Bruce Krasting

Fannie Mae Plus Goldman Plus Tax Credits Plus U.S. Treasury Add Up to Big Mess

To have an auction you must have a number of potential bidders. To be a candidate for this deal you must be a financial company with a big balance sheet. You must have current and predictable future earnings.

There is no one that looks like that but GS and Buffett. Sorry, no auction.


On Nov 02 11:56 PM RK wrote:

> I am not familiar with the complexity of the deal. Why can't AIG
> just auction off the tax credit? On the other hand, I am enjoying
> seeing how the government runs GM, Chrysler, AIG, Fannie, Freddie
> and Citi. While I am sure it will not be good for these companies,
> perhaps the rest of the country and the pols will learn a lesson
> and think twice about having the government be a majority shareholder.
>
>
> If I were an employee (especially a valuable employee) at these companies,
> I would bail.

Agency Preferred Stocks: Who's Buying?

FRE

The current receivership structure would allow for some formal restructuring of these entities. So I do not think that a 'bankruptcy' would be required to establish that the common shares have no claim on the companies assets.

The market values these two dogs at $1.1 bil. That is down from a peak of $200b. It is now just a nuisance to have the shares outstanding. It obligates the Agencies to file tons of paper with the NYSE.

These two entities consist of people/mortgages and negative equity.

At some point it will be people/mortgages and positive equity. Along the way the old common shareholders will be diluted to zero.

America needs a mortgage Agency. Just not these two. FNM/FRE are dead. Now we have to bury them. From that there will be a new future.

Agency Preferred Stocks: Who's Buying?

Some form of the Agencies as we now know them will be around for a very long time. They represent 60% of the mortgage market. So they are not going out of business anytime soon.

That does not mean that the old stockholders are gong to get anything from that. My guess is that the losses in the Agencies will continue for another 3-4 years. The total losses will exceed $1/4Trillion. Yes the gvmt will absorb that. There is no other choice. But the cost of that is a wipe out of the old shareholders.

Agency Preferred Stocks: Who's Buying?

FRE: Nice name. Respectfully disagree.

Agencies were not designed to absorb losses as you suggest.
That was never in the cards. It just turned out that way.

I think the losses that will have to be realized over time will leave the current equity with little value. It's okay to disagree with that. That is what the market is for.

Did not say that GS was selling and buying this stuff. I said that someone was. The charts show that no?

GS is the lead in the sub debt buy back. They are one of the 'wired' players in the story. Me, I admit, am doing some guessing. We shall see.

Agency Preferred Stocks: Who's Buying?

448719: I can't tell you how many times I have been 'fooled'. So this could be another of those cases. We shall see.

This is a odd story with no precedent. I look at the assets and liabilities as if this were a bankrupt company vs a receivership. That tells me that the liabilities (when this is over in two yrs) will be far in excess of the remaining assets. In a court the equity would get nothing. Not sure why this case should be different.

The taxpayers will have contributed $250-400 billion by the time this is over. They have to get that back before the old common is worth anything. I can't see that happening.

Good luck on the 'long' side of this story. As of July 16, 2009 no one has ever made money owning Agency common. Traders can make money anywhere. A buy and hold on this is going to result in a loss I think.

Agency Preferred Stocks: Who's Buying?

bawe: If something like this happens those holders you are referring to would love it. I am sure that some of them are pushing for it.

legat: These pref securities are sold in $25 amounts at issue. They have different terms. Some floating interest rates others fixed. Different bells and whistles but the same "class". There will be some type of formula that attempts to value all of this at a similar valuation.

So we understand, this is very speculative. I am not suggesting that people go out and buy this stuff waiting for a back end buy out. There are better things to invest in then that. This is a Pro trade. Guys like GS can make this happen. You have to be wired.

Freddie Mac Sub Debt Buy-Back: Heinous and Grossly Unfair

The GM bondholders got killed. The got 25 cents on the dollar. Sad for them but that is the way this is supposed to work out. If you owned GM bonds you took a risk. There was a reward attached to that as well. The GM story worked out the way it is supposed to.

So the Admin. did the 'right thing' re the autos. The are doing the exact opposite when it comes to the Agencies. I doubt that O understands what this is about. He has other bigger issues on his table. This stuff is left to FHFA. They actually think this is the 'right thing to do'. For them it is. For the taxpayers who foot the bill it is not.

Second Round of Massive Deleveraging About to Hit U.S. Banking System?

I am not sure that the equity line of some of our banks means much. It is a timing issue. If they recognized all of the embedded losses today they would have no equity. So they are running on 100% leverage. Their marginal cost of debt is near zero and will remain so for the foreseeable future.

They have about 10T in assets. What is the after expense (but pre credit loss) return on that? Call it 5%. That is $500b a year of cash flow to offset the losses.

I think the banks are looking at $1 trillion of losses. So if this can be stretched out over three years there is a soft landing scenario out there. Push that recognition to two years and it is going to get shaky. Push it to one year and we will be back to having TARP parties.

Wall Street Breakfast: Must-Know News

You missed what might become an important development. Triad Guarantee basically went belly up yesterday. Triad provided guarantees for the top 10-20% of mortgage pools in 06, 07, 08. Many Wall Street firms have already taken losses on paper the acquired with the Triad chomp.

Heres the story that may become significant. Triad guaranteed a lot of paper that ended up in FNM/FRE.

This week FRE finally eliminated Triad as an acceptable counter-party. Just a little bit late.

Keep in mind that the Agencies have taken no losses or reserves on this