Here Comes the Half Trillion Dollar Fannie/Freddie Bailout!

A series of high-level meetings between Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and the chief executives of Fannie Mae (FNM) and Freddie Mac (FRE), along with the companies’ new regulator, the Federal Housing Finance Agency took place today.

Rumors of the meetings had obviously leaked out earlier in the day, as the Financials and Homebuilders ramped up into the afternoon. Beazer Homes gained +8%, and Lennar popped 8.5%, despite the 4 million plus homes in inventory. 

The announcement is more likely to be modest — $35-50 Billion dollars — but that is a mere bandaid. Once the initial bolt is shot, it will be back to the well, over and over again. $5 to 6 Trillion move back on to Uncle Sam’s balance sheet, plus whatever losses that accrued from buying the bum mortgages  — figure a few $100 billion. (Hey, it must be nice to be Pimco!)

As to the crappy derivatives that Phony and Fraudy bought when they thought of themselves as giant hedge funds — the first person in government that suggests taxpayer money be used to cover those losses, I will personally feed  into a wood chipper . . . Feet first . . . Slowly.

Bloomberg reported some of the rumored details:

"The Treasury Department is close to finalizing a plan to help shore up
mortgage giants Fannie Mae and Freddie Mac, according to people
familiar with the matter.
Precise details of Treasury’s plan couldn’t be learned. The plan is
expected to involve a creative use of Treasury’s new authority to make
a capital injection into the beleaguered giants.
The plan includes changes to senior management at both companies,
according to a person familiar with the plans.
An announcement could come as early as this weekend.
Treasury Secretary Henry Paulson met with regulators and executives of
Fannie Mae and Freddie Mac today amid speculation the Bush
administration is near completing a plan for an injection of government
funds in the companies.
Paulson gathered with Federal Reserve Chairman Ben S. Bernanke, Fannie
Mae Chief Executive Officer Daniel Mudd, Freddie Mac CEO Richard Syron
and Federal Housing Finance Agency director James Lockhart in
Washington. Mudd and his aides have also been meeting at the FHFA,
which oversees the two firms, with catered food scheduled for delivery
at the agency through the weekend."


I suspect this will be another hugely expensive and ultimately unsuccessful attempt to bailout our prior irresponsible profligacy. Ultimately, we pay for this through 1) the massive printing of more dollars; 2) some corresponding form of hyper inflation; and 3) the kindness of not strangers but our overseas overlords.

That’s right — we have no money for rebuilding our infrastructure, for any form of National Heath Care, for fixing/saving social security, but a bunch of rogue traders  and Alan Greenspan, under the guise of "Deregulation" can leverage up and lose trillions, which you the taxpayer is on the hook for!

Free market my arse!

~~~

Here are your weekend questions:

How much is this going to cost the taxpayer? 

Is this anything more than a temporary band aid?

Does this do anything for the Housing Market? For other Financials?

What is the political fall out from this?

What say ye?

>

Sources:
U.S. Near Deal on Fannie, Freddie
Options Include Injecting  Capital in Mortgage Giants; Management Shakeup Coming
By DEBORAH SOLOMON and DAMIAN PALETTA
WSJ, September 6, 2008
http://online.wsj.com/article/SB122064650145404781.html

Paulson Meets With Bernanke, Fannie Mae, Freddie Mac Chiefs
By John Brinsley and Dawn Kopecki
Bloomberg, Sept. 5 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=ax0ft0S9hVYk&

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What's been said:

Discussions found on the web:
  1. Manhattanguy commented on Sep 5

    This is disgusting. Fed and Treasury doing this to save Bill Gross.

    Surprising to see XLF up after hours…hmmm

  2. Steve Barry commented on Sep 5

    Ever see Wile E. Coyote put his umbrella up as a massive boulder was about to hit him? Same effect.

  3. c b k commented on Sep 5

    in after hours trading, Freddie and Fannie were getting slaughtered but SKF was also getting slaughtered, that’s counter intuitive and not sure what this means?

  4. Mike J commented on Sep 5

    This has me pitchfork and torches angry.

    But part of that is probably because of BAC (and the rest of the financial scumbags) surging today — on WHAT positive news? Only sliver of hope is that the jobs numbers this morning clears the way for a rate cut.

  5. SM commented on Sep 5

    This is appalling. It gives me even less confidence in the financial system then I had before. Why now? The GSEs can place their debt.

  6. Mike J commented on Sep 5

    “Once the initial bolt is shot, it will be back to the well, over and over again.”

    This reminded me of a section of an At The Drive-In song:

    cloak a dagger plot her sovereign majesty
    pacifier pacifies, yeah it pacifies
    bullet ridden with vermin be it the peasant stark frenzy
    pacifier pacifies, yeah it pacifies
    held onto its tusks, naked and disrobed
    pacifier pacifies, yeah it pacifies
    and the emperor still wears no clothes
    pacifier pacifies, yeah it pacifies

    “Sleepwalk Capsules”

  7. jason in charlotte commented on Sep 5

    I’d add an additional question to ponder and perhaps Barry will weigh in on the topic at some point.

    In the afterhours session on Friday, FNM and FRE stock prices both took a big hit but every other financial stock rallied fairly significantly (the XLF gain 3% in after hours trading). Is this bailout bullish or bearish for financials as a group?

  8. Winston Munn commented on Sep 5

    The New American Exceptionalism

    We can fix anything except that, and that, and, of course, that, and probably not that, either, and I’m pretty sure we can’t do that, too, or that….

  9. bk commented on Sep 5

    I know this will be perceived as naive, but is there ANYthing that can be done in an organized fashion to protest this? Any ideas, anyone? My fat lazy ass is 45, but damn if this doesn’t make me as angry as a superhormonal teenager who hates all authority. For the first time in 20 years, I’m ready to march.

  10. BobC commented on Sep 5

    So what will this do to the dollar? Weaken it or strengthen it? Seems to me that all it really does is kick the can down the road, pushing the day of reckoning further into the future. Won’t that ultimately devalue the dollar?

  11. VJ commented on Sep 5

    Geez.

    It must be really, Really, REALLY, bad.

    I thought for sure they would try and drag it past the election, unless the bottom fell out first.
    .

  12. bk commented on Sep 5

    Jason, I’m assuming you mean bullish or bearish for maybe Monday, possibly next week, or maybe possibly just Gross? Long term, or maybe the week after next, everything is going to hit the crapper so badly that our heads are going to implode. But, PIMPco might be happy.

  13. Mysticdog commented on Sep 5

    Gotta ask – doesn’t the government have to get congressional approval for this sort of expenditure? Or at least raise the debt ceiling for finding foreigners dumb enough to pay for this bailout? Are there foreigners that foolish at this point? Couldn’t they invest in something more practical? Half a trillion?

  14. Mitchn commented on Sep 5

    As BobC suggests, it will erode the value of the dollar — and will fuel inflation. Which will knock the already beleaguered middle class on its ass. The markets will tumble, people on fixed incomes, will feel the pain. And then people will start to get angry, not just annoyed. When that happens, f*ck Obama, f*ck McCain, f*ck the MSM and the idiots on CNBC. The shit will hit the fan, and we all better have a safe place to hide.

  15. jambi commented on Sep 5

    This weekend I am going to go an invest in some precious metals (a box of 0.40 cals).

    I already see where this is going…
    Dollar got some strength.. Oil subsided a bit…
    Let print and run the dollar in the ground.. Oil through the sky…

    They forgot some things though….
    Freddie/fannie <- last $$$$ goes to them... What over the rampant unemployment? What about those who expect infrastructure spending? National healthcare... Dell is set to close and send all manuf. overseas in the next 18 months. Boeing strike is getting ready to go down... Hurricane Ike is about to finish what the other one started... Unemployment gets worse... A big bank finally blows... Run on the back.. FDIC overwhelmed... The lemmings get their heads out their behinds and realize Obama's promises will not be fulfilled as all their taxes/future taxes/future kids taxes have been forked away to some greedy arseholes on wallstreet who create nothing of substance .. Don't contribute anything to society.. O' it is going to be grand.... A grand ol affair. I will continue going to work.. Making my $$$$ .. Saving and sleeping w/ a gun by my side. I am pretty irrate though.. Anyone want to start a site? I am all about protesting and getting the word out on this one.. This is just f'in ridiculous

  16. jason in charlotte commented on Sep 5

    Yes, I meant bullish/bearish for financials over the intermediate term (which I consider to be 3-8 weeks).

  17. POOCH commented on Sep 5

    Read Tim Woods rap up he has about 20 points to ponder that we have not entered yet one is “Social Upheavel and Society Becomes Negative”

  18. bk commented on Sep 5

    Ok. I’ll put aside the rants for a second. I have a real question that has been bothering me for some time. It seems as though the US is rapidly becoming, for myriad reasons, a less than prime borrower. Deficits, witin reason, run by relatively healthy economies are non-issues. But what happens when a large country has huge debt and that debt becomes increasingly expensive? What if certain entities decided to treat us as we viewed the USSR at the end? Unworthy of the money needed to survive? Before you scoff, just think SWNs unite!!! Eye on Dubai. The world is full of many potential consumers. Now they, with their relative lack of debt, may seem like better potential customers to the companies who care about nothing more than profits and shareholder dividends.
    OK. so I’m ranting, this week hasn’t been good for my equilibrium.

  19. Winston Munn commented on Sep 5

    Trouble is that for 20-30 years we have all been more interested in listening to snakeoil salesman tell us how wonderful is our future while we ignored and derided people who told us the truth.

    From PBS, Bill Moyers interview of Andrew J. Bacevich:

    “ANDREW BACEVICH: ….President Carter says in that speech, oil, our dependence on oil, poses a looming threat to the country. If we act now, we may be able to fix this problem. If we don’t act now, we’re headed down a path in which not only will we become increasingly dependent upon foreign oil, but we will have opted for a false model of freedom. A freedom of materialism, a freedom of self-indulgence, a freedom of collective recklessness.”

    We are simply reaping what we have sown – our leaders are our leaders because we have not demanded better.

    “They” didn’t do this to us – we did this to ourselves. We demanded unlimited credit and low-cost fuel.

    We got it, all right. Like the saying goes, be careful what you wish for….

  20. Marcus Aurelius commented on Sep 5

    It won’t cost current taxpayers a dime – we’re getting tax cuts! Our children and grandchildren, on the other hand…

  21. bdg123 commented on Sep 5

    If the government would nationalize these, it would likely turn a profit over the next twenty years. Screw a bailout. Nationalize them, eject management, clean them up and then sell them off in pieces as rapidly as possible. Impact to taxpayers? Probably next to nothing. HOLC turned a profit in the Great Depression so this effort would likely be similar.

  22. bdg123 commented on Sep 5

    If the government would nationalize these, it would likely turn a profit over the next twenty years. Screw a bailout. Nationalize them, eject management, clean them up and then sell them off in pieces as rapidly as possible. Impact to taxpayers? Probably next to nothing. HOLC turned a profit in the Great Depression so this effort would likely be similar.

  23. KnotRP commented on Sep 5

    Investing has become a matter of placing your bets
    before the house makes up the rules to the game.
    There is a serious danger that they will precipitate
    a system crash, while trying to “save” it….(or at
    least save their favorite players from losing)

    Trust is much harder to rebuild than it is to lose….

  24. rww commented on Sep 5

    Political fallout? Zero. The Democrats already acquiesced, probably having been promised the money would never be needed. Shades of the Iraq War Resolution.

    Two historic failures of the political system.

  25. Eric commented on Sep 5

    So if this take all the risk off the table if every failing institution will be bailed out, will that not cause a sell off in treasuries and cause interest rates to rise rapidly, putting further pressure on this sorry housing market.

  26. km4 commented on Sep 5

    Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism
    by Kevin Phillips
    http://www.amazon.com/o/ASIN/0670019070/groksoup04

    In Bad Money, Phillips describes the consequences of our misguided economic policies, our mounting debt, our collapsing housing market, our threatened oil, and the end of American domination of world markets. America’s current challenges (and failures) run striking parallels to the decline of previous leading world economic powers—especially the Dutch and British. Global overreach, worn-out politics, excessive debt, and exhausted energy regimes are all chilling signals that the United States is crumbling as the world superpower.

    “Bad money” refers to a new phenomenon in wayward megafinance—the emergence of a U.S. economy that is globally dependent and dominated by hubris-driven financial services. Also “bad” are the risk miscalculations and strategic abuses of new multitrillion-dollar products such as asset-backed securities and the lure of buccaneering vehicles like hedge funds. Finally, the U.S. dollar has been turned into bad money as it has weakened and become vulnerable to the world’s other currencies. In all these ways, “bad” finance has failed the American people and pointed U.S. capitalism toward a global crisis.

    Our crushing debt has cannibalized this country. We consume more than we produce and kick the can down the road. How much longer can this formula for disaster last?

    Well for sure not much longer if its ‘devoid of economic understanding’ McSame.

  27. AJF commented on Sep 5

    I have an enormous amount of respect for Gross and what he has accomplished (if not his politics); but his rhetoric lately, even before his sensational essay yesterday, reeks of disingenuosity- i.e. that he’s talking his book. However, if his bit of prose is truly viewed as the catalyst for an explicit guarantee or government take over of the GSEs, then he has more gravitas than Einhorn and Ackman could ever dream to have!

  28. Mr Bubbles commented on Sep 5

    Wake up people!

    The US taxpayer is FAR down then list of priorities for the Presidential candidates and congresscritters….until ten thousand of us show up at their doorstep with torches and pitchforks.

    Everyone needs to get off their collective butts and participate in the petitions and organized protests at http://www.fedupUSA.org Several have already occurred in D.C. and New York after the Bear Stearns (really JP Morgan) bailout. Barry has posted some of the photos from those protests.

    There is an additional step everyone should take. ALWAYS VOTE OUT EVERY INCUMBENT IN OFFICE! Alas, this won’t happen because 90% of Americans are brain dead, gullible, party-line idiots.

  29. Dave commented on Sep 5

    Of course, Barry will probably blame laissez faire markets when this is an example of the exact opposite…

  30. Mr Reality commented on Sep 5

    I hope everyone has bought a shiny new wheelbarrow to carry around all those shiny new United States peso’s they are going to need to buy a loaf of bread. Zimbabwe here we come!

  31. Pat G. commented on Sep 5

    Only complete anarchy will bring about the changes this country so desperately needs. Our electoral process is broken and needs to be overhauled.

  32. Terry H commented on Sep 5

    BOHICA!!!!!

  33. Andy Tabbo commented on Sep 5

    Lots of thots here…

    Clearly this “news” of the Treasury working on a backstop was leaked to someone….is it not interesting how the government always seems to “come to save the day” in Dudley-Do-Right fashion as the market sits on a precipice.

    These people are simply delaying the day of reckoning in my opinion.

    Remember the monoline insurers? All we have to do is rescue them somehow and everything will be “OK.”

    Remember $147/bbl crude? All we have to do is strengthen the dollar and everything will be “OK.”

    Remember Bear Stearns? That was the capitulative low we need to put a bottom in. Now everything will be “OK.”

    Remember when Merrill Lynch sold their crap paper for pennies on the dollar and then rallied afterwards? That was the bottom and now everything will be “OK.”

    And now we’re going to save the GSEs and everything will be “OK.”

    Wrong. Wrong. Wrong. Wrong. Wrong.

    None of the aforementioned items is “the problem.”

    The problem is INSOLVENCY. We are INSOLVENT. We cannot buy any more crap that we neither need nor can afford. It’s over.

    S&P500 walked away from the edge of the cliff today. However, it was a Friday on lighter volume. Was it just profit taking on Treasury/GSE rumors in front of a weekend? Next week will tell the tale.

    – AT

  34. Roger L commented on Sep 5

    These asshats should be criminally prosecuted and be forced to repay the millions we paid them to essentially hose us. If I hear Larry Kudlow extol the virtues of a free market again, I will puke.

  35. CPJ commented on Sep 5

    Barry, to echo a comment written above:

    Seriously, WHAT can we do about this? I sit here day in and day out watching your generation (no knock on you personally) mortgage MINE to the hilt. It’s disgusting, and we have NO VOICE! What can be done? What can we do? Have we no recourse, nor say in the direction of this freight train?

    Unfortunately I feel that I know the answer to my own question, but being that this line of thought has been contemplated a number of times on TBP, perhaps you’d be willing to weigh in with your thoughts? When and how do we say enough is enough? This boulder is rolling far too fast to think that ‘perhaps we can do something through our choice of elected representatives’. We need a voice YESTERDAY!

  36. Mr Bubbles commented on Sep 5

    Pat G. I agree. I have long thought the same thing. Voting for change is ultimately a futile endeavor; corruption knows no party lines.

    I see a major revolt in our near future. Attention US government: you better bring those troops home soon. You’re gonna need them to protect your ass.

  37. John Borchers commented on Sep 5

    Time’s up!

    The strings are coming unwound. Anyone that can’t afford more loses can’t hold anything losing value, whatever it is.

    THE FED IS TOO LATE. They should have protected the equities, bonds and debt BEFORE they lost all their value. Everyone has already taken a large penalty for all those things losing value. Now whomever was holding those things will show up with more loses. Look at the financial equity wheel. The banks are all invested in each other.

    Whoever taught banks and brokers how to diversify was on crank.

  38. Tom K commented on Sep 5

    I cry for the children of this country, we have done them a great disservice. Wait until the hedge funds unload their holdings next week, you ain’t see nothin’ yet. If the banks take the pipe on the preferred as Andrew Ross Sorkin indicates in the NYT tonight, I suggest that the market will dip 1000 points Monday.

  39. sysin3 commented on Sep 5

    aw, hell.

    wish I could move to vanuatu …… tomorrow.

  40. Jeff M. commented on Sep 5

    A little off-topic, but ANOTHER bank bites the dust, this one with potential political consequences (assuming ANYONE, Bueller? Bueller?? is paying any attention to anythign of substance in this race)……

    Regulators shut down Silver State Bank, the latest in a series of bank failures and one that could ripple through the presidential campaign. Until recently, the son of Republican nominee Sen. McCain sat on Silver State’s board and was a member of its three-person audit committee, which was responsible for overseeing the company’s financial condition. Andrew McCain left the Henderson, Nev., bank July 26 after five months on the board, citing “personal reasons.” He is Sen. McCain’s adopted son from his first marriage.

  41. Harold T commented on Sep 5

    C’mon folks, you are not naive enough to believe that Paulson woke up this morning and decided to do this. This has been in the works from the minute the legislation was signed. Has a bureaucrat ever asked for a law and not used it? The same old question applies-what did they know and when did they know it. I am starting to believe in the Trilateral Commission!!

  42. Winston Munn commented on Sep 5

    CPJ wrote: “Seriously, WHAT can we do about this? I sit here day in and day out watching your generation (no knock on you personally) mortgage MINE to the hilt. It’s disgusting, and we have NO VOICE! What can be done?”

    The answer occured in Congress, July 4, 1776

    “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. –That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, –That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.”

  43. km4 commented on Sep 5

    “No generation has a right to contract debts greater than can be paid off during the course of its own existence.” ~ George Washington

    Someone tell the idiots that vote GOP who have pushing supply side economics, deficits don’t matter, and spending like drunken sailors since for 25+ yrs since Reagan except for 8 yrs under Clinton whose biggest bonehead move was repeal of Glass Stegall Act but is only one who had budget surpluses.

  44. Tom Lindmark commented on Sep 5

    Good article.

    I would suggest that more than just a few rogue traders were involved. Say, maybe all of the major banks and investment banks had a big hand in this debacle.

    It’s been kind of under the radar all week but the news on the Alabama county that is sparring with Wall Street over its bonds and some derivatives that were sold to it is starting to get some play. Seems the Wall Street boys went down there and fleeced the rubes pretty good. And, surprise, it didn’t stop there at all. Apparently the municipalities were pretty easy pickings. If this turns out as bad as it’s beginning to smell it could get dicey. Fleecing the same people that are bailing you out is raw meat for politicians.

  45. DaveM commented on Sep 5

    With the time available to digest this politically, all we will get is the wrong headed spin of lobbyists to make it sound like a national disaster when it is simply a special interest disaster. If campaigns were paid for out of the general funds and special interest money banned forever, we might actually get to have a conversation about the interests of the next generation. That’s not going to happen. Imagine how different the reasonable expectations of a kid born today will be than ours…and for now we will have to listen to how the greed of others was a really a national tragedy that could not be foreseen. Over at Calculated Risk they will talk about keeping a level head in the midst of a crisis in order to manage it effectively. I submit that only time major change gets instituted is in the midst of crisis.

  46. JustinTheSkeptic commented on Sep 5

    BR, we’ve seen this drill before; what’s different this time is that they are letting this fester through the week-end. Why didn’t they wait for Monday? Could end up being their biggest mistake.

  47. malabar commented on Sep 5

    I suppose Bill “BailMeOut” Gross and all the bigguns at PIMCO popping the corks! Nice to be king.

  48. Jeff M. commented on Sep 5

    @Dave: If the regulators had done their JOB, don’t you think this could have been avoided to some extent?

    But in your pure ideological fantasy world, the “invisible hand” cures all. Please stop it with this drivel. Human nature and behavior is not ideal.

  49. Steve Barry commented on Sep 5

    km4,

    You’ll like this National Debt Increase Chart.

  50. Tina J commented on Sep 5

    This will be the largest negative feedback loop in the history of mankind-fasten your seatbelts. I was in DC at a conference 18 months ago and told a dinner group I had sold everything to go to cash. Everyone had a good laugh on that- and said to me “who is stupid enough to have cash at three percent interest.” Guess who is laughing now?

  51. Blue Bellied Yankee commented on Sep 5

    I have this general feeling everything is so corrupt that I don’t see how this will end
    peacefully.

    Sept 16 Forbes has an article:
    Under-the-Counter Market
    “To the casual observer the credit default swaps market conjures up images of bloodless gnomes trading complex securities amid sterile office towers. The market is $60 trillion big, if you measure it by the value of the bonds underlying the outstanding positions.

    Carousing with prostitutes and cocaine, sticky-fingered bosses and trading-floor betrayal are also part of the picture, according to an unusually nasty, and revealing, legal battle that is shedding light on this dim corner of Wall Street”

    The article mentions JPMorgan as receiving inside derivatives trading information. Yes the same JP Morgan retained by the Treasury to figure out what to do with Frannie and Freddie.

    Such a sweet deal, talk about the FOX guarding the hen house. This whole thing is a great case of the privatizing profits and socializing losses.

  52. floating stinging butterfly commented on Sep 5

    RE: action (nonviolent)

    The Mattress Revolution

    withhold, en masse, any future contributions to 401(k)s, IRAs, etc. indefinitely, until transparency & justice really happen.

    like the corner pusher withholding china white to his best clients! the spiders and centipedes will crawl all night, night after night, week after week!

    once Fidelity, Vanguard, GS, et. al. see 2 million plus folks withdrawing the sugar, maybe someone will notice.

    how much $$ flows into these guys each week? pull the cord and see what happens. enuf folks’ accts are dwindling away anyhow, so maybe people will jump aboard.

    $$ talks, not pitchforks or bullets — you’ll end up in gitmo by the platte.

  53. floating stinging butterfly commented on Sep 5

    RE: action (nonviolent)

    The Mattress Revolution

    withhold, en masse, any future contributions to 401(k)s, IRAs, etc. indefinitely, until transparency & justice really happen.

    like the corner pusher withholding china white to his best clients! the spiders and centipedes will crawl all night, night after night, week after week!

    once Fidelity, Vanguard, GS, et. al. see 2 million plus folks withdrawing the sugar, maybe someone will notice.

    how much $$ flows into these guys each week? pull the cord and see what happens. enuf folks’ accts are dwindling away anyhow, so maybe people will jump aboard.

    $$ talks, not pitchforks or bullets — you’ll end up in gitmo by the platte.

  54. Jeff M. commented on Sep 5

    @Tina J: You’re my hero. Had most of my money in cash in Oct/Nov but stupidly jumped back in around January. Dumb, dumb, dumb. Should have trusted myself more.

    It almost feels pointless to even be in these markets anymore when the game is so rigged. What’s the point? I’d kill for 3% and a good night’s sleep at this point.

    Is it me or will a lot of people start feeling the same way and just get the heck out of the markets entirely for a while? After all, without trust or confidence that the game isn’t totally rigged, what does the market have?

  55. Dale commented on Sep 5

    From Washington Post.com,

    Fannie Mae, Freddie Mac to be Put Under Federal Control, Sources Say,

    http://www.washingtonpost.com/wp-dyn/content/article/2008/09/05/AR2008090503351.html

    “The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives, and use government funds to prop them up, government officials told the two companies yesterday, according to sources familiar with the conversations.

    Under the plan, the federal government would place the firms in a legal state known as conservatorship, the sources said. The value of the company’s common stock would be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, would be protected by the government.

    Instead of giving each company a big capital infusion up front, the government plans to make quarterly infusions as the companies’ losses warrant, the sources said. This would be an attempt to minimize the initial cost of the rescue. ”

    Amazing not even the common gets wiped out.

  56. John Borchers commented on Sep 5

    Just remember before counting winnings or losses if you own FNM FRE they said BSC was getting bought out for $20 and it ended up being $2.

  57. Pat G. commented on Sep 5

    “I see a major revolt in our near future.”

    It appears to be 1776 again. Only this time the enemy is from within.

  58. John Borchers commented on Sep 5

    Oh BTW. I sold my FNM at $7 from $4. But I had to buy my option call back at a little bit higher than I wanted.

    I am fully out of the market now except for my 401K which is in SPY (equivalent). Unfortunately for me there’s no better place to put it. Most 401K funds don’t allow cash as an option and the bonds could lose big too going forward. I do think the market will break but it will likely come back in 10 years and I’m well away for retirement.

    I am sorry for the ones who aren’t though. It’s going to get very rough.

    Barry the site looks better again. I guess it was just vacation. Although next time I know how to get a personal email from you, LOL.

  59. Tina J commented on Sep 5

    @floating stinging butterfly-get out now. The markets will remain irrational longer than you wll remain solvent. I didn’t post to brag, but to make a simple point I learned a long time ago…no matter what anyone tells you, cash is KING!!! Somehow the financial gurus make people believe that only fools are in cash. Remember these are the same fools who created the exotic instruments even Paulson said he could not understand. Don’t cave in-trust me.

  60. Jeff M. commented on Sep 5

    @John Borchers: Wasn’t BSC eventually settled for $10 a share after enough big shareholders whined about it?

  61. SM commented on Sep 5

    this could endanger the US gov’t debt:

    While this credit crunch has hurt financial markets, S&P notes that it hasn’t threatened the standing of the nation’s credit quality upon which U.S. Treasurys and debt priced off this government debt depend. But should a protracted recession cause Fannie and Freddie to buckle, the U.S. rating would be in danger.” by PRABHA NATARAJAN from Wall Street Journal.

  62. Guest commented on Sep 5

    Seeing this bailout, how can anyone still talk about “deflation ?”. It completely boggles the mind how some people can assume that reality adheres stringently to textbook and case studies!! What say ye “deflationists ?” How many more bailouts do you need to wake up to reality ?

  63. Jeff M. commented on Sep 5

    “Mr. Syron, for instance, collected more than $38 million in compensation since he joined the company in 2003.”

    Wonder if he’ll be asked to give any of the money back? I thought not.

    This is downright criminal.

  64. TheGuru commented on Sep 5

    What say ye? I’d say I am damn tired of Boill Gross dictating economic policy. I hope there is a tremor in California which creates a giant sinkhole in Newport Beach right where Bill Gross stands. I hope he gets sucks into the molten core of the Earth.

  65. John Borchers commented on Sep 5

    That’s true Jeff. But the ones who heard the offer of $2 on Monday morning didn’t like it.

    nothing a little Vodka won’t fix…

  66. Bruce commented on Sep 5

    km4…uh, democrats won’t solve the problem..sorry.

    Clinton didn’t balance the budget…budget busters have been off loaded for years now, including Mr. I Feel Your Pain…

    Unless the constitution is amended to prevent deficits…this will continue. Both parties.

    Bruce in Tennessee

  67. John Borchers commented on Sep 5

    I was pounding about deflation for a long time guest.

    Now what we have is NECESSARY DEFLATION because numbers which calculated inflation were completely wrong.

    Who hasn’t noticed health care / insurance costs tripling over the last 5 years?

    Now we have to pay the piper. The difference I think is that unlike everyone who looks at the great depression as a bad thing is more a necessity and a good thing for the long term.

    Let’s notice what is losing value for a moment:

    1) Housing
    2) Automobiles (esp SUVs)
    3) Commodities (GOLD, OIL etc)
    4) Bonds
    5) Stocks

    Gold spiked way back but now they have lost almost as much value as anything else. It’s clearly deflation and the high energy prices is making the Fed hawks look right.

    The next Fed move is down. The US is the next Japan.

    Transferring all our technologies to Asia to build there for low cost was the stupidest thing corporations could have ever done.

  68. just thinking commented on Sep 5

    On the non-violent revolt side of things. If you really wanted to do a mass protest, just get a large group of folks to agree to coordinate the movement of their money around on key days of the month … the 15th, the 30th, or whatever days banks typically need more balances…

    Everybody moves money to one bank electronically, and then moves it all out at the same time … say at the last day before the end of the quarter.

    Maybe it wouldn’t work, but maybe some of you insider folks know what days or times are weak spots.

    At the same time, if there’s a run on the bank, is there some moral issues with that in that you have tremendous collateral damage or is such action judged as necessary to shine light on the mess that is our financial system?

  69. Stuart commented on Sep 5

    I’ll be a SOB, Jim Sinclair was right….

  70. John Borchers commented on Sep 5

    Just thinking, best thing is to march in front of congresses home.

    Pulling money out of the banks on a certain would definately get attention but the bank people aren’t the ones who can fix the problem they are the ones who helped create it.

    It’s always been a red flag whenever insiders only hold option positions for compensation instead of the true shares. Now, everyone knows why. The management doesn’t hold the risk.

  71. just thinking commented on Sep 5

    Marching in front of someone’s home is a good time … I just think going down the list of the UNOFFICIAL FDIC watch list and boosting a bank’s reserves only to yank the carpet out from under them indirectly puts a tremendous amount of pressure on the government. Just thinking, but you then get the youtube videos and viral marketing going for the thing. Blast out the video that says we’re (name) and that things need to change … Can you do that or are there SEC laws against it? If it is a bunch of individuals just moving 5 figures around electronically is it legal or illegal? You’ll probably get arrested protesting in front of a congressional person’s home … additionally they’d play it up like you’re threatening their family, which won’t play well with America.

  72. Guest commented on Sep 5

    Bruce,

    “Gold spiked way back but now they have lost almost as much value as anything else.”

    Gold rose from $250 to $1060 and now corrected to $800 and you call this deflation ? What happened to the rise from $250 to $800 ? Also, there are many, many crosscurrent re: the precious metal complex currently. Least of which is the blow up of the “long commos/short financial” trade causing many forced liquidation on hedge funds. One hedge fund we hear is Ospraie. There could be many others so I wouldn’t take the recent action in the PM as “indicative” of deflation.

    “The next Fed move is down.”

    And this isn’t inflationary ?

    “Transferring all our technologies to Asia to build there for low cost was the stupidest thing corporations could have ever done.”

    This is called “comparative advantage!”

  73. John Borchers commented on Sep 5

    1) It’s deflation to whom ever bought gold at $1000. Typically when the market worsens gold goes up. It’s not doing that.

    The $250-$800 gold of course is inflation. Never said it wasn’t.

    It’s not comparitive advantage when you are giving away your manufacturing secrets and other technology secrets. It’s then called stupidity to save $5.

    Of course the managements don’t care, they cash in options so it’s no loss to their holdings in the company stock right?

  74. donna commented on Sep 5

    No wonder they were practicing on protesters at the RNC convention. Getting ready for the taxpayer revolt, which may make the Boston Tea Party look like, well, a tea party.

    Good luck getting people to pay their taxes when they have no money, feds. Better go soak the rich.

    OH, wait, I am the rich. Bad plan.

  75. Guest commented on Sep 5

    >It’s deflation to whom ever bought gold at $1000. Typically when the market worsens gold goes up. It’s not doing that.

    You just think everything goes up in a straight line doesn’t it ?

    >The $250-$800 gold of course is inflation. Never said it wasn’t.

    Then what are we discussing here then ? The recent 20% correction is deflation ? Oh boy!

    >It’s not comparitive advantage when you are giving away your manufacturing secrets and other technology secrets. It’s then called stupidity to save $5.

    It’s absolutely comparative advantage because we think we can are at a more advantageous position to “design” rather than “manufacture” and also because the labor is cheaper overseas!

    Here’s the definition from Wiki:

    “The principle of comparative advantage refers to the fact that optimum resource allocation in international trade can, and often does, involve trade elements with an absolute disadvantage; specifically, each nation shifts its resources to its more productive industries, while increasing trade for goods in their less productive industries – even when they can produce those goods at a lower cost domestically. The opportunity cost of decreased allocation to the more productive area outweighs the cost advantage of domestic production.”

  76. John Borchers commented on Sep 5

    Guest,

    Not many have enough money right now. That’s why everything is coming down. All the metals are coming down. The 20% isn’t the sudden end.

    If everything is coming down around 20% already in pricing and you don’t think that’s a deflationary sign what would be a deflationary sign to you?

    The Fed was only confused because commodities were moving up. Believe me, they know what to do at the next meeting. You can bet on it.

  77. Disgusted commented on Sep 5

    Donna, so you make $5 million?

  78. Guest commented on Sep 6

    “Not many have enough money right now. That’s why everything is coming down. All the metals are coming down. The 20% isn’t the sudden end.

    If everything is coming down around 20% already in pricing and you don’t think that’s a deflationary sign what would be a deflationary sign to you?

    The Fed was only confused because commodities were moving up. Believe me, they know what to do at the next meeting. You can bet on it.”

    The discussion is not about whether this credit contraction is deflationary or not. Credit contraction or deleveraging (to use a more popular term), by definition, IS DEFLATIONARY. We are discussing the outcome of the reaction from the Feds and the Treasury. Their action, hence the original post about the bailout, IS INFLATIONARY! That’s what the deflationists seem to miss the most important point. They are stuck with the deleveraging and don’t bother to take into account the Feds and Treasury’s reaction.

    Now, if you tell me that the bailout is deflationary, then we have a discussion.

  79. Guest commented on Sep 6

    >The Fed was only confused because commodities were moving up. Believe me, they know what to do at the next meeting. You can bet on it.

    Maybe not at the next meeting but definitely the next move is to lower rates, which is inflationary.

  80. John Borchers commented on Sep 6

    And also, since the production moved the asian companies also learned the technology and know how to DESIGN the same components and copy them.

    If you don’t think so watch what is going to happen to some major US companies over the next 3 years.

    Check conference calls, ask disgruntled employees who got laid off as a design office “relocated” to EU or Asia.

    It’s not just production moving. It’s the entire techonology. That’s where you are mistaken.

  81. John Borchers commented on Sep 6

    The bailout is deflationary as it shows the value of such goods needs to be supported by its goverentment. That’s not inflationary.

    You have inflation when the fed is raising rates, not when they are lowering them. Albeit the Fed’s core calculation is total BS and rates should have been 10% instead of 5% at the peak.

    If they would have killed the problem earlier we wouldn’t have to go through a deflationary period.

  82. Guest commented on Sep 6

    “And also, since the production moved the asian companies also learned the technology and know how to DESIGN the same components and copy them.

    If you don’t think so watch what is going to happen to some major US companies over the next 3 years.

    Check conference calls, ask disgruntled employees who got laid off as a design office “relocated” to EU or Asia.

    It’s not just production moving. It’s the entire techonology. That’s where you are mistaken.”

    It started off as “comparative advantage!” That’s how it always have been and always will be! Who built the initial TV, radio, car, etc ? Then it is shipped to the country with the “comparative advantage”. History is repleted with this sort of “comparative advantage”. It’s the “World is Flat” thesis from a different angle, nothing new! No, not mistaken about the “entire” technology moving overseas. As history show, that’s how it evolves!

  83. Matt Rafat commented on Sep 6

    Barry’s been talking about a capitulation for months now…think Thursday was it?

  84. Guest commented on Sep 6

    “The bailout is deflationary as it shows the value of such goods needs to be supported by its goverentment. That’s not inflationary.”

    You have got to be kidding me!!! I think we can stop the discussion at this point until you straighten some facts.

    I quote BR from the post that started this discussion, reread it a few times for your own benefit.

    “I suspect this will be another hugely expensive and ultimately unsuccessful attempt to bailout our prior irresponsible profligacy. Ultimately, we pay for this through 1) the massive printing of more dollars; 2) some corresponding form of hyper inflation; and 3) the kindness of not strangers but our overseas overlords.”

    “You have inflation when the fed is raising rates, not when they are lowering them.”

    Oh boy!!!! Class dismiss!!! Exam next week!!

  85. Greg0658 commented on Sep 6

    1 more time
    I’m sure those mortgages have real homes and land under them
    don’t settle for less than 65% of that $5 to 6 Trillion = $3.25 to 3.9 Trillion
    any buyers? China? UAE?
    oh how about a US bank for say $250 Billion, watch for the inside scoop, so you know which bank to invest in … start the grand plan again … capitalism discharges

    seriously; how about a margin call loan from the taxpayers instead

  86. Guest commented on Sep 6

    “The bailout is deflationary as it shows the value of such goods needs to be supported by its goverentment. That’s not inflationary.”

    You have got to be kidding me!!! I think we can stop the discussion at this point until you straighten some facts.

    I quote BR from the post that started this discussion, reread it a few times for your own benefit.

    “I suspect this will be another hugely expensive and ultimately unsuccessful attempt to bailout our prior irresponsible profligacy. Ultimately, we pay for this through 1) the massive printing of more dollars; 2) some corresponding form of hyper inflation; and 3) the kindness of not strangers but our overseas overlords.”

    “You have inflation when the fed is raising rates, not when they are lowering them.”

    Oh boy!!!! Class dismiss!!! Exam next week!!

  87. tom a taxpayer commented on Sep 6

    The following is a simultaneous translation of the WSJ article (Deborah Solomon & Damian Paletta Sept 6, 2008) on the plot to take-over of Freddie and Fannie:

    “The Treasury Department is close to finalizing a plan to help shore up mortgage giants Fannie Mae and Freddie Mac, according to people familiar with the matter.” [It’s the week-end…time for the Wall Street/Fed/Treasury mafia to concoct another taxpayer scam.]

    “Precise details of Treasury’s plan couldn’t be learned.” [Don’t ask. We don’t tell]. “The plan is expected to involve a creative use of Treasury’s new authority to make a capital injection into the beleaguered giants.” [We can turn water into wine].

    “The plan includes changes to senior management at both companies, according to a person familiar with the plans.” [The rogue elephant CEOs will be tranquilized and shipped to the Serengeti plains of Africa.]

    “An announcement could come as early as this weekend.”[We need to act before the Asian markets open on Sunday.]
    “On Friday, a series of high-level meetings were planned between Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, the chief executives of Fannie Mae and Freddie Mac and the companies’ new regulator, the Federal Housing Finance Agency.”[Fannie Mae and Freddie Mac will become “made” members of the Wall Street /Fed/Treasury mafia in a Friday night sit-down.]

    “Treasury has been working with bankers at Morgan Stanley to use its newfound authority, granted by Congress in July, to devise a way to prop up the mortgage giants, which have been pummeled by investors in recent weeks.”[Hank ‘the mole” Paulson has been scheming with the Wall Street crew to set up a “bust out” operation of the two tons of fun – Fannie Mae and Freddie Mac. The only detail remaining is who will be installed as front men to run the bust out operation.]

  88. Guest commented on Sep 6

    taxpayer, extremely entertaining :)

  89. Nate commented on Sep 6

    After watching the republicans rail on and on during the convention about how they’re fighting the good fight against the liberal elite, I was reminded mostly of Karl Marx, and his calls for the proletariat to rise up against the bourgeois.

    Now we have a massive nationalization of the two largest mortgage companies in the United States. This is eerily similar to Putin’s nationalization of Yukos, and Chavez’ nationalization of the Venezuelan oil industry.

    Make no mistake about it: we don’t have free market capitalism in this country. We have socialism.

  90. Rich Shinnick commented on Sep 6

    Lets see:

    On THE BIG PICTURE the vote so far stands as follows:

    Out of 85 posts exactly ZERO think it is a good idea. So much for the collective wisdom of the American public…sorry folks, your getting the bailout anyway.

  91. Andy Tabbo commented on Sep 6

    Guest:

    I’m NOT going to engage in a big argument with you because I’ve just been observing the back and forth here and I’m going to bed….

    but I would add the following couple of thoughts….

    M3…no longer measured by the govt but still measured by others…is in a FREEFALL.

    The 10 yr note is rallying very hard and has been very bullish for several months now.

    IMO…these are the real indicators of FUTURE inflation/deflation. They are decidedly pointing toward DEFLATION.

    Indeed…commodities have rallied quite, quite hard over the past several years as we have experienced the first phase of the Kondratieff Wave…we are now in the second phase….economic depressions and deflation forces.

    I’ve been saying this all year long on this blog…inflation is NOT the real problem. We are in the middle of a DEFLATIONARY spiral right now. The whole commodity rush this year was a MINISCULE bubble…the last bubble of the Greenspan Era….all the bubbles have popped now…maybe there’s another one coming in the form of Green Energy…etc…but…the Big Bubbles…equities in 2000…real estate in 2005…credit in 2007…commodities in 2008….are OVER.

    We’re in the midst of death spiral right now…Deflation is the WORST possible imaginable outcome for a debtor nation.

    AT

  92. Guest commented on Sep 6

    AT,

    All good points.

    “M3…no longer measured by the govt but still measured by others…is in a FREEFALL.”

    Not freefall!! According to John William, YoY M3 ROC was 18% as late as mid-2008, now around 15-16%, that’s hardly freefall.

    Like to see another source,

    http://www.dollardaze.org/blog/?post_id=00412

    14% YoY growth of M3.

    One more source ? http://www.nowandfutures.com/key_stats.html

    M3 drop from 16.5% to 12.5%, hardly a freefall.

    “The 10 yr note is rallying very hard and has been very bullish for several months now.”

    Do we have a yield steepener, flatener or inverted ? It’s still a steepener isn’t it ? Taking your lead, I think that’s still inflationary isn’t it ?

  93. Guest commented on Sep 6

    “K-Wave Winter ?” K-Wave doesn’t take into account what effect monetary or fiscal policy can have on the outcome Left on its own, K-Wave is absolutely on the ball! However, as evident by the bailout, the market is not left on its own is it ?

  94. Mark commented on Sep 6

    @Guest: Put down the crack pipe, friend.

    You’ll know inflation has arrived when prices of homes, goods and commodities are going up.

    And not one moment sooner. Count your chickens before they hatch all you want, but you might want to recount every now and then, because you might not even see a crack in a single shell.

    If people sell off assets…that would be deflationary. Tune into reality and stick with it…this is going to be very interesting, to say the least.

  95. Guest commented on Sep 6

    Mark,

    Not smoking anything unfortunately although with the recent market action, I need more than a pipe!

    Let’s put it this way, asset depreciation is not deflation! Please explain why falling house price is “deflationary ?” Because the owner can no longer draw on the HELOC ? No more refies ? Why is it deflationary ?

    That’s one of the crux of this discussion. Deflation has nothing to do with price! Anyway, time to end this discussion since I keep reading the same point over and over again.

  96. MS commented on Sep 6

    Funny how no one seems to be upset that THIS information was leaked out prior to the official announcement. I guess its only bad if you SHORT Wall Street.

    I’ve seen a lot over my 15 years in the investment business – I must say, the amount of massaging and outright lies that I’ve seen relating to the current market leaves me absolutely speechless.

    Is the U.S. financial system going to be able to lie, con and manipulate their way out of these critical problems?

    If so – wow.

  97. m3 commented on Sep 6

    man.

    people get their panties in a bunch all over this inflation/deflation stuff.

    chill.

  98. VJ commented on Sep 6

    Bruce,

    Clinton didn’t balance the budget…

    Of course he did.

    …budget busters have been off loaded for years now

    Specifically ? (pre-2001)
    .

  99. Bill commented on Sep 6

    This is a good time , historically to watch the markets . But a very , very poor time to be in it. Way too much manipulation happening . Sidelines and study seems prudent . Our “Overlords” , the ‘Sovereign Wealth Funds’ will soon own all our financial institutions . Control the infidels money supply .
    Bill

  100. Zim Zam commented on Sep 6

    McCain – Palin 2008

    “We’re all Zimbabwean now!”

  101. Armen Kassabian commented on Sep 6

    I read through 100+ comments and I will outline a common theme:

    1. This bailout is wrong, ineffective, etc..

    2. The U.S. government is a disaster.

    3. The U.S. economy is going into a major depression wiping out all equity from the past 100 + years.

    Really, the negativity on this blog is a flip-side to the euphoria of the dot-com era.

    I am going to teach everyone a lesson about government:

    The government is formed to protect the public against major catastrophes – be it war, natural elements, or financial meltdowns

    What we are experiencing is a man-made financial tsunami – and the government is doing its best to resolve it, so what is the the problem with everyone here?

    I know there is 99% agreement that the economy is going into disaster mode, and the market is going into endless downtrends, but let me let you in on what will truly happen:

    This backstop will restore confidence and a source of capital from an endless source.

    We will end the next week higher on all fronts and the year will end positive on all the indices.

    I am especially convinced when I look at the sentiment here – 100% agreement on a further meltdown – that means it will not happen.

    AK

  102. Eric Davis commented on Sep 6

    Even Schiff is rational enough to say that hyperinflation is a joke…..

    This message board, gets funnier by the day. I always wonder if Barry says to himself on a Friday, “You know what will be fun? I’m going to stir up the Crazy talk!” Then spends his weekends laughing.

    If we lived under a “Free market” we would all be the handmaidens of JpMorgan’s offspring.

  103. BillG commented on Sep 6

    Phony and Fraudy should pay no dividends and retain no earnings until every dime of taxpayer money used in the bail-out is returned to the Treasury.

    Their business model should be simplified (made completely transparent)and their corporate charter amended to prohibit their becoming engaged in anything but the most simple business of securitizing mortgages.

    If they fail to return a profit to the Treasury they should not be saved again.

    If they fail to maintain an auditable business or fail to meet an acceptable level of adherence to accounting standards their top managers should be fined and imprisoned for a reasonable period of time.

  104. The Big Picture commented on Sep 6

    Fannie

    Last evening, we asked what are the costs and consequences, as well as the market reaction to, the imminent bailout of Fannie Mae (FNM) and Freddie Mac (FRE). Your responses were inspired and informative. (For a brief history of the GSEs, see this earl…

  105. Les commented on Sep 6

    How is the US Govt going to run Fannie and Freddie any better?

    It sounds like Wall Street wants Freddie and Fannie to start buying up mortgages and refis that they wouldn’t hold themselves.

  106. Jeremy commented on Sep 6

    Lets just say that all the ills cited above were taking place in a small South American country. Is there anyone who wouldn’t expect a run on the banks; a currency crisis; and full credit default ?

    Also, lay some of this blame at the feet of “greed” which isnt always good. A big reason all these banks and GSEs took on this suicidal risk was based on the pursuit of greater earnings growth to please investors who couldn’t be satisfied with a “reasonable” dividend yield of ~ 3% plus some measured upside in the share price.

  107. John(2) commented on Sep 6

    Of course, Barry will probably blame laissez faire markets when this is an example of the exact opposite…

    Posted by: Dave | Sep 5, 2008 9:25:52 PM

    No Dave it’s almost entirely the consequence of laissez faire markets that created complicated new financial engineering that was woefully under-regulated. Don’t take my word for it read the piece by Volker posted on this blog. As to the bailout of F/F this has been inevitable for months, Paulson should have done it in the first place instead of dicking around. And F/F are not going to to cease to exist, they are not going to be privatized, they will continue as public corporations because at the end of the day they fulfill a need that is not satisfied by the private sector. Namely, providing liquidity in retail housing finance when the usual capital markets are running scared. As now!

  108. MadJackMcMad commented on Sep 6

    At this point in time there seems to be a widely held assumption that inflation is about to moderate due to a continued fall in commodity prices. Can we really have a strengthening dollar and falling prices at the same time as bailouts such as this?

  109. John(2) commented on Sep 6

    Armen Kassabian;

    I agree there is way too much chicken little stuff here and I agree with your definition of the role of govt, but this takeover of F/F is a big deal. It’s certainly the biggest deal since one of them was created back in the seventies by Nixon I think and arguably since the thirties when they first came into existence. I’m not sure this causes a big rally as a lot of people are going ot lose a lot of money and it doesn’t magically eliminate all the other problems out there but draws attention to them while the slowdown in the real economy is very real. Overall this heightens the sense of financial crisis and it’s hard to predict the effect of this on the mood of markets. As to the role of govt unfortunately it’s got muddied by a lot of right wing political polemicists. It’s a faux issue like “elitism” when in fact both political parties and indeed the country are run by elitists. The right let the morlocks out of the cellar and now they are taking over the GOP house. It’s one of the reasons it is in more trouble than it knows.

  110. Bruce commented on Sep 6

    VJ

    As one example…where do social security taxes go? Into a social security trust fund…er, no. General budget…creates liability…just the way we do things.

    So we pay social security beneficiaries by general revenue taxes…and the liability of future generations is unfunded…

    Social security…..is Subprime!

    Bruce in Tennessee

  111. Brian commented on Sep 6

    Three Questions..

    1. Does a bailout of Fannie and Freddie help us gain or lose confidence in the U.S. government?

    2. Will financial institutions continue to benefit from government moves?

    3. Is Wall Street really the best game in town? Transparency? Etc..?

  112. Bruce commented on Sep 6

    VJ

    Anyone, D or R, can balance a budget by carrying forward debts or simply refusing to acknowledge they exist…just the way it is..

    Bruce in Tennessee

  113. DavidB commented on Sep 6

    After watching the republicans rail on and on during the convention about how they’re fighting the good fight against the liberal elite, I was reminded mostly of Karl Marx, and his calls for the proletariat to rise up against the bourgeois.

    I heard McCain utter this sound bite(maybe not exactly but to paraphrase) on the news,”You have been making all the money and keeping it for yourselves. Change is coming. It is time you started doing something for your country again.”

    And I thought about how generic that statement was. Was he really talking to those who hold his leash and put him where he was…..or was he talking to middle class America? Change probably is coming. Both sides of the aisle are talking about it now. At least the public can’t say they lied but is it the change the American public is expecting or will more Americans be ‘serving the government’ than ever when this change finally goes through?

    At least they can’t be accused of lying.

  114. VJ commented on Sep 6

    Bruce,

    As one example…where do social security taxes go? Into a social security trust fund…er, no.

    Er, yes.

    General budget…creates liability…just the way we do things.

    I’m afraid not.

    Social Security is in surplus, which the current administration utilizes to mask their exploding federal budget deficits.

    So we pay social security beneficiaries by general revenue taxes…

    We do not.

    and the liability of future generations is unfunded…

    Wrong.

    It is your assertion that is unfounded.

    Social Security is more financially sound today than it has been throughout most of its 72-year history.

    Anyone, D or R, can balance a budget by carrying forward debts or simply refusing to acknowledge they exist…just the way it is..

    Still waiting for specific examples of your so-called “budget busters have been off loaded” during the Clinton administration.
    .

  115. Steve commented on Sep 6

    Given that Fannie and Freddie paper will effectively be equivalent to a US treasury bill, I assume this means that treasuries will be sold and Fannie and Freddie paper will be bought. Look at the spread between them currently.

    Ultimately, we can look forward to economic deflation along with decreased purchasing power on anything we import. Whichever way you dice it that is the worse of inflation and deflation at the same time. Sure, the rest of the world will slow down as well but some of those countries need to slow down. Australia as an example didn’t have the port capacity to load all the ships with iron ore and other commodities going to China. They were suffering severe supply side constraints
    and labor shortages. They needed a slowdown! I don’t see those supply constraints in countries supplying the developing world with commodities over the long run. That translates into higher prices for us here over time even while we continue to deflate.

  116. Sunny 129 commented on Sep 6

    Cold Facts re US Banks & FDIC

    A. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

    B. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

    Now this GSEs bailout?! Printing the American pesos is the last desperate measure. Next – CRISIS OF CONFIDENCE

  117. Andy Tabbo commented on Sep 6

    Guest at 12:59

    As I said… I didn’t want to argue because I was going to bed. In response to your good arguments I would submit the following link in re: “Broad Money Supply” or M3.

    http://www.marketoracle.co.uk/Article5963.html

    Lombard Research is reporting that July saw a 50+bn reduction in Broad Money supply, the largest single month drop in over a decade.

    In regard to the 10 yr note comments….I agree that whether or not the yield curve is steepening or flattening is an important consideration. My point was in regard to longer term interest rates and what they imply.

    I’ve heard pundit after pundit come on CNBC and blather about how “overvalued” the 10yr bond is at 3.6%-4% yield. They yammer on and on about high inflation is relative to the 10 yr notes and they come to the conclusion that the 10yr is completely mispriced. Never once do any of these taking head pundits ask themselves the following question: “What is Treasury market telling me?”

    The Treasury market is a multi trillion dollar market with plenty of big smart players in it…I think the 10 yr note market is saying: “There is a high likelihood of a Global Economic recession/depression ahead. We’re not concerned about inflation. We’re concerned about contraction.”

    I think by this time next year when crude is trading $60 bucks and global GDP is contracting…we’re going to look back at 2008 and say…”Looks like the 10 yr note yielding 3.6% WAS appropriately priced afterall.”

    -AT.

  118. TT commented on Sep 6

    We will probably see a positive market on Monday since that will be the least resistance for various large players. For those who are short this is probably a good thing after the next few days. It’s been an overhang for shorts since everyone knew the F/F bailout may come and shorts were concerned about getting caught by it. Similarly, the market have enjoyed for weeks now the various rumors about LEH investors. First, private equity firms, then a Korean bank, then another Korean Bank, then HSBC, then private equity again and now Nomura. Dick Bove said they had a 3 days, but nothing happened. You’d think it’s a negative that all these potential investors have balked at investing in LEH. Once we get the F/F and LEH out of the way it seems we can return to the real economy and I don’t think it’s a pretty picture. The reason financials rallied in Friday a/h trading is that some believe that this will stabilize the housing market. However, we still have an enormous housing inventory and continous loss of jobs.

    I think the Monday rally will not nearly be as big as it would have been if they kept the news until Sunday afternoon or Monday morning. Now, there is enough time to consider what this really means and we may not see the panic short covering to the same extent. Some investors may decide that after Friday’s reversal the rally has partly already happened and it’s a good idea to sell into strength on Monday. If we get reversal where the rally fizzles and we turn negative it could get REALLY nasty, potentially combined with a weakness in the dollar.
    What do others think will happen on Monday, and then during the rest of the week if the bailuot is announced?
    While a long shot – what will happen if it’s not announced?

  119. FinanceGuy commented on Sep 6

    If you seriously want to help- here is a group that is trying to get some exposure to this issue. Some media coverage from a couple of protests and some time on CNN so far. Small now but could turn into something….

    http://www.fedupusa.org/

  120. Vegas Baby commented on Sep 6

    I have being reading all of these comments with bemusement. I have an MBA from that small school in Cambridge,Mass. just like the President and Sec. Paulson. I was in private equity for 20 years and can assert humbly that we are on the precipice of financial armageddon. I retired in 2003 and am not that worried as I am in cash, but I think most folks are overanalyzing our situation. I can sum it up in two words- SELL MONDAY!!!
    I used to think Nouriel Roubini was a nut, but now that he has been right for more than a year, I pay more attention to him and so should you. There will always be someone “smart” who will tell you it’s a great buying opportunity-all the way down.

  121. Newshoggers.com commented on Sep 6

    Priorities people

    By Fester: The Highway Trust fund is just about broke. This is due to a combination of higher raw material costs and more importantly declining revenue. The Trust Fund is funded by the federal gasoline tax per gallon of fuel

  122. Ritchie commented on Sep 6

    “…we have no money for rebuilding our infrastructure, for any form of National Heath Care, for fixing/saving social security,…”

    Gosh, this makes it almost sound as though someone had a plan to drown our government in a bathtub, or at least a large sauce pan.

  123. R.J. Squirrel commented on Sep 6

    “with catered food scheduled for delivery at the agency through the weekend”

    It’s official. There is a free lunch.

  124. Dave commented on Sep 6

    Jeff M.
    “Human nature and behavior is not ideal.”

    It’s too bad that humans are in charge of regulation then…

    John(2)
    “And F/F are not going to to cease to exist, they are not going to be privatized, they will continue as public corporations because at the end of the day they fulfill a need that is not satisfied by the private sector.”

    Define “need” and define “satisfied.”

    That the government was implicitly backing F&F is what allowed them to become so highly leveraged. If providing liquidity to the mortgage market is a worthwhile activity, I’m confident the private sector will provide the service. It may not always be as liquid as some would like it to be, but at least it won’t cost taxpayers anything. Fannie was perhaps a “good” temporary fix in 1938, but there’s no reason why the government needs to be in this business long term.

    Also, blaming innovation/financial engineering seems a bit silly. Why not blame the idiots who bought securities they didn’t understand? You could point to the ratings agencies, but who didn’t know they were paid by the sell side?

    If you want to read a comment from someone who understands free markets, go here. Regardless of what you think of the gold standard, the main point is that the “really smart people” in the Fed and government are to blame. They are only human, I guess…

  125. dan k commented on Sep 6

    subsidize idiots and you get more idiots. I’m at least as stupid as the guys running Freddie and Fannie – why can’t they give me billions and see what I do with it?

  126. David commented on Sep 7

    This bailout is not good for us.Already the US $ has lost so much in the past few years.

  127. constantnormal commented on Sep 7

    ” … Beazer Homes gained +8%, and Lennar popped 8.5%, despite the 4 million plus homes in inventory. ”

    So how does this help Beazer — or any other homebuilder — and if it does not, is there some money to be made in puts, anticipating a return to sanity over the near term?

    The only way I can see this helping housing is by implying a time frame when conditions are expected to be better — but 2010 is quite a ways away.

    And I would guess that this might impact the dollar, but am uncertain as to how, as I can see both an emotional move up and a logical move down reflecting the additional debt eating away at it.

    I suppose, as Mark Twain said, it’s that difference of opinion that makes for horse races.

  128. Fred S. commented on Sep 8

    These actions do not surprise me nor should they surprise anyone who frequents this site. I would love to hear from Barry WHAT WE ALL SHOULD DO (besides sell) TO TAKE BACK THE COUNTRY. I suspect this may signal the realization by the Fed that they need to INFLATE us out of the mess.

Read this next.

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