Author Topic: Paulson stands by Fannie and Freddie  (Read 509 times)

Benny B

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Paulson stands by Fannie and Freddie
« on: July 12, 2008, 07:59:28 AM »
Paulson stands by Fannie and Freddie

By James Politi in Washington and Saskia Scholtes in New York

Published: July 11 2008 18:46 | Last updated: July 12 2008 01:13

The Bush administration on Friday attempted to quash suggestions that the US government might have to nationalise Freddie Macand Fannie Mae, the giant mortgage companies that have unsettled the financial markets.

Hank Paulson, Treasury secretary, said: “Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,” signalling that the Bush administration was not contemplating a rescue takeover of the two groups and wanted public shareholders to continue owning them.

Describing Freddie and Fannie as “very important institutions”, President George W. Bush said Mr Paulson and Ben Bernanke, head of the Federal Reserve, would be “working this issue very hard”.

Chris Dodd, Democratic chairman of the Senate banking committee, on Friday also said the Fed and the Treasury were considering opening the Fed’s discount window to Fannie and Freddie.

However, the Fed said there had been “no discussions” with Fannie Mae and Freddie Mac on access to the discount window.

Meanwhile, IndyMac Bank on Friday night became the biggest savings bank to fail in US history as regulators closed down the troubled California mortgage lender following continued demands by customers for their deposits.

Fears that Fannie and Freddie could become victims of the credit crisis have gripped investors this week. The institutions are pillars of the financial system, holding or guaranteeing nearly half of the $12,000bn in outstanding US mortgages and three-quarters of new loans.

Shares in both companies opened sharply lower on Friday – with Freddie down as much as 50 per cent – but rebounding following Mr Dodd’s comments. Freddie ended the day 3.1 per cent lower at $7.75 while Fannie fell 22.4 per cent to close at $10.25.

Shares in Lehman Brothers also fell another 16 per cent in spite of a report from Standard & Poor’s reaffirming the struggling investment bank’s “solid liquidity and funding profile”

The Dow Jones Industrial Average fell below 11,000 points in the day for the first time in two years – before closing down 1.1 per cent at 11,100.54 – and crude oil prices rose to a record above $147 a barrel before falling back to about $144 a barrel.

As house prices have fallen and foreclosures have soared, Fannie and Freddie have suffered deep losses, which they have tackled by raising more capital.

Many observers believe a collapse of Fannie and Freddie could bring the US mortgage market to a complete standstill.
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chafed_nut_sack420

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Re: Paulson stands by Fannie and Freddie
« Reply #1 on: July 13, 2008, 10:05:52 AM »
The US government is reported to be considering injecting up to $15bn (£7.5bn) into the providers of mortgage funding Freddie Mac and Fannie Mae.

The extra capital could be announced before the US markets open on Monday, according to the London-based Sunday Times and Sunday Telegraph newspapers.

Freddie Mac and Fannie Mae guarantee almost half of all US home loans.

Their share prices fell nearly 50% last week amid fears that they might have trouble raising money.

Freddie Mac and Fannie Mae are known as government-sponsored enterprises (GSE) and they buy debt from the companies that sell mortgages to house-buyers.

They then sell on the debt to investors and because they are government sponsored, the price of mortgages is kept low.

If investors decided to stop buying the debt from the two companies it would mean they would have to stop supporting the housing market and the already tough situation would get even worse.

Nationalisation rumours

On Friday US Treasury Secretary Henry Paulson was forced to issue a statement saying that he would support the two GSEs "in their current form" to dispel rumours of nationalisation.

Under the plan reportedly being considered, the US government would receive special shares in Fannie Mae and Freddie Mac, which would further reduce the already depressed value of the existing shareholders' stakes.

Mr Paulson is insisting that if there is to be a rescue then it must not benefit shareholders, the Wall Street Journal reported on Saturday.

Freddie Mac is due to sell $3bn in short-term debt on Monday, which may hasten the government's decision.

It is important for the sale to be a success to show confidence in the GSEs.

Treasury Department officials have been on the phone over the weekend making sure that banks that would normally buy such such debt from Freddie Mac are planning to bid this time, according to the Washington Post.

The newspaper reports that the officials are now optimistic about the sale.

Obama comments

The Democratic White House hopeful Barack Obama has made his first comments about the problems facing the GSEs.

He described the situation as being of "extraordinary concern", but did not support an immediate bail-out.

"I think we need to watch carefully and see how it plays out before we make a decision about which steps need to be taken, if any," he told reporters on a flight to San Diego.

"I have confidence that with some prudent steps by the government, that we'll be able to stabilise the situation."

stormshadow

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Re: Paulson stands by Fannie and Freddie
« Reply #2 on: July 13, 2008, 10:52:06 AM »

"I think we need to watch carefully and see how it plays out before we make a decision about which steps need to be taken, if any," he told reporters on a flight to San Diego.

In Other words, Obama is going to hold off on making a decision until it is blatantly obvious to everyone as to what it has to be.

Big Surprise there...

MuscleMcMannus

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Re: Paulson stands by Fannie and Freddie
« Reply #3 on: July 13, 2008, 03:26:18 PM »
Haha American "capitalism at its finest........socialize the losses and privatize the profits.  Sounds more like state corporatism than capitalism. 

chafed_nut_sack420

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Re: Paulson stands by Fannie and Freddie
« Reply #4 on: July 13, 2008, 04:00:24 PM »
Both perfect replies. It's so painfully obvious we're fucked.