Fanny And Freddie

[gobears 0]

Sounds like the Fed is not going to let AIG fail. Many options on the table per dealmaker.1. Officials at the Treasury Department are considering a government takeover of AIG, possibly placing the company into a 'conservatorship' as occurred with Fannie Mae and Freddie Mac, according to a person familiar with the thinking at the Treasury. There may be considerable legal obstacles to such a takeover, as it is not clear even to Treasury officials what the authority for such a takeover might be.It is far from certain that this plan will come to fruition, according to the source. The questionable legal authority for the move may make a Fed loan more likely. The discussions at the Federal Reserve and the Treasury are ongoing. In fact, it seems as if many of those involved with the discussions are floating rumors about the discussions, perhaps hoping the market reaction could influence the outcome.2. Bloomberg is reporting that the Federal Reserve appears to be cracking in its resolve not to bailout AIG. The Fed is considering extending a "loan package" according to a person familiar with the negotiations.

[BigLebowski 0]

There was never any intention to let AIG fail. That was simply strong talk to try to get AIG to find alternatives. Just another company too big to fail. Hey, I have an idea. Let's keep throwing good money at bad and make the problem even bigger. That way when the explosion happens it is muy bonita and lights up the entire sky. Maybe we can get the ones that burst into stars and hearts and all those pretty shapes! Does anyone really believe the housing market is going to reverse the downward trend anytime soon? Aren't a crap load of alt-A loans about the reset?

[copernicus 0]

There was never any intention to let AIG fail. That was simply strong talk to try to get AIG to find alternatives. Just another company too big to fail. Hey, I have an idea. Let's keep throwing good money at bad and make the problem even bigger. That way when the explosion happens it is muy bonita and lights up the entire sky. Maybe we can get the ones that burst into stars and hearts and all those pretty shapes! Does anyone really believe the housing market is going to reverse the downward trend anytime soon? Aren't a crap load of alt-A loans about the reset?

Whats the latest on AIG? Housing is turning around already in some spots due to low interest rates, but its 6 months to a year before an overall bottom is hit. (All bets are off if Obama raises taxes).One year adjustables are post credit tightening. Problems with 2 and 3 year adjustables depend on the terms. General mortgage rates are about the same or lower than 2 and 3 years ago, but I dont know what the teasers were back then.

[vbnautilus 48]

Whats the latest on AIG? Housing is turning around already in some spots due to low interest rates, but its 6 months to a year before an overall bottom is hit. (All bets are off if Obama raises taxes).One year adjustables are post credit tightening. Problems with 2 and 3 year adjustables depend on the terms. General mortgage rates are about the same or lower than 2 and 3 years ago, but I dont know what the teasers were back then.

edit: nm, thats not what you were asking.

[gobears 0]

Washington Mutual buyout next?The US government is attempting to organize a buyout of battered Washington Mutual (WM), the New York Post reports.The sticking point: "No one knows what's in their books," the newspaper said, quoting an unnamed person.Citing anonymous sources, the New York Post says federal regulators have had discussions with several banks, including Wells Fargo (WFC), JPMorgan Chase (JPM) and HSBC Holdings (HBC). However, the newspaper said that no discussions of a deal between the banks and Washington Mutual are underway.Washington Mutual has lost about 80% of its value this year amid concerns about its loan practices and growing losses.In the second quarter, Washington Mutual lost $3.33 billion, or $6.58 a share. The bank set aside about $8 billion to cover bad loans in its mortgage portfolio.Washington Mutual said loans valued at $2.17 billion weren't being repaid in the second quarter. The bank's non-performing assets rose to 3.62% of total assets in the second quarter from 2.87% in the first quarter.However, Standard & Poor's says the bank can meet its immediate obligations. Nevertheless, S&P cut WaMu's credit rating to "junk" status, or below investing grade.Earlier this month, Washington Mutual named Alan H. Fishman CEO, replacing Kerry Killinger. Killinger became WaMu's CEO in 1990 and built the Seattle-based thrift into one of the nation's largest banks.

[BigLebowski 0]

"The Federal Reserve and the Bush administration believe the threat of defaults by A.I.G. on a lot of unregulated derivative contracts creates a national emergency. It’s too bad they didn’t think of that when they were opposing any efforts to regulate those markets. That would have been interfering with free enterprise. This move, somehow, is not.The official line is also that taxpayer money is not being put at risk, since the $85 billion loan is well collateralized. No group of banks was willing to make such a loan, so you have to wonder if the collateral is really that good. And the government will not say if it will loan more should that be needed to keep A.I.G. from collapsing.It was said that only a conservative anti-communist such as Richard Nixon could overcome domestic opposition to talking to what was then called Red China. Perhaps something similar is at work here. Can you imagine what conservatives would say if a liberal Democrat had moved to nationalize major financial companies?""That, and the fact that unlike with Lehman — where the possibility of failure was openly discussed for months and to a certain extent planned for — federal officials and market participants don't seem to have really focused on AIG's problems until this week. As with all U.S. insurers, the company is regulated not by the Feds but by a state regulator, in this case New York insurance superintendent Eric Dinallo. Plus, it was awfully hard for outsiders — and even insiders — to understand the gravity of the company's problems. "You can read through every financial statement in the world and have absolutely no clue as to the risks they are taking," says Leo Tilman, a former Bear Stearns strategist who now runs the advisory firm L.M.Tilman & Co.The particular risks that brought the company to the brink of bankruptcy seem to lie not with its core insurance businesses but with derivatives-trading subsidiary AIG Financial Products. AIG FP, as it's called, merits a mere paragraph in the nine-page description of the company's businesses in its most recent annual report. But it's a huge player in the new and mysterious business of credit default swaps, derivative securities that allow banks, hedge funds and other financial players to insure against loans gone bad.AIG generally sells credit default swaps, thus promising to insure others against defaults. It's a great business when defaults are low; when they rise it can turn toxic. AIG FP lost more than $10 billion in 2007, and $14.7 billion in the first six months of this year. That, along with losses in other investment portfolios, have cut deeply into the parent company's capital reserves. The credit default swap contracts decree that if AIG's credit rating drops below a certain level it has to fork over $13 billion in collateral to the buyers of the swaps. Monday night, because of the losses at AIG FP and in the AIG's investment portfolios, Moody's and S&P cut the company's ratings. After that the consensus was that the company could only survive another day or two."Its collapse would be as close to an extinction-level event as the financial markets have seen since the Great Depression," wrote money manager Michael Lewitt in Tuesday morning's New York Times."

[Nimue1995 1]

A friend of mine said it better than I could. Hope I can quote the basics of what he told me. When anyone with a brain could see that those subprime loans were bound to have a high default rate, AIG insured them against default anyway? Now, that just seems plumb weird. Again, when nearly any local bank would quickly tell you that the default rate with the sub-prime loans was likely to be high, that anyone would issue such policies seems peculiar. I thought that Insurance companies used actuaries and cold data to measure risk. But, as an article I read in Time states, business was GREAT, as long as the default rate was low!!! Apparently, too great to consider the other possibility would occur, so the actuaries either never gave a risk analysis, or were ignored. I can't believe that any legitimate actuary would ignore the huge risk factor. I don't know much else about the situation, and hold any opinion of my own with little regard. But, for crying out loud, this has every indication of being short-term psychosis: accepting a short term stock boost with reckless disregard for long-term risk. I mean, I understand AIG was probably surprised by the speed and severity of the defaults, but they had to know it was coming, eventually. I'm willing to bet that there are some AIG execs who were dumping their stock options and planning their exit when events overtook them. I feel for the shareholders, really. I reckon they probably could have asked a few more questions about the operations, or investigate just how the stock was appreciating more carefully. But, in fact, not many shareholders ever question short-term succsess. If, as I've said, BUYING high-risk paper is stupid, imagine just how stupid you are to insure the holders against default. They are NOT that stupid. This just looks like basic piracy by the execs.

[vbnautilus 48]

I thought that Insurance companies used actuaries and cold data to measure risk.

It's definitely the fault of these guys.

[copernicus 0]

It's definitely the fault of these guys.

It was a financial subsidiary, not the insurance arm.

[vbnautilus 48]

It was a financial subsidiary, not the insurance arm.

I stand by my statement, actuaries are responsible for everything negative that happens with the economy.

[copernicus 0]

I stand by my statement, actuaries are responsible for everything negative that happens with the economy.

be careful or i'll tell you the date and cause of your death

[Nimue1995 1]

It was a financial subsidiary, not the insurance arm.

A financial subsidairy that happened to be insuring mortgages against default but not having any overseeing them and recognizing the risk involved? Sounds like a crazy way to run a company to me. And I've been doing some further reading on the subject and it's pretty sleezy. How about the offers that were already on the floor for AIG before they negotiated the deal with the feds. Watching an economist on PBS this evening, he said that the first AIG people to get to the feds began the lamentation of how badly their failure would affect the general American and world finances. It stuck, when in fact, only one of the AIG arms of four was actually in trouble, and there were viable alternatives to fed help. Furthermore, their assets were sustainable in the other three aspects of the company, but they thought they could get a better deal with the feds. Similarly, analysts were saying the same thing about Freddi and Fannie, that their negotiable assets far outweighed their overall debt, and the recommendation was that they should be sold, not bailed out. It seems that there was a fair amount of fearmongering to prevent the companies and their upper staffs from losing THEIR investments, though the stockholders have lost virtually everything.

[Loismustdie 0]

A financial subsidairy that happened to be insuring mortgages against default but not having any overseeing them and recognizing the risk involved? Sounds like a crazy way to run a company to me. And I've been doing some further reading on the subject and it's pretty sleezy. How about the offers that were already on the floor for AIG before they negotiated the deal with the feds. Watching an economist on PBS this evening, he said that the first AIG people to get to the feds began the lamentation of how badly their failure would affect the general American and world finances. It stuck, when in fact, only one of the AIG arms of four was actually in trouble, and there were viable alternatives to fed help. Furthermore, their assets were sustainable in the other three aspects of the company, but they thought they could get a better deal with the feds. Similarly, analysts were saying the same thing about Freddi and Fannie, that their negotiable assets far outweighed their overall debt, and the recommendation was that they should be sold, not bailed out. It seems that there was a fair amount of fearmongering to prevent the companies and their upper staffs from losing THEIR investments, though the stockholders have lost virtually everything.

So then the treasury will be investing 200 billion into a good, viable product that will return them 7+ percent? Oh, lordy, no. Not to mention if the upper staff had stock, they lose as well. Not to mention, Freddie and Fannies stock has been going down for awhile now. If you lost your ass you ain't monitoring your accounts the way you should be.

[copernicus 0]

So then the treasury will be investing 200 billion into a good, viable product that will return them 7+ percent?Oh, lordy, no. Not to mention if the upper staff had stock, they lose as well. Not to mention, Freddie and Fannies stock has been going down for awhile now. If you lost your ass you ain't monitoring your accounts the way you should be.

not to mention that the Federal government always had an obligation to back those bonds. The prinicipal thing thats change is the stockholders losing their investments and the government taking direct control of their obligation, which it always should have had.and lets not forget who conributed >$500000 to Obama and who two of his senior advisors are."Not that the Associated Press mentions that Franklin Raines, who fled Fannie Mae in the shadow of a $6.3 billion accounting scandal, is now a housing policy adviser to Barack Obama.

WASHINGTON

- The former Fannie Mae accountant who raised questions about the mortgage giant’s bookkeeping said Wednesday that he took his concerns directly to chief executive Franklin Raines in 2002 and asked him to investigate. The disclosure by Roger Barnes, who left Fannie Mae last November, came as Raines and chief financial officer Timothy Howard defended the company’s accounting and told Congress that regulators’ allegations of earnings manipulation represent an interpretation of complex rules. The regulators have said that information provided by Barnes was important to their investigation of the government-sponsored company’s accounting."_____________________________________________________________________James A. Johnson, former Fannie Mae CEO and consummate Washington insider, is leading Sen. Barack Obama's vice-presidential search process. He just conducted an early round of interviews on Capitol Hill today. But Johnson also is proving a ripe target for Republicans looking to spot hypocrisy in Obama's pledge to reject business as usual in Washington. The Wall Street Journal reported Saturday that Johnson had received mortgages worth more than $7 million from beleaguered lender Countrywide Financial, including at least two loans below market average. The article noted that the transactions may have been perfectly aboveboard -- but several could prove too cozy, depending on how much they overlapped with Johnson's Fannie Mae tenure.______________________________________________________________________

and his ties to Wall Street go much deeper.this Change is counted in the millions

[Balloon guy 158]

Ken Lay was a 'buddy' of the right, I heard his name every day and they even went after him.I haven't heard the name of the guys on these deals, but I've read numerous times they were big Dems supporters.What am I missing?

[El Guapo 8]

So then the treasury will be investing 200 billion into a good, viable product that will return them 7+ percent? Oh, lordy, no. Not to mention if the upper staff had stock, they lose as well. Not to mention, Freddie and Fannies stock has been going down for awhile now. If you lost your ass you ain't monitoring your accounts the way you should be.

Actually the AIG loan from the fed is the treasury rate +8.5%. So roughly 11.5% right now. Not a bad RoR. And from what I understand is they are doing this now to salvage what is there, then sell off the profitable arms and dismantle AIG. One sector of AIG, that was trading CDS's (Credit Default Swaps) got leveraged too much because people assumed CDS's were safer than they are, and they got downgraded and had to come up with capital to cover their new default risk, not that they were actually defaulting. So it is a little misleading when you just read headlines. AIG has some very profitable pieces, and those will be cleaned up and auctioned off. Most likely the reason they did not want the Holding Co. to be able to get a bridge loan from their profitable pieces and bring them down too.

[Loismustdie 0]

Actually the AIG loan from the fed is the treasury rate +8.5%. So roughly 11.5% right now. Not a bad RoR. And from what I understand is they are doing this now to salvage what is there, then sell off the profitable arms and dismantle AIG. One sector of AIG, that was trading CDS's (Credit Default Swaps) got leveraged too much because people assumed CDS's were safer than they are, and they got downgraded and had to come up with capital to cover their new default risk, not that they were actually defaulting. So it is a little misleading when you just read headlines. AIG has some very profitable pieces, and those will be cleaned up and auctioned off. Most likely the reason they did not want the Holding Co. to be able to get a bridge loan from their profitable pieces and bring them down too.

I was more looking at the FRE/FNM situation, I don't even remember what those numbers were, but I know it was the right to inject cash in the form of buying senior preffereds at 7+ percent. The AIG deal looks like it may be just as decent, I hadn't really looked at it yet. I guess my comment was to try and draw attention to the idea that these moves could actually end up being very profitable for our Government over time, especially if you factor in a timely reasonable rise in real estate values. Some people on this board, while I believe have the ability to see another side to an issue, well, I just don't think they are hearing it.

[Loismustdie 0]

Ken Lay was a 'buddy' of the right, I heard his name every day and they even went after him.I haven't heard the name of the guys on these deals, but I've read numerous times they were big Dems supporters.What am I missing?

Nothing. I hold no hopes for Dems to actually show any semblance of fairness in these matters. The fact that Obama is number two in line for monies from FRE/FNM has not been said in any shape or form by any MSM. There are so many ties at so many levels on the left that if McCain doesn't own them on this it's his own fault. You know, Rush asked an interesting question: When did Obama make his money? In the Bush years. The question in and of itself is pretty simplistic but it's interesting when you look at the differences in what he does with it. Nowhere close to the charitable donations that McCain makes for example. So, he made quite a bit, obviously thinks he made to much and should have gave back... but didn't? All talk and no action.

[El Guapo 8]

I was more looking at the FRE/FNM situation, I don't even remember what those numbers were, but I know it was the right to inject cash in the form of buying senior preffereds at 7+ percent. The AIG deal looks like it may be just as decent, I hadn't really looked at it yet. I guess my comment was to try and draw attention to the idea that these moves could actually end up being very profitable for our Government over time, especially if you factor in a timely reasonable rise in real estate values. Some people on this board, while I believe have the ability to see another side to an issue, well, I just don't think they are hearing it.

That is the other thing people don't get about the FNM/FRM situation, first this relationship has been established for a long time, they didn't just hand over money, they bought preferred stock in the company increasing their ownership stake, wich provides additional funding to cover their losses until the ship rights itself. Assuming they can turn around the two mortgage giants, then the government will get every dime back + interest at better rates than they currently make on the majority of their funds.

[Balloon guy 158]

That is the other thing people don't get about the FNM/FRM situation, first this relationship has been established for a long time, they didn't just hand over money, they bought preferred stock in the company increasing their ownership stake, wich provides additional funding to cover their losses until the ship rights itself. Assuming they can turn around the two mortgage giants, then the government will get every dime back + interest at better rates than they currently make on the majority of their funds.

Whoa...a semi-profitable move by the government?Is this the first horseman?

[BaseJester 1]

That is the other thing people don't get about the FNM/FRM situation, first this relationship has been established for a long time, they didn't just hand over money, they bought preferred stock in the company increasing their ownership stake, wich provides additional funding to cover their losses until the ship rights itself. Assuming they can turn around the two mortgage giants, then the government will get every dime back + interest at better rates than they currently make on the majority of their funds.

Notice how nobody thought this was a good risk with his own money, but the Feds are happy to do it with our children's money.

[El Guapo 8]

Notice how nobody thought this was a good risk with his own money, but the Feds are happy to do it with our children's money.

1st. The feds already had that system in place. That argument does not work for FNM/FRM. Plus individual private institutions would have had to pooled resources and would have taken some time to get it together.2nd. Would it be better to let them fail (not sure if they would have) and let our entire economic system and global economy go into decades of disarray?3rd. For AIG I can see your logic, but they had asked special permission for one Arm of AIG (the arms that did the CDS's) to borrow 20-40 billion from their profitable arms (insurance & financial services to name two). AIG as a holding company, by law, has to keep those assets separate. So the governement said no, besides being illegal they did it, because they did not want one arm of a multinational holding company to take down the entire ship. This was they can fix it up and sell of the pieces. Warren Buffet has already made a play for the Airline Insurance piece.

[BaseJester 1]

1st. The feds already had that system in place. That argument does not work for FNM/FRM.

Absolute's insiders had a similar system in place in case they needed some money in the future.

2nd. Would it be better to let them fail (not sure if they would have) and let our entire economic system and global economy go into decades of disarray?

I don't think that would happen.

3rd. For AIG I can see your logic, but they had asked special permission for one Arm of AIG (the arms that did the CDS's) to borrow 20-40 billion from their profitable arms (insurance & financial services to name two). AIG as a holding company, by law, has to keep those assets separate. So the governement said no, besides being illegal they did it, because they did not want one arm of a multinational holding company to take down the entire ship. This was they can fix it up and sell of the pieces. Warren Buffet has already made a play for the Airline Insurance piece.

I'm not smart enough to understand this part, so I'll assume you're right.

[copernicus 0]

This: I don't think that would happen.Makes this obvious: I'm not smart enough .

The wealth of the vast majority of Americans is concentrated in their home equity. The largest amount of income spent outside of mortgages, food and cars are on home maintenence and improvement (and it may have grown to be more than spent on cars during the bubble). Let home equity go down the toilet and the economy follows right behind.

[85suited 0]

Freddie and Fannie used huge lobbying budgets and political contributions to keep regulators off their backs.A group called the Center for Responsive Politics keeps track of which politicians get Fannie and Freddie political contributions. The top three U.S. senators getting big Fannie and Freddie political bucks were Democrats and No. 2 is Sen. Barack Obama.Now remember, he's only been in the Senate four years, but he still managed to grab the No. 2 spot ahead of John Kerry — decades in the Senate — and Chris Dodd, who is chairman of the Senate Banking Committee.Fannie and Freddie have been creations of the congressional Democrats and the Clinton White House, designed to make mortgages available to more people and, as it turns out, some people who couldn't afford them.Fannie and Freddie have also been places for big Washington Democrats to go to work in the semi-private sector and pocket millions. The Clinton administration's White House Budget Director Franklin Raines ran Fannie and collected $50 million. Jamie Gorelick — Clinton Justice Department official — worked for Fannie and took home $26 million. Big Democrat Jim Johnson, recently on Obama's VP search committee, has hauled in millions from his Fannie Mae CEO job.Now remember: Obama's ads and stump speeches attack McCain and Republican policies for the current financial turmoil. It is demonstrably not Republican policy and worse, it appears the man attacking McCain — Sen. Obama — was at the head of the line when the piggies lined up at the Fannie and Freddie trough for campaign bucks.Sen. Barack Obama: No. 2 on the Fannie/Freddie list of favored politicians after just four short years in the Senate