Why the Panic over Fannie and Freddie?

[The following is excerpted from Bill Cara's Daily Report from Saturday, Sept. 6, 2008]

After the US Jobs data was published Friday at 8:30am ET, the DJIA futures sank and the market continued south for two hours. Suddenly – maybe it was a leak that Fannie (FNM) and Freddie (FRE) would be saved by this Administration – US equity prices firmed.

Whatever is happening with Fannie and Freddie seems to me to be a well-crafted maneuver by Washington insiders (Mr. Moral Hazard instantly comes to mind) to help Wall Street in the remaining days of this Administration. Oh sure there will be cries by panic-stricken investors that Fannie and Freddie are on the verge of collapse and that this single problem is the source of America’s economic and financial stress (i.e., simultaneous economic recession and credit crunch) at the moment. But, as I see it, the ‘Blame it on Fannie & Freddie’ story is being scripted by public relations propagandist of the first order, Hill & Knowlton. Let’s just say for the record that the Boards of Directors and CEOs of Fannie & Freddie have quite recently publicly announced that their enterprises have adequate capital to sustain operations until well past the coming change of Administration. Then, why the panic?

What is wrong with America – the greed and gluttony of Wall Street and Washington insiders – will look like smack-mouth football in the next month, and the central characters behind it won’t give a damn. This is wrong – they know it; you know it.

The fact there is nothing you can do about it – to the detriment of your children and their children – is a tragedy. The decisions made in September and October by your elected representatives – societal leeches of the highest order -- will steal the wealth created by a whole generation of Americans.

PIMCO, the Fed of NY, the Treasury Secretary – oh my! Mom & Pop, you have been set up for a fleecing.

Yes, these are interesting times.

Comments

[WeThePeople:]

Allow me to inform you of the top three market manipulators in the world:

1. Bill Gross
2. Goldman Sachs
3. Art Cashin, UBS

2008 Sep 07 09:19 AM

[madasiwannabe:]

Great article. Finally someone gets it. I've been saying for months that the Paulson plan did nothing but put a backstop behind groups like PIMCO. With increased spreads for the investors as the new target, Gross and Greenspan came out swinging immediately after the announcement and the GSE's ratings started to fall. Any time they fell off the radar or showed signs of recovery, the dynamic duo suddenly appeared on CNBC to rekindle the flame.

The GSE's are now going to be used as a clearing house for distressed mortgages and will be gobbling up toxic waste at full face value so the banks can start making money again. We the taxpayers will be told the books were worse than we thought and Syron and Mudd will be the villans. When the taxpayer bill comes in at over $1 Trillion, don't say I didn't tell you so.

2008 Sep 07 09:54 AM

[Shotchanged...:]

It appears that the Govt. wants to use the GSE to write off its problems and obligations. The housing values have fallen but most people are still making their mortgage obligations. In the event of a catastrophic collapse, the issue will not be the GSE but what deals will the Govt. offer the disadvantaged homeowner. If the Govt. wants to play hero, they should purchase the stock of FRE and FNM or else let the stock die with dignity and the economy can go where it desrves.

2008 Sep 07 10:15 AM

[mdmrjsds:]

I read this as the US government trying to prop up the world financial system. With the full support of that system. Its collapse, which has a measurable chance of occurring, would lead to worldwide economic chaos. The US wouldn't escape that.

The sad thing is that those who caused the problem are being rescued and those who didn't cause the problem are paying. But if you've ever known any MBA holders, that won't be surprising. :-)

And it is disappointing. Socialist capitalism. Comrades! During good times we collect the profits, during bad times you pay for the losses. All animals are equal, but pigs are more equal than others.

2008 Sep 07 11:24 AM

[whidbey:]

What will be the public response in the markets. First elation that a problem is abated - for a while - then the heavy lifting starts. First they divide the assets of the GSE in saleable, some value at discount and utter junk. The public gets the utter junk, and the rest goes to turkey buzzards who will clean it up, but a little lip stick on it, and reap the rewards. Then will the market realize that this is no panacea, but a bomb that will cost a trillion dollars, and bail out few banks. It will clearly establish that the commercial banks are hold junk as assets; we know they are technically broke. But now Bill Gross gets his way and his book is saved as he sells his junk and clears up his own little lapse in judgment and keeps his billions. But the tax payer is another trillion deep in the doo doo and the housing Markets? Too late, interest rates go up and the consumer's job goes south. Can you say stagflation?

2008 Sep 07 12:26 PM

[fxtrader07:]

as i see it, the world's central banks first orchestraed a rapid rally of the dollar by buying tresuries in large amounts and selling gold and non-dollar currencies. With the greenback now fairly off its lows the treasury and walls treets banks feel safe enough to arrange a govt takeover of the GSEs that otherwise would have sunk the dollar to new lows and propelled gold way above 1.000$/oz. At one point reality will sink inface it, the US govt has just added a few trillion$ in debt to its balance sheet - what is that govt debt ceiling worth anyway? Why bother to ask Congress to approve the frequent upped ceilings, if they can get overriden by such action anyway? And make no mistake, they will find and try a way to get the holders of preferred shares of fannie and freddie come out unharmed, because these holders are mainly banks. I's sickening.

2008 Sep 08 05:28 AM

[mixter:]

Socialism once again fails. Everyone must own their own home has proven to be a dismal failure. Elect Obama for more of the same!

2008 Sep 08 11:17 AM

[brisa:]

Oh please...don't use the goverment bailout of our deficit spending economic system to advance a political agenda. McCain is so far into the Corp/Gov system, he is not an alternative.

What we are experiencing is the breakdown of financial, social and political systems that are dependent upon finding and harvesting ever increasing amounts of cheap and plentiful fossil fuels. The exisiting energy paradigm that has propelled world economic and population growth is rapidly coming to an end.

The transition to a new energy paradigm will be likely be frought with war, mass starvation in the third world and a general decrease in government services and standard of living for US citizens. Civil unrest is a real possibility and the federal govenrment is now well positioned to use legal, yet decidedly unconstitutional means to keep order and remain in power.

The disintegration has just begun.

2008 Sep 08 06:12 PM

[ain't no fo...:]

Good article.

And don't forget the PPT and Invisible Hand who were propping the market on Friday ahead of the news... even when the Dow and NAZ were down hard the first hour, VIX and VXN were down... WSJ (now owned by the administration's Chief Propaganda Minister) got the job of sneaking the news to the TEAM so they could hold the bid (the same folks who won the jackpot when the FED opened the discount window candy store to the investment banks...

ain't capitalism just grand, errr I meant socialsim

2008 Sep 08 09:05 PM

[WatchingEth...:]

It is a mistake to refer to all this as "Socialist Capitalism." "Socialist" implies a redistribution (or more accurately, repayment) downward; this is nothing of the sort. What this is, is an overt looting of even more of the working taxpayers' remaining wealth. This most recent action is nothing short of FASCISM.

2008 Sep 09 10:50 AM

[Bluebeard:]

More of the same... Obama? Your pavlovian response to the word "socialism" is a credit to your programmers, Mixter. Milton Friedman and his demonic fallacies take the blame for this...

2008 Sep 09 06:38 PM