All of our weekend guests finally clear out, we clean up the barbecue remnants. I get a few seconds to sit down to the computer to check email, and THIS is what greets me:
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Release Date: July 13, 2008
For immediate release
The Board of Governors of the Federal Reserve System announced Sunday that it has granted the Federal Reserve Bank of New York the authority to lend to Fannie Mae and Freddie Mac should such lending prove necessary. Any lending would be at the primary credit rate and collateralized by U.S. government and federal agency securities. This authorization is intended to supplement the Treasury’s existing lending authority and to help ensure the ability of Fannie Mae and Freddie Mac to promote the availability of home mortgage credit during a period of stress in financial markets.
http://www.federalreserve.gov/newsevents/press/other/20080713a.htm
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The laugh line in that paragraph is: "should such lending prove necessary."
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Its Sunday night — the thread is OPEN . . .
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Please kill me if Larry Kudlow declares this the “Don Luskin bottom” or “Dennis Kneale bottom” something to that effect =)
Another Sunday night special! I’m still struggling with how the IndyMac story almost completely disappeared from the NYT and other MSM within just hours of it being their headlines. That story was assassinated. I think my keyboard has bloodstains that leaked out from the monitor!
Well, now there’s so many people in line to borrow from the Fed, they’re gonna need some concession carts at this circus.
Step right up, get yer hot dogs, peanuts, ice cream…
.
Aren’t the portfolios of fannie and freddie full of crap? And now we play a game of hide the salami just like the investment banks.
This country deserves the crash that is coming.
the IMB story has been all over CNN. they’ve gone over the top to reassure depositors, etc. i think i’m going to have to place my money on WB being next in line to go KABOOM! perhaps FED and/or DSL beat them. no need to yank money out of shady banks aside from getting below the FDIC insurance threshold.
Like BS there is no real option of course whatever the implications. They are too big to fail. Mind you the whole financial world knows what’s going on here even if Joe Sixpack doesn’t. You can bet that they have also been working the phones to make sure tomorrow’s debt offering has plenty of takers but then again a ten year old could figure that out. I’m going to be interested to see how this week plays out. Despite the implicit protection for the bondholders I wouldn’t be surprised to see the stock tank tomorrow.
When the Treasury buys new FNM and FRE, what will the price per share be? Market? Some predetermined value that will act as the new market price?
Doesn’t the Bankruptcy Bill allow Freddie and Fannie to make the 700k jumbo loans? Who wants to guess how that works out!
This is central planning and will have the same result: the destruction of the currency.
The kicker for me is this AP story:
Government not expected to help more companies
Yeah, right. Does anyone believe it for a second? I saw nothing about that in the official release. Too bad I can’t go long in government jawboning.
Wait a minute. I smell sushi. Is this Japan, 1990?
Saw a story re IndyMac on ABC whre the reporter nailed Schumer. She could be partially correct, however, I find it hard to believe that a bank that was not on the FDIC watch list (as reported by ABC), would have to be bailed out by the FDIC due toa letter from a senator. It made me wonder how many other big banks are in trouble, but not on the watch list.
Re Fannie and Freddie, They are obviously in seious trouble but as usual the administration is trying to spin it. Sad.
So now who doesn’t get access to the Fed??
If SBUX cries loud enough will they open it to them as well?? BTW that’s a rhetorical ? but at this point would you rule it out?
Moral Hazard be damned….
I’m sure the pundits will be saying how the market bounced off the march lows….nevermind that those were artificially created too.
The market will explode to the upside simply because of the short interest that was placed in the last two weeks…effectively wiping that out and all it will take is more juice on the SPX futures to keep it from falling backwards. That “rally” on friday (that erased the 200 point loss) was nothing more than weak shorts since it quickly went negative.
The confidence problem (as if it were not a solvency problem) never seems to punish the people who blatantly lie to protect the system. They are destroying what little remains and waving the flag as if it were there “duty” to bail out these assholes.
Hank Paulson is a piece of shit.
Ciao
MS
Market rally tomorrow?! This is getting too bizarre.
hooray. the apocalypse has been postponed.
this upcoming multi-day/week dead cat bounce should make everyone happy. trapped longs can liquidate and bears can reload shorts.
does anybody know what happens to stocks, bonds, and money market accounts if a broker like Merrill were to go down?
To clarify: I meant the *real* IMB story, the initial ones that I read that were more reporting than PR, not the new-and-improved versions that started rolling out the same night.
For instance, the latest version from Money is headlined: “IndyMac: Your money is safe – FDIC” (WTF kind of headline is that!?!?) and ends with
Bovenzi [chief operating officer of the Federal Deposit Insurance Corporation] added that all IndyMac branches will reopen Monday with full operations. “Customers should view this as a change in ownership,” he said.
That’s only somewhat true if you had all balances within the FDIC limits and do NOT have a total balance (even if covered via Joint or Trust In Funds, etc. titles) that exceeds $100k. Because even if covered, any deposits totaling over $100k get closer examination from the FDIC, and you’ll be submitting forms to attest to the accuracy of the titling before you have access to the funds.
“Market rally tomorrow?! This is getting too bizarre.”
Posted by: MiTurn
Market rally already started…
S&P 500 +13.00 1252.80 7/13 10:49pm S&P 500 FUTURES
NASDAQ +22.75 1843.25
7/13 10:16pm NASDAQ FUTURES
Dow Jones +96.00 11192.00 7/13 10:34pm
BIZARRE???? – Remember OPEX is coming!!!!!!
Sure, the market will rally… but the dollar will tank.
Never been a fan of gold. But I’m tempted.
if Nikkei is any indication Monday is looking to start with a rally. This is some historic
fed. intervention, two days after unprecedented volume trading on both stocks.
Market is dictating the fed/govs.and now congress.
Why does congress/fed. wait until the market speaks. before taking action.
Forget how many mutual funds own these stocks, I bet FRE & FNM are top two stocks owned by lawmakers.
And this running along side OIL price manipulation by IRANS fake missile photos.
This 2008 Market has provided more drama than NCAA March Madness – you cant script this stuff up !
Second, to ensure the GSEs have access to sufficient capital to continue to serve their mission, the plan includes temporary authority for Treasury to purchase equity in either of the two GSEs if needed.
What is this supposed to mean?
All I get out of this statement is for the Fed to have authority to manipulate the price of the stock.
The sick part is that it is actual written for all to see.
All these idiots know how to do is double down. It’s like governing has come down to putting everything on black and saying, “Spin wheel, spin.”
So the thing to do now is borrow in dollars and invest in? Rubles? Australian dollars? Euros? I’m thinking Australian wheat production.
$200 oil already seemed possible, even likely. What’s the psychological threshold of impossibility now? $300? $500?
I feel sick.
All these idiots know how to do is double down. It’s like governing has come down to putting everything on black and saying, “Spin wheel, spin.”
So the thing to do now is borrow in dollars and invest in? Rubles? Australian dollars? Euros? I’m thinking Australian wheat production.
$200 oil already seemed possible, even likely. What’s the psychological threshold of impossibility now? $300? $500?
I feel sick.
Trust the market. It’s smarter than all of us. This current wave down is not yet completed. The SP futures up LESS than 1% on this “news.” That’s a pathetic bounce….we might get to 1268 on futures, but I think it gets sold. This is the sort of thing that creates despondency among bulls/longs. You get a seemingly helping hand from the Paulson/Bernanke….and the bounce gets SOLD to you.
There are no free lunches….
Oil will set a new high this week and the SP500 will set a fresh low.
If we some how sustain a rally past 1268….the just accept the GIFT that has been given to you….and buy as many PUTS as you can afford, because the next decline will be historical.
– AT
How about if we just let the Chinese government set up shop here and start providing mortgages to homebuyers. That way we can cut out the middle man.
What part of this do any of the comment crowd not understand?
Where Credit Is Due: A Timeline of the Mortgage Crisis
http://www.motherjones.com/news/feature/2008/07/where-credit-is-due-timeline.html
Ben must have the printing presses running night & day…$1500 gold by year end?
It is concerning how the financial system of this country is being abused not by Russian spys or Chinese geeks or Middle eastern terrorist…it is being destroyed by greedy american business men who are not being held accoutable by law.I BELIEVE WE HAVE THE WORKINGS OF A SEVERE FALL HERE IN EQUITES AND THE USA ECONOMY IN THESE COMING MONTHS. I hope we not only set our paths of proper footing but also act swiftly to punish the ones who jeopardize the very life of this country.
uly 13 (Bloomberg) — Treasury Secretary Henry Paulson sought authority from Congress to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac, aiming to stem the collapse of confidence in the largest sources of U.S. mortgage financing.
FUTURES UP HUUUUUUUUUUUGE!!
Dow 3,000 or 15,000?
Fascinating: much much more economic turmoil ahead:
http://barrons.com/markets/US?story.index.htm
There is a very clear difference of opinion on key issues underpinning the high price of oil It’s not clear that anything you heard today is going to
reverse sentiment. One thing is clear: You are not going to wake up tomorrow and find that oil prices have dropped 20 or 30 dollars.
how about instead of putting bandaids on things and helping out greedy wall streeters, that someone actually tried to amend out system so that it worked most efficiently
there is no sense of justice these days
if you mess up big enough, and are in the finance industry, government bails you out
woohoo – our system sucks
1. The market has been down for 6 straight weeks which is extremely rare – I think 7 straight down weeks has only happened 2 or 3 times – there is such a ‘negativity bubble’ that the slightest good news will elicit a massive short squeeze especially with sentiment and selling pressure at extremes and short ratios at peaks – at least a 2-3 week rally from here.
2. I think the U.S. should start a hedge fund and support companies they deem fit :)
3. Look at actual numbers – Consumer spending is up 2.1-2.5% so far in Q2 and since that is 70% of the economy – Q2 GDP will come in around 2% which would be a significant upside surprise.
4. Another number: 95%+ of ALL residential loans and a higher number of commerical loans are current.
Armen Kassabian, M.D.
Ah yes, the perfect solution, more credit. Just what is needed to solve the problem of too much debt and not enough reserves.
Is this new debt not counted in their reserve requirements or have the reserve requirements been eliminated all together?
large caps into small and mid, it has longer-term bullish implications and doesn’t bode very well for the masses who seem to be looking for 1300 on the S&P.
I noticed even the bullish Carl Futia has joined the 1300 fray recently.
The Slow Death of Supply Side With so many wanting a major selloff from here odds are it will be a minor one.
I only let myself look at some index charts and commodity spot prices. One scenario that came to mind last night was that this week would be a do nothing
week, if the bear stays in tact. The VIX, VXN, and VXO have sometimes in the past moved in a narrow range sideways for four or so sessions until
“Like BS there is no real option of course whatever the implications. They are too big to fail.”
Hmmm! Maybe not; Yves Smith at Naked Capitalism blog highlight an article by Roubini that is a must read IMO.
http://www.nakedcapitalism.com/2008/07/roubini-restructure-fannie-freddie-debt.html
His contention is that a restructuration of Freddie and Fannie would be much less costly than the actual joke that is played on the US taxpayer.
Given how accurate Roubini has been thus far during this crisis, I would be very reluctant to dismiss his arguments out of hand.
Forgot to mention:
Roubini goes as far as explaining why his solution will not be implemented. It says a shitload about how degenerate the politico-financial ecosystem has become in this country.
“Will this optimal policy solution – an haircut for bondholders – be undertaken? Most likely not as the political economy of housing, mortgages and of “privatizing profits and socializing” losses may dominate the policy outcome. Financial institutions love a system where they gamble recklessly, pocket the profits in good times and let the fisc (taxpayer) pay the bill when their reckless behavior triggers a financial crisis; this is socialism for the rich. That is why you already hear the whole Wall Street Greek chorus moaning for a bailout of the GSEs.”
He also warn:
“But the financial costs of this financial crisis – the worst since the Great Depression – are mounting so fast that any bailout will become fiscally extremely expensive.”
But to our unrepresentatives in DC, this cannot matter enough to be even considered in the discussions.
I want my own credit line at the Fed too !!!
My my my!
The things one can learn by surfing a little bit on the Internet…spooky!
Turns out that Russia and China hold an extraordinary amount of US Agencies debt, in particular Freddie and Fannie.
From Brad Setser:
http://blogs.cfr.org/setser/2008/07/12/too-chinese-and-russian-to-fail/
“China, according to the US data, has $422 billion of long-term Agency bonds. That is roughly 10% of China’s GDP. It is also almost certainly understates China’s holdings. Based on the pattern of revisions in past surveys and the scale of China’s foreign asset growth, I would guess that China now holds between $500 and $600b of Agencies — or about 10% of the outstanding stock.”
[…]
“China’s holdings of Agencies are effectively holdings of Treasuries, and China’s combined holdings of Treasuries total at least $924 billion. In reality, given the pattern of revisions and the scale of China’s reserve growth, its current holdings of Treasuries and Agencies now easily tops $1 trillion. […] $1 trillion is roughly 25% of China’s GDP.
“Russia, according to the US data, holds $90 billion of long-term Agencies. Russia also has a large portfolio of short-term Agency bonds (with a maturity of less than a year). Based on past survey data, I would guess that almost all of Russia’s holdings of “other short-term negotiable securities, negotiable CDs and other custodial securities” are short-term Agencies. That brings Russia’s total holdings of Agencies up to $156 billion — or roughly 10% of Russia’s GDP (a bit more actually).”
Setser conclusion is rather discomforting:
“It shouldn’t be a surprise if China thinks it should have a voice shaping big US policy choices. At Davos, former Treasury Secretary Summers noted — correctly — that accepting large capital infusions from sovereign funds into “private” US banks and broker-dealers meant that, should any such bank or broker-dealer subsequently collapse, its collapse would be a foreign policy issue. CITIC never made an investment in Bear, so that particular bullet was dodged — at least for now.
But the same point applies to the Agencies. The enormous increase in central bank holdings of Agencies has made their fate a matter of high politics, not just a debate over getting incentives right and good financial policy.”
I do not think any policymaker in DC would be eager to test the Chinese during these rather tricky times.
They own a lot of us don’t they?
Sorry, Kolya — you are the Fed’s credit line — for them to also extend credit to you would constitute a perpetual credit machine, and as everyone knows, the Second Law of Economics says that is impossible.
I thought they were going to wipe out shareholders and tell the bond holders that they will only get treasury yields for what they hold. PIMCO should lose some, even if not as much as the shareholders do.
Thanks for that post, François.
we are 80’s Latin America..help us or die..you own our debt..lol..who would have thunk it..? China screwed..Japan screwed ..married to a deadbeat…
Citigroup’s $1.1 Trillion of Mysterious Assets Shadows Earnings
http://www.bloomberg.com/apps/news?pid=20601109&sid=a1liVM3tG3aI&refer=home
Enough, with Freddie and Fannie.
That’s old news.
The markets keep looking forward.
Let’s continue to play, “which institution shall fail this week?”
Stocks on my deathwatch:
Washington Mutual
Wachovia
Lehman
what the heck…
let’s throw in GM
ohhh wait, how about the airlines?
Just close your eyes and pick one from a list.
Feel free to add your own.
Back in June 2003, the 10-year T-note plunged to a 40-year low yield of 3.09% while Fannie Mae was afflicted with a substantial duration mismatch. Then the T-note yield soared again in a few weeks. Trying to hedge a trillion-dollar mortgage portfolio in the midst of such yield volatility is impossible, I would assert.
Not long afterward, Fannie and Freddie discovered reporting errors pertaining to derivatives. Incredibly, the NYSE allowed the behemoths to remain listed, while they entered “radio silence” on financial reporting.
Although recent housing declines finally prompted the panic, I suspect that Fannie and Freddie have been “zombies walking” ever since the mid-2003 rate volatility blew out their capital thanks to mismatched hedges. Bending the NYSE rules to let them keep trading without proper financial reporting only allowed them to grow larger and more dangerous before collapsing.
Wasn’t it Hayek who wrote that a managed socialist economy is inherently corrupt? Man, that is one pungent smell coming from those dying whales, flopping helplessly on the beach!
Barry:
What do you think should be done?
You didn’t express an opinion. I thought Roubini’s solution, more or echoed by Mr. Mortgage’s latest video, sounded pretty reasonable as a way to keep taxpayers from being screwed to continue above-average interest to people (generally sophisticated) who took on excess risk.
I personally never bought any of their bonds over the past year or two even though the yields were tempting because the companies were clearly headed for a train wreck. So I’m supposed to both forgo getting the extra yield and have to pay it to the Chinese?
Kolya:
“I want my own credit line at the Fed too !!!…”
Don’t worry, a pattern has been established, please take a number.
Best regards,
Econolicious
“Treasury Secretary Henry Paulson sought authority from Congress to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac.”
In other words, Paulson sought authority to nationalize the GSEs.
“Federal Reserve System announced Sunday that it has granted the Federal Reserve Bank of New York the authority to lend …”
I was wondering why a single branch would be in the bailout operations?
Do Fed regions play games with each other in this high stakes Parker Bro Game of Risk?
And I too want to thank Francois for the thoughts on “foreign owns”
I think the timing is appropriate for another sage BR post on market psychology and investor sentiment influence on market pricing. Once all these institutions (i.e. the ones on BR’s multi company chart pic the other day) start to teeter, will the men in top hats tap dancing with sparklers be enough to keep J6P from dumping all his equities exposures?
Jim Haygood wrote:
“Incredibly, the NYSE allowed the behemoths to remain listed, while they entered “radio silence” on financial reporting.
[…]
Wasn’t it Hayek who wrote that a managed socialist economy is inherently corrupt?”
Jim,
Funny you mention the word “socialist”. Did you read this rather colorful post at Naked Capitalism?
http://www.nakedcapitalism.com/2008/07/us-most-deceitful-form-of-socialism.html
For the less econ-literate out here: Are the Fed and Treasury actions equivalent to nationalizing part of the housing market?