Archive for Tuesday, July 15, 2008

Fannie-Freddie lifeline could result in more bailout efforts

July 15, 2008


— Now that the federal government has thrown a lifeline to mortgage giants Fannie Mae and Freddie Mac, taxpayers could be on the hook for billions more if the crisis of confidence spreads.

There were encouraging signs Monday for the rescue plan, but also signs of concern - notably on Wall Street, where shares of the two companies slumped further - that the plan won't be enough.

Other banks are already teetering: National City Corp. shares fell nearly 15 percent on rumors of financial trouble, even though it said it was experiencing no unusual depositor or creditor activity. And Washington Mutual Inc.'s shares fell 35 percent, to a paltry $3.23 amid worries about whether it had enough cash to handle the mortgage market downturn. WaMu said that it did.

And worried customers lined up Monday to pull cash out of their accounts at IndyMac Bank, seized on Friday by the federal government.

Some critics said they fear the Fannie-Freddie rescue effort will make more bailouts inevitable by sending a message that some institutions are too big to fail and thus encouraging risky behavior.

"It sends the wrong message to the world," said Joshua Rosner, managing director of research firm Graham, Fisher & Co. in New York.

As long as more homeowners default on mortgages, losses to financial institutions will mount. Those losses already exceed $400 billion, and some analysts believe they will top $1 trillion before the housing carnage is over.

By comparison, Congress has authorized $650 billion so far to fight the Iraq war.

The Bush administration and the Federal Reserve announced an emergency rescue plan Sunday to bolster Fannie Mae and Freddie Mac, which hold or guarantee more than $5 trillion in mortgages - almost half of the nation's total.

The plan would temporarily increase a long-standing Treasury line of credit that could be provided to either company.


Godot 9 years, 6 months ago

From cnbc:"The Treasury and the Federal Reserve should not bail out Fannie Mae and Freddie Mac as this would increase the already gaping U.S. public debt, investor Jim Rogers, CEO of Rogers Holdings, told "Worldwide Exchange."Asked if his remarks could be interpreted as trying to talk down the stock of the two companies, which have been plummeting recently, he said: "I've been short Fannie Mae since I came here three years ago or four years ago. This is bad for America, who cares if I make some money...I'm short lots of banks."The Treasury Department and the Federal Reserve on Sunday offered massive aid to bolster confidence in Fannie Mae FANNIE MAEFNM7.36 -2.37 -24.36% NYSE Quote | Chart | News | Profile [FNM 7.36 -2.37 (-24.36%) ] and Freddie Mac FREDDIE MACFRE5.23 -1.88 -26.44% NYSE Quote | Chart | News | Profile [FRE 5.23 -1.88 (-26.44%) ] and head off a potential financial market meltdown, as the two finance around $5 trillion, or about half, of U.S. home loans. But investors' enthusiasm for the measures was short-lived."In two years or three years, when six or eight other people are failing, America won't have any more bullets left," Rogers said, adding that Sunday's move increased the burden of public debt and did not solve the root cause of the crisis. "The patient has cancer, Band Aids won't help."RELATED LINKSPut Fannie, Freddie into Receivership: WSJBernanke, Paulson to Testify on TurmoilMore US Banks Could Fail Letting the two fail would throw the country in recession but would ensure that the system is cleansed, he added. "It would cause problems in the economy but we've got problems in the economy anyway."

jmadison 9 years, 6 months ago

The taxpayers are once again on the hook for mismanagement and fraud by our federal government and politicians from both parties. Looks like a redux of the S&L fiascos of the 80's.

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