Posted on 09/05/2008 6:22:39 PM PDT by John W
The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives, and use government funds to prop them up, government officials told the two companies yesterday, according to sources familiar with the conversations.
Under the plan, the federal government would place the firms in a legal state known as conservatorship, the sources said. The value of the company's common stock would be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, would be protected by the government.
As the pace of discussions accelerated today, Treasury officials contacted senior congressional leaders, telling them they might be briefed on the plan this weekend and asking for telephone numbers at which they could be reached.
(Excerpt) Read more at washingtonpost.com ...
And wiping out the equity of hundreds of thousands of stockholders.
The equity value was wiped out by the executive crooks over the years (Gorelick, et. al.), most of whom walked away with far too many millions.
The stockholders were just contributing their money to the cause of puffing up the market value of the stock and providing cover for the crooks to slip out with the real money.
“democrats ran these failures”
That does not matter to the ‘Rats and MSM. Bush will still be blamed/s
“Mortgage Conrail”
Is that so whoever is in charge can steal from each at the same time.
odd that this stuff is unreported (or ignored by most of us) while the paternity of trig and the bridge to nowhere are front page
i’ll take my basic economics book by sowell with me on my trip
The liberals (Barney Frank is one who is quite outspoken about it) wants to leave the situation as is but the Gorelick-Raines corruption has convinced conservatives that something must be done in a dramatic fashion since Fannie Mae-Freddie Mac are now holding back real estate recovery.
Thanks. That explains a few things. I was wondering why the fed hadn't dumped Fannie and Freddie long ago.
“What will happen is the government will get warrants to purchase common shares at a later date and will end up making money on the deal.”
If you can foresee that future, that’s just great. That’s like saying the government will make money from socializing the medical system. Yeah, they probably will. And your end of the deal? In the meantime, the combined books of FNM & FRE are likely to experience minimally 1 trillion to as much as 3 trillion in dollar losses as every bank gleefully unloads every fetid piece of trash loan they ever made and were dumb enough to get stuck with onto this new “entity”. So what the earnings of those companies will be over the course of time it takes to “normalize” their earnings is unknowable. Any monetary value ascribed to FRE/FNM common is an utter joke. Just how the common dividends of these companies should be categorized under government control is an interesting and quite ironic financial construct.
This is being done so that the banks can offload their sewage into an Enron-like off-balance-sheet entity, and so the Chinese and Russians will not perform some sort of radical moves with regard to the something like 2 trillion in GSE preferred debt owned by them. I like working for these guys, don’t you?
Meanwhile, the Congress, according to the Constitution, is the sole disburser of Treasury money collected as tax revenues, so I guess that’s yet another obsolete concept we can just throw out as we move into out new and improved and freshly-created future. Because, well, we have money center banks to tell us how our money should be spent. On them. To strengthen their balance sheets. On our dime. Booyah!
Yeah, the government will make money. Right. They make money on everything else they do, don’t they? They got Morgan Stanley to advise them on the details of this bailout, and I’m sure as the sun rises that MS has no other interest than making the US government money. Got it. Love it when a plan comes together.
Uh, no.
No it isn't. The government made money on the Chrysler deal with stock warrants, and that's what they'll do this time, too.
What will the government pay for those warrants? Nothing? I’ll bet those warrants have a floor value, based on my calculations of....zero. So they will make money.
The Chrysler bailout had a nominally predictable outcome, in the sense that the underlying factories would not vanish into vapor, and were capable of producing cars (or...something else) Plus, had the workers become unemployed, and the suppliers lost all the parts business...the ripple effects were fairly predictable and obviously negative.
This bailout will perhaps make money in far more ephemeral ways. It will, I guess, prevent the banks from being able to take gargantuan tax losses on the eventual mark to market of hundreds of thousands or millions of non-performing loans. But if a bank loses $1 million on a loan, it can nominally take about a 35% tax loss. If the government takes over the loan, the governmant will likely incur about a 60%-80% loss after the insiders raid, cherrypick, and sweetheart-deal themselves the assets. Plus whatever amortized share of the 15 six-figure bureaucrats’ salaries who divvy out the assets. Who do you think is going to take those assets off the govts’ books? Ya think it could be...THE BANKS who offloaded the bad loans onto the government in the first place? Who do you think has the inside skinny on the assets underlying the loans? That bother you at all? Of course, then the assets can be returned to productive use and the govt can collect taxes on the revs generated by the assets. But those assets will start brand-new depreciation schedules for the new holders and so will likely throw off nearly zero taxable income if a good Wall St. accountant is involved. So I don’t consider that making money. I consider it insider dealing.
It will also prevent macro-economic bank runs
by institutional bond holders like Bill Gross, sovereign wealth funds, and multiple large holders, and maybe in the sense of preventing a near-collapse of the US banking system, will make the government money.
Here’s my bottom line: This is an extra-Constitutional insider deal whose immediate and ultimate beneficiaries are and will be none other than the banks who encouraged and engineered and benefitted from the biggest piece of this debacle going in, but who will likewise benefit ABSOLUTELY the most going out. If that makes you happy, God bless you. Mortgage your home and buy every share of JPM, MS, GS common you can because there is now utterly no limit on the earnings these stocks will enjoy. Because each and every risk they take is guaranteed to be underwritten by the government. You and me.
Understanding that the “conservative” position on making money for oneself is its a good thing, I believe the opinions expressed on FR by some at some times are flexible based on the issues impact on them personally. In other words, maybe you’re arguing with bankers on this thread for all we know.
Post # 32 went to wrong thread.
News reports as of early Saturday AM say takeover is imminent.
All shareholder equity is likely to be wiped clean, and the stocks go close to zero.
Current quote FNM $7.04 and FRE $5.10
That's interesting. When the news first came out FNM, shares dropped to the 5's in off hours trading.
Somebody must like what they see.
It's also comforting to note that while the equity shareholders will be allowed to go to zero, the preferred stock shareholders will be made whole.
WHY??
Becaused they are owned by "The Banks".
I smell S&L bailout x 10.
I hope you took your blood pressure medicine before writing all of that. I agree with you that there will be positive macroeconomic effects, and this is going to help a lot of little guys too. It’s significant that the equity of the common shareholders isn’t going to be wiped out. That means it isn’t as bad as you think.
This should be on the breaking news sidebar.
This is more important than showing the RNC viewer numbers.
I wouldn’t disagree with that, but, I didn’t even try based on recent decisions as to what is “breaking news”.
For instance, under current restrictions for that sidebar, the last story showing was posted September 1st. Thats ridiculous.
I did put it in Front Page News and it stayed there miraculously, although it is now the very bottom story showing in that sidebar.
I can only say that the dollar collapsing will make it there soon.
The Fabians will love McCain.
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