke should step down.
``I sincerely believe that Henry Paulson and Ben Bernanke
should resign,'' said Bunning, a Republican from Kentucky on the
Senate Banking Committee. ``They have taken the free market out
of the free market.''
Paulson and the federal regulator for Fannie and Freddie
placed the two largest U.S. mortgage-finance companies in a
government-operated conservatorship on Sept. 7, ousting their
chief executives and eliminating their dividends. Treasury also
may purchase up to $200 billion of stock in the firms to keep
them solvent.
``We no longer have a free market in the United States, we
have a government controlled free market,'' Bunning said in an
interview. Paulson, a former chief executive officer of Goldman
Sachs Group Inc., ``is acting like the minister of finance in
China.''
Bunning, 76, criticized Paulson's successful effort in July
to obtain congressional authority to pump unlimited amounts of
money into Fannie and Freddie to keep them afloat.
``When I picked up my newspaper yesterday, I thought I woke
up in France. But no, it turned out it was socialism here in the
United States,'' he told Paulson at a July 15 Senate Banking
Committee hearing.
Following Paulson's Sept. 7 announcement of the takeover of
Fannie and Freddie, Bunning said he now feels like a citizen of
China.

Former Phillies Pitcher

``No company fails in communist China, because they're all
partly owned by the government,'' said the former pitcher for the
Philadelphia Phillies.
Bunning accused Paulson of deception when he told Congress
in July that the Treasury's plan would instill such confidence
among investors that it would never have to be used.
Paulson ``saw and knew what was happening, and didn't tell
the truth to the banking committee,'' Bunning said yesterday.
Treasury spokeswoman Michele Davis didn't respond to
requests for comment.
Bunning, a critic of former Fed Chairman Alan Greenspan,
faults Bernanke for lax supervision of the mortgage market.
The Fed chief waited too long to require lenders to change
how they write mortgages, Bunning said. ``I mean he just did it
two months ago. Come on.''
When asked if he expects more multibillion dollar rescues by
Treasury, Bunning said, ``You bet I do.''
He said Paulson on Sept. 7 should have detailed an overhaul
in the business model of Fannie and Freddie.
Bunning predicted in July that, contrary to statements by
the Treasury, Paulson would provide capital to Fannie and
Freddie.
``Every time we propose and do something, it always gets
used,'' he told Paulson at the July banking committee hearing.

For Related News:
U.S. economy stories: TNI USECO ECO BN <GO>
Bloomberg's top government news: GTOP <GO>

--With reporting by Rebecca Christie in Washington. Editors:
James Tyson, Carlos Torres

To contact the reporters on this story:
Matthew Benjamin in Washington at +1-202-624-1971 or
mbenjamin2@bloomberg.net.

To contact the editor responsible for this story:
Chris Anstey at +1-202-624-1972 or canstey@bloomberg.net.

[dalakhani]

Originally Posted by dalakhani

I am going to take a stab at Lehman Brothers. And, no, they should be allowed to fail.

Phil, as far as fannie and freddie goes, dont you think they received the ULTIMATE punishment? In effect both were wiped out in one fell swoop. Management was replaced in both and it is just a matter of time before all the employees become government employees. I know they still have jobs but many will be offered a pittance compared to what they made when the GSE's were private. How was anyone "saved" here? The only thing that might have been saved was the mortgage market.

Darn it Philly! Why didnt you send me a PM telling me to call my broker to short this TODAY?

Cr

[philcski]

Originally Posted by dalakhani

Darn it Philly! Why didnt you send me a PM telling me to call my broker to short this TODAY?

Cr

Idiot savant on my part...

and to be honest I can't. All my email and internet whatnot is monitored on here and I'd get fired if I did. Tough to watch that tank today, though.

[dalakhani]

Originally Posted by philcski

Idiot savant on my part...

and to be honest I can't. All my email and internet whatnot is monitored on here and I'd get fired if I did. Tough to watch that tank today, though.

I was talking to a guy at the bank last december and i told him back then lehman was going down because of their Alt-A book. He said that they had sold out of all of those bad loans. I told him that they would be buying them back.

Two months later, they close Aurora. Now this.

Which has to lead you next to...Merrill?

On the bank side, Wachovia is dead and stinkin.

[Cajungator26]

Originally Posted by dalakhani

On the bank side, Wachovia is dead and stinkin.

Rumored to be insolvent ... wonder if that is true?

[Danzig]

Originally Posted by PSH

Phil:

We really are not that far apart. Yes, in theory i agree that corporations that make mistakes and in this case take on too much risk and leverage without thinking about the consequences should be allowed to go under...
However, as evidenced by the engineered takeovers of Bear Stearns and Countrywide Credit by the government there is a maze of connections within the financial system that is scaring many to allow them to go under. As was pointed out in the earlier post the equity holders are pretty much all wiped out as if the company went bankrupt. However, in the case of Bear Stearns and Lehman or Merrill Lynch or whomever there is too much counter-party risk to allow these investment banks/brokers to go under without someone coming in and swooping them up. Yes, i agree FNM had enough capital today to get to the end of the year and FRE was questionable. The ability to access additional capital in the markets has become questinable given their share price and risks. The government almost had to do what they did just to keep the financial system from taking a huge hit given the large amounts of paper outstanding. That is just my take and opinion. I understand your position....

PSH

i know in freddie and fannies cases the govt also said they have always assured people that bankers in general are insured by the govt-the whole full faith deal.
whether lehman qualifies is another story. guess it depends on whether the feds think lehman would affect more than just the national economy, as they mentioned global investing/economy regarding mac and mae.

[timmgirvan]

Originally Posted by Cajungator26

Rumored to be insolvent ... wonder if that is true?

I read today that WaMu might be the next big bank to close!

[dalakhani]

Originally Posted by timmgirvan

I read today that WaMu might be the next big bank to close!

Wamu went on a major bank buying spree earlier in the decade and now they are disintegrating under the weight of all of the option arms they put out there.

The option arm kings were Countrywide, Wamu and Golden West (bought by Wachovia).

Alt A negatively amortizing paper on collateral that is decreasing in value.

Just a matter of time.

[PSH]

Originally Posted by Danzig

i know in freddie and fannies cases the govt also said they have always assured people that bankers in general are insured by the govt-the whole full faith deal.
whether lehman qualifies is another story. guess it depends on whether the feds think lehman would affect more than just the national economy, as they mentioned global investing/economy regarding mac and mae.

With Lehman it definitely does not qualify affecting the national economy but the worry is all of the counter-party risk involved with Lehman on various financial instruments. I hear that the Feds aren't involved as of yet with Lehman and that there are 3 suitors: Barclays, B of A and HSBC. Expect the equity will go down to basically nothing (it is almost there) and then a firm or more than one firm will start to divvy up Lehman ......

WaMU, National City, Wachovia, Merrill, and hundreds of smaller financial institutions remain very questionable on their future outlook...

Its a mess.

[Danzig]

Originally Posted by PSH

With Lehman it definitely does not qualify affecting the national economy but the worry is all of the counter-party risk involved with Lehman on various financial instruments. I hear that the Feds aren't involved as of yet with Lehman and that there are 3 suitors: Barclays, B of A and HSBC. Expect the equity will go down to basically nothing (it is almost there) and then a firm or more than one firm will start to divvy up Lehman ......

WaMU, National City, Wachovia, Merrill, and hundreds of smaller financial institutions remain very questionable on their future outlook...

Its a mess.

i saw they're pursuing a buyer. pennies on the dollar no doubt.

[dalakhani]

Originally Posted by Danzig

i saw they're pursuing a buyer. pennies on the dollar no doubt.

More like "buyers". It would be interesting if anyone bought this monster whole. For what? Their contingent liabilities exceed their market cap by infinity.

This is a case where The Fed is going to have to exert some..."influence". The public is not going to stand for anything publicly funded in this case so they will have to go back to squeezing some other firms to make a deal work.

[Danzig]

http://www.msnbc.msn.com/id/26672904/

bankruptcy in the offing for lehman, no buyer. bank of america seems more interested in merrill lynch at this point, also in deep trouble.

[Danzig]

WSJ just reported bank of america is buying ML for $29 a share. wow.

barclays also out regarding buying lehman, but 'talks' are continuing.

[PSH]

Originally Posted by Danzig

WSJ just reported bank of america is buying ML for $29 a share. wow.

barclays also out regarding buying lehman, but 'talks' are continuing.

I think B of A overpaid by a huge huge amount (IMHO)....
That is quite a premium over the $17 share price that MER closed at...

Will provide a reason for a nice rally by the financials on Monday....

PSH

[dalakhani]

Originally Posted by Danzig

WSJ just reported bank of america is buying ML for $29 a share. wow.

barclays also out regarding buying lehman, but 'talks' are continuing.

this fed is absolutely amazing.

[dalakhani]

Originally Posted by PSH

I think B of A overpaid by a huge huge amount (IMHO)....
That is quite a premium over the $17 share price that MER closed at...

Will provide a reason for a nice rally by the financials on Monday....

PSH

Futures are getting hammered right now and treasuries are way up. Ten year is yielding 3.55.

My question is when are they going to start calling B of A and Chase quasi government entities?

[Danzig]

just saw that lehman will in fact file, they haven't got any other choice. i guess BofA announced their buy at the same time, or slightly ahead of the bankruptcy news, to help cushion the lehman blow?

[dalakhani]

Originally Posted by Danzig

just saw that lehman will in fact file, they haven't got any other choice. i guess BofA announced their buy at the same time, or slightly ahead of the bankruptcy news, to help cushion the lehman blow?

I think you are right. It makes you wonder though. If futures are down 369, how bad would they have been if the Merrill deal wasnt announced? Or maybe the merill deal just didnt have its intended effect.

In other news AIG is taking a beating (close at 12 friday and bid/ask around 6).

Also oil down to 94.