Just The Facts

Feddie Pay: The Reality of the Bailout World

Feddie Pay. I like that - LOL!

Fannie & Freddie: Just the Tip of the Iceberg

Oh. And JPM. They just took a billion-dollar hit on Monday on the bail-out of FNM and FRE. Obviously not included in anyone's projections of their earnings for this quarter ...

Fannie & Freddie: Just the Tip of the Iceberg

No, Paul. They've already taken a dive of 90 to 99 percent.


But how about GS or MS or MER or BAC or WFC?


Isn't there still a ton of downside potential there?

Fannie & Freddie: Just the Tip of the Iceberg

>>> With that in mind, I have two more words for you…got gold? <<<

Through different analysis, I believe that you and I have arrived at the same conclusion!

But just try to buy some, at the "official" price. There is none to be had (in quantity).

:)

Fannie & Freddie: Just the Tip of the Iceberg

>>> but how will financial markets absorb $50 or $100 trillion in triggered swaps? <<<


That's easy. There was an article on it today. The swaps require the bonds be bought back by the insurers, but the nationalization of the underlying debt guarantees that the market will pay full price for the underlying security. So the bondholders sell the debt back to the insurer, who then resells it back into the market at its full insured value. The debts basically became US Treasury Notes via the takeovers. If anything, some people will make a little money in commissions on all those transactions, as everyone honors their obligations and nothing changes (other than who holds the debt).


Maybe that's why the CBO came out today with their opinion that the liabilities of FNM and FRE are now liabilities of the US government and should be added to the national balance sheet.


The problem is, it just increased our national debt by 50 percent. Won't those who own our debt expect a corresponding increase in the rate of return on their investment, due to the increased risk? It's a lot harder to pay back $14.5 trillion than it is $9 trillion --- and especially so, with the economy entering a recession (or worse) and tax revenues declining. And two candidates running for President, one of whom is promising to cut tax revenue and the other who is promising to increase federal spending !!!


Expect the returns on US debt obligations to increase dramatically in the next few weeks. And that, of course, is going to wreak pure HAVOC on our federal budgets for the next several years.


I think we've seen the beginning of the end, for America as it is currently known ...


:(

Fannie & Freddie: Just the Tip of the Iceberg

>>> it’s that the best job in the world is apparently a failed CEO. <<<


LOL! That's been true for as long as I've been following the markets, which is 7 or 8 years or so. The gal at Mattel that drove the stock from $40 to $15 --- and then drove off in the company car --- comes immediately to mind. The guys "retiring" from FNM and FRE are another good example. And I can't help but think of that guy at Boykin Lodging who made that investment in Florida real estate at $19 million with his shareholder's money because it was simply "too good a deal to pass up", while he drove the stock's value from $15 to $6, and then cut a deal with private equity to buy out the company at $8 per share (a whopping 33 percent premium to its "then-current" fair market value ... a good deal - right?). But the kicker was that the same property he "bought" for $19 million with stockholder money got sold back to him for $2 million in the deal. That was supposedly a "great deal" for the stockholders, with the company changing owners at less than half of what it was worth 12 months before.


And I'm sure there are many others.


After watching this closely for 8 years, I'm convinced that our equity markets (and all publicly traded companies in general) are mostly a sham, designed by those with money to transfer money from the pockets of the working class to themselves.


Maybe this latest crisis will finally fix the problem. And maybe not ...

Who Killed Frannie?

LOL! Love the analogy, bearfund!

Fannie and Freddie: We All Support You!

>>> By crushing out common and in some cases preferred shareholders in a bailout or chapter 11 restructuring, the regulators/courts ensure that bad risks are not rewarded. <<<

I think our capital structure priorities are exactly backwards. The stockholders are the owners of a company, while bond holders are simply people who lent money to the company for a fixed return. Since the company's performance is judged (and its value is set) in the marketplace by its share price, the shareholders automatically get punished if the company takes on too much risk or performs poorly. In a bankruptcy (or conservatorship, as in the case for FNM/FRE), shouldn't the bond holders be the first to lose their money after the unsecured creditors? They, too, should bear the risks of "investing" (by choosing to make loans to the company).

Even if the assets of the company are explicitly tendered as collateral for the loan, shouldn't the original owners still own whatever is left? How do the owners get their company stolen out from under them and ownership handed over to someone else, while the company still exists and continues to operate? The only way shareholders should ever get "wiped out" is if and when the company is entirely liquidated and all assets are sold off (and even then, nothing is left after paying bond holders and other creditors).


Why does everyone view stockholders as the bottom of the food chain, when they should be at the top of it? I simply don't get it.

Freddie/Fannie Plans In Motion; Why Are They Being Underplayed?

That probably depends on how the story is presented to Joe Six Pack, doesn't it?

Sure, he could be told that those filthy politicians in Washington were using his hard-earned tax money to "bail out" those greedy lieing cheats on Wall Street. And he'd be rightfully upset.

Or he could be told the other side of the story, which is that his adoring and loving government has intervened into this unusual financial crisis (caused by those greedy lieing cheats on Wall Street, of course) --- in order to save his home and his job and the future of America. And he'd be rightfully grateful.

In my view, we were pretty much damned if we did and damned if we didn't, at this point. Philosophically, I think our government should stay out of the markets. But if the markets get so dumb that they do things which are going to cause the whole system to come crashing down (taking the government with it), then something has to be done.

And if our tender and loving government doesn't soon get its fiscal house in order and start living within its means, then none of this is going to matter anyways. They're just buying time, for now. Let them. It beats the alternative.

As far as a long-term fix is concerned, I think Uncle Sam needs to do 2 things. First and foremost, start running budget surpluses and retiring federal debt. And secondly, forget this globalization stuff and implement new rules (or enforce existing ones) that would prevent any one company from owning so much market share or having so much economic influence that it becomes "too large to fail". Then, our government could stay out of the way and let the markets work their magic. Companies that took on too much risk or leveraged themselves too highly because they got greedy would simply go under, and the smarter companies would survive and pick up their market share. Economic Darwinism, at its best!

Bill Ackman's Letter to Paulson On Restructuring Plan

I don't know why it disgusts me that everyone is jockying for position and saying "Save me! Forget everybody else and just save me! And if there's some way a deal can be worked that lets me benefit on the losses of others, then that's even better! But just save me, no matter what!".


But it does.


Why does this have to be complicated? Couldn't FNM and FRE just issue a new series of redeemable preferred stock to be sold only to the US Treasury (and not traded on the market), at a fixed price per share with a fair (if not outright cheap) dividend? They could authorize a gazillion shares at $1,000 or $1 million per, and issue them as necessary in exchange for working capital when needed. And then redeem them as circumstances allow.

Freddie/Fannie Plans In Motion; Why Are They Being Underplayed?

Yes, the fallout will be interesting to see. Could this be the end, or the triggering event that starts that cascading collapse of faith in all things financial and American? If we just added another $6 trillion to our debt of $9+ trillion with the stroke of a pen, do you think foreigners will continue to lend us their money at low rates? Or will they demand another couple of points to cover the increased risk that we'll never be able to repay them? And if they ask for a greater return, what's that going to do to our federal budget? We're already running huge deficits year after year after year (essentially borrowing more money just to keep up the interest payments). Will the world continue to give us those no-down-payment, interest-only, ARLs (Adjustable Rate Loans)? Or will they view that as a bad way to conduct business, which will inevitably lead to ultimate default?


I can't wait for Monday!

Why Fannie Shouldn't Marry Freddie

LOL! I was totally on board, until I read the first post!


I see merit to both arguments, to be honest with you. But the Libertarian in me forces me to decide (after much pondering) that the break-up idea is probably best in the long run. The GSE's should probably have never been created, to begin with. But they were. It's sort of like the argument that while we should probably have never gone to Iraq, we did and we are now therefore responsible for fixing our mistake --- as painful as it may be.


We created the mortgage problems we find ourselves facing today, whether we should have or not. Let's just take our medicine, fix it, and be done with it --- once and for all.


:)

Residential Real Estate: How Much More Pain?

My parents paid $11,000 for their first home. And they're still alive. I don't have children, but I'm willing to bet that any child born today will also be able to buy their first home for $11,000 --- or thereabouts. Maybe I'm wrong. I hope I am, for all of "your" sakes ....


;)

Residential Real Estate: How Much More Pain?

Heck, they're offering tiny little "McMansions" placed side-by-side with other "McMansion's" here in my current home town, for better than a quarter million dollars apiece. And people are buying them, even in today's market. Go figure.


It's like nobody any longer realizes exactly how much money a quarter million dollars is.


Or maybe a quarter million dollars isn't what it "used" to be. Can anyone say "bubble" ?!?!?! ....


/8^O

Residential Real Estate: How Much More Pain?

I'd have to think really hard to grasp all that was said in the original post, but I suspect that my own real personal "real-life" situation probably reinforces the author's point.


I'm looking to move from north Alabama to central Alabama, to get closer to family. I currently rent (for a long list of reasons which would justify a whole different article and discussion), and had hoped to continue doing the same. But upon searching, I discovered that it would cost me as much or more to rent in my new location than it would to buy --- my own land and a mobile home!


Home prices haven't yet dropped to the point that I would consider it prudent to buy, but rental rates have gone up so much that it no longer makes sense to rent either.


For 12 months' rent, I could buy my own land and plant a used mobile home on it, thereby providing a roof over my head and protection from the elements. Bought and paid for, with no future payments required (other than minimal maintenance and upkeep). And be perfectly good to go for the next 10 years or more, as long as "keeping up with the Jones's" wasn't an ambition of mine.


Real money and basic necessities, where 12 months = 10 years? We're living in a bubble, my friends. And the only reason it hasn't yet totally popped is because local communities are inclined to pass "zoning laws" to protect the bubble.


I wouldn't want to be a home owner in a "protected" area when the bubble finally bursts. And that's all I'll say ....


:)