Fed: No Discount Window for FNM, FRE

In case this disappears from the Reuters site:

Fed’s Bernanke tells GSEs discount window open: source
Fri Jul 11, 2008 4:18pm EDT
By Patrick Rucker

WASHINGTON (Reuters) – Federal Reserve Chairman Ben Bernanke told Freddie Mac chief Richard Syron that his company and Fannie Mae could take advantage of the emergency discount window, according to a source familiar with the conversation.

The source said that Bernanke and Syron spoke by phone Thursday afternoon and the central bank chief said in that call he intended the discount window to be opened if necessary to the two largest U.S. mortgage finance companies.

The Fed declined to comment on whether it was considering opening its discount window to the government-sponsored enterprises (GSEs). A senior senator said at a press conference on Thursday afternoon that such action was among a range of possibilities under discussion to help the struggling mortgage lenders weather a crisis of confidence.

“I know that both the Fed and the Treasury are looking at various options … including things like the discount window,” Senate Banking Committee Chairman Chris Dodd told a news conference on Capitol Hill on Friday.

“I don’t want to draw any conclusions about it yet, but they are certainly examining what other means might be necessary in order to shore up the situation,” the Connecticut Democrat said.

Freddie Mac spokesman Douglas Duvall declined comment when asked about a phone call between Bernanke and Syron. A Fannie Mae spokesman was not immediately available for comment.

Fannie and Freddie shares have been pummeled in recent days amid reports that the Bush administration was considering contingency plans for taking over one or both of the companies and place them in a conservatorship if their problems deepened.

Fannie Mae shares slid 22.4 percent to end at $10.25, off a session low at $6.87, while Freddie Mac ended down 3.1 percent at $7.75, off a session low at $3.89. The listings topped the list of the New York Stock Exchange’s biggest percentage losers.

But Treasury Secretary Henry Paulson effectively rejected any plan to nationalize the companies, saying the administration’s focus was on supporting the GSEs “in their current form.”

William Poole, the former president of the St. Louis Federal Reserve Bank, said the Fed likely could open its emergency lending facility to the mortgage lenders under the same circumstances that were in play when it gave investment banks access in March.

Poole, a 10-year veteran at the Fed, said the U.S. central bank would probably have the authority to open the discount window to Fannie and Freddie under the “unusual and exigent” circumstances it cited in March.

But also said he did not think such a drastic step would be necessary, noting that the Fed could simply purchase the GSEs’ debt directly and hold it on the Federal Reserve system’s open market portfolio.

(Reporting by Patrick Rucker; Writing by Glenn Somerville; editing by Gary Crosse)

Laws are not being enforced anymore: Sarb-Ox? We know that the plaints of Wall Street have already neutered that law, even while it’s still on the books! Mortgage and contract fraud? Fugheddaboutit! Lying and rumormongering in positions of public trust? We know where the politicians stand on that one!

If one brought suit, would the courts respond in a timely manner? No. Thus there is no legal remedy. The only remedy is to start protecting yourself with tax shelters and getting your money out of America into more stable economies.

Join the predator class or be eaten.

Hmmm…

After reading the Reuters article, I noticed that it was posted at 4:18pm EST.

The Marketwatch article that references Reuters was posted at 3:10pm EST.

The rally in FRE & FNM occurred all day.

Was the rumor/article possible posted earlier in the day? Did someone then change the time?

It appears rumors are a major weapon for Wall Street to manipulate markets for the short term.

Yeah. Where’s Eliot Spitzer when you need him? He nailed Martha Steward (not THAT kind of “nailed” – he pays for that service). Surely he would have “defended the little guy”.

Not.

They say IndyMac will be the costliest bank failure ever…don’t forget to adjust for inflation!

There seems to be confusion/obfuscation on the matter.

“Fannie Mae and Freddie Mac may have several options for capital and liquidity, including gaining access to the Federal Reserve’s discount window, Senate Banking Committee Chairman Christopher Dodd said. ”

http://www.bloomberg.com/apps/news?pid=20601087&sid=ae9uchhwIkfg&refer=home

CNBC reports Fan & Fred have 1/2 the US mortgages with a total of $5Tril

even if our deadbeats and bloat in light of China capitalism halved that $5T worth

who would have the money to buy them out anywhere near the real asset worth?

or is this to be the next game that will present wall street with salaries?

I think each of the $5T properties should go out for bid one at a time on devestiture. Then maybe each property owner can end up owning their property at dimes on a dollar.

…Federal Reserve Chairman Ben Bernanke told Freddie Mac chief Richard Syron that his company and Fannie Mae could take advantage of the emergency discount window, according to a source familiar with the conversation.

The source said that Bernanke and Syron spoke by phone Thursday afternoon and the central bank chief said in that call he intended the discount window to be opened if necessary to the two largest U.S. mortgage finance companies…

I wonder what kind of window is that? Drive thru’ a Ben’Mansion? Crystal Clear? Opaque?

After a while, they’ll have to open the “discount window” to everyone for any and every thing. It won’t be a “bail out” as in bailing out a boat. It will be a “bail out” as in grab a parachute and jump.

We.

Are.

Bankrupt.

Using the discount window (and other forms of bail outs) is only possible because we have fiat currency. We talk about the declining value of the fiat dollar as if that dollar held value in the first place.

Now we get to watch our Federal government pull itself up by its non-existent boot straps.

After a while, they’ll have to open the “discount window” to everyone for any and every thing. It won’t be a “bail out” as in bailing out a boat. It will be a “bail out” as in grab a parachute and jump.

We.

Are.

Bankrupt.

Using the discount window (and other forms of bail outs) is only possible because we have fiat currency. We talk about the declining value of the fiat dollar as if that dollar held value in the first place.

Now we get to watch our Federal government pull itself up by its non-existent boot straps.

I went short at the worst possible time yesterday (possibly my worst timed trade of all time) and got blown out in the afternoon by the fed window rumor.

thank god I didn’t cover. here’s to a nasty monday :)

I’m don’t think there’s a non-foolish thing to do here.

The late news that caught my eye was Freddie’s confusing statement:

http://www.freddiemac.com/news/archives/corporate/2008/20080711_statement.html

The main points seem to be:

– We are well-capitalized.

– But if we aren’t, there’s always the nuclear option of refusing to lend by going into runoff mode.

– We’re liquid, but if we’re not, we can return endlessly to the debt markets.

– The media is a bunch of lying scumbags. We don’t need to raise capital because, like we said, we’re well-capitalized.

– But if we do need to raise capital, we can. Congress says so.

WTF? Is this just confusing or do I need some kind of special GSE decoder ring?

http://www.haloscan.com/comments/calculatedrisk/7962646707430122689/#515675

Sanity is prevailing.
Stop whacking the fantasy that fannie and freddie are busted.

Look at it this way- they get to borrow at 2-3% and lend at 6-7%.
No run on assets is possible, ’cause they sold bonds. Geez, so what if a bunch of losses are caused by mark to market. The real question is what are the *realized* losses.

That cash burn is the only question of solvency. The assets are huge, but most of them are sound. I don’t see much of the pre 2004 stuff to do more than continue to be paid. There will be very little default on the tranches from 2005-2007, because, ironically due to their requirements, most of the really toxic trash was not eligible to be sold through GSEs without fraud being involved.

Now, what Indymac has on the books is probably the most toxic remnants of the boom excesses.

Ugh. What else is buried on the balance sheets from that era on all of the gogo lenders? who knows, but most of it didn’t go GSE.

Remember, they were complaining about a lower percentage of loans and not making their fees during the boom.

Now they have the market nearly to themselves, so time to raise *fees* and push income.

Geez, they sound like buys to me, especially with explicit government backstops.

Crisis over, for them. Now, those banks with toxic portfolios, well, they are a different matter.

Someday this war’s gonna end…

I’m surprised this blog hasn’t put anything up on the FDIC/OTS takeover of IndyMac, yet. I guess it was so well known that it was coming, that the actual takeover is old news. However, I think it’s interesting that this IndyMac company went bust lending to Alt-A.

Is Alt-A subprime, or not subprime? Remember when this crises first started and we were told that subprime was “contained”? And that Alt-A mortgages were somehow better quality than subprime mortgages?

And now, the FDIC is going to blow 10% of its budget, $5-8 bn, on a company that had $29bn of mortgages on its books? These are just some of the numbers I’ve been reading in the last few hours, and they may be wrong. But that sounds like a loss ratio on mortgage assets between 15-30%??

WTF?!?

We are going to continue to see a flight out of equities into hard commodities until we stabilize this situation. There are no free lunches. Bailouts are not the solution. Bailouts will only lead to runs on the dollar.

At some point, we are just going to be left with the realization that we are facing a deep, economic depression. Let’s just get it over with quickly.

Remember, almost every single economic Depression in modern times, began with a real estate bust.

– AT

I don’t see why the government can’t just insure a portion of the face value of the Fannie/Freddie bonds (perhaps 80% or so); if this were then coupled with a three-year moratorium on the issuance of new debt, very few people would lose much money, and the taxpayers wouldn’t be left holding the bag. (I would assume, however, that this would mean somewhat higher mortgage rates going forward).

Maybe it wasn’t a rumor (It would be a pretty detailed rumor, and Reuters would be making this up?)maybe the TRUTH was spiked for other reasons. See this analysis:

http://www.economicpolicyjournal.com/2008/07/is-treasury-secretary-paulson-trying-to.html

put me down in the “trial balloon” camp…
Treasuries/dollar **** themselves and so right now the Boyz are going: “****, back to the drawing board..”

Over at Minyanville, they’re speculating that Freddie and Fannie will be placed into conservatorship and wound down , expecting that the US mortgage market will move quickly to the covered bond format that is common to the Europe mortgage market.

Breaking News!

Henry Paulson, the U.S. Treasury secretary, is planning a $15 billion capital injection into U.S. mortgage companies Fannie Mae and Freddie Mac, the Times of London reported, without citing anyone.

The plan is “high” on the list of solutions to the nation’s mortgage crisis, the newspaper said. In exchange for the capital, the U.S. government would get a new class of shares, the newspaper reported, citing no one.

Paulson’s plan also would allow the two mortgage companies to use the Federal Reserve’s discount window so they can borrow from the central bank, the Times reported.

http://www.bloomberg.com/apps/news?pid=20601087&sid=adGvdKB7NpAg&refer=home

original Reuters post of rumor re GSEs access to Fed lending was well before the close and before Marketwatch reported it. Look aT the charts: it turned market up from nearly 250 points down, under 11,000, preventing further decline.