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Any predictions of the fallout from us nationalizing a govt-sponsored enterprise? Mind you they had to pay back nearly a quarter trillion worth of bond debt by the end of the month, so the take-over was inevitable. The question is what impact it will have on our markets as details of how much debt the fed will underwrite. Your thoughts? How will it impact our dollar as we are currently in an upswing with commodity markets unwinding and Europe facing a recession...

Personally, I think this will be the most significant financial event since 9/11...
 

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Any predictions of the fallout from us nationalizing a govt-sponsored enterprise? Mind you they had to pay back nearly a quarter trillion worth of bond debt by the end of the month, so the take-over was inevitable. The question is what impact it will have on our markets as details of how much debt the fed will underwrite. Your thoughts? How will it impact our dollar as we are currently in an upswing with commodity markets unwinding and Europe facing a recession...

Personally, I think this will be the most significant financial event since 9/11...
Frankly, this was inevitable. From 1993 to 1998 I traded MBS derivatives... when Franklin Raines (former FNMA CEO) submitted his editorial to the WSJ (sometime in 2000, IIRC), I sold my entire holdings of FNM stock. I think it was trading in the high 70's back then...

FNMA and FHLMC (those are the abbreviations mortgage traders use) have been suspect for years... OFHEO has been trying to take them to task for years, but since they've been greasing palms in congress for years, it's hard to slow them down.

My business partners and I were invited to try and straighten out FNMA's risk management and portfolio accounting. One of my business partners spent a few months in DC trying to figure out what they were up to...

Bottom line: the gov't should take them over, and eventually (fully) privatize them... their time has come and gone... they are obsolete.
 

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Frankly, this was inevitable. From 1993 to 1998 I traded MBS derivatives... when Franklin Raines (former FNMA CEO) submitted his editorial to the WSJ (sometime in 2000, IIRC), I sold my entire holdings of FNM stock. I think it was trading in the high 70's back then...

FNMA and FHLMC (those are the abbreviations mortgage traders use) have been suspect for years... OFHEO has been trying to take them to task for years, but since they've been greasing palms in congress for years, it's hard to slow them down.

My business partners and I were invited to try and straighten out FNMA's risk management and portfolio accounting. One of my business partners spent a few months in DC trying to figure out what they were up to...

Bottom line: the gov't should take them over, and eventually (fully) privatize them... their time has come and gone... they are obsolete.
Couldn't agree with you more - but the question is, what will the price be to the taxpayers in the interim?
 

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Couldn't agree with you more - but the question is, what will the price be to the taxpayers in the interim?
Since they underwrote conforming mortgages (credit rating "A"), and invested in relatively small amounts of Alt-A and sub-prime, they should not suffer significant losses due to defaults. There are other skeletons rattling in their closets (most of which I'm not at liberty to disclose)...

As far as I'm concerned... the best possible scenario is that they're still allowed to securitize high credit quality mortgages... (it's actually a fairly useful service), but they can't take proprietary positions in derivatives...
 

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The stock is expected to lose 80% of its current value when it begins trading Monday. NYSE just halted pre-market trading Monday morning, so it will begin trading only at 9:30AM. As a shareholder, i'm not being bailed out and i'm getting screwed. Is it possible to have a class action lawsuit against the Federal Gov't????
 

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Our economy used to be based on gold, now it's based on debt.

"While it is not yet possible to calculate the cost of the government's intervention, it could rise into tens of billions of dollars and will probably be among the most expensive rescues ever financed by taxpayers." http://www.iht.com/articles/2008/09/07/business/fannie.php
 

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The stock is expected to lose 80% of its current value when it begins trading Monday. NYSE just halted pre-market trading Monday morning, so it will begin trading only at 9:30AM. As a shareholder, i'm not being bailed out and i'm getting screwed. Is it possible to have a class action lawsuit against the Federal Gov't????
Well, look at the bright side. If it was any other insolvent company, your stock would be worth zero. At least, you might get 20cents on the dollar.... (I'd be happy if I got 20 cents on the dollar on stocks of companies that went bust.)
 

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Most buyers of U.S. mortgage-backed securities do not live in the United States, so this has repercussions for the world economy. It also means the U.S. government is taking over Freddie and Fannie to bail out foreign nationals, not American homeowners. Just thought you would like to know.
 

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Most buyers of U.S. mortgage-backed securities do not live in the United States, so this has repercussions for the world economy. It also means the U.S. government is taking over Freddie and Fannie to bail out foreign nationals, not American homeowners. Just thought you would like to know.
Fannie and Freddie were taken over so that they could refinance their debt at the end of this month. Without the explicit guarantee of the US gov't, they might have defaulted on a huge quantity of short term debt... it would have caused enormous problems in the credit markets, and just about everyone would have suffered (interest rates would have skyrocketed, stocks would have tanked).

As it is, US taxpayers are now on the hook for any future losses that exceed Fannie and Freddie's capital base (which is just about zero given their stock prices).

The solution is to gradually force the agencies to sell off their portfolio holdings (which is run like a bad hedge fund), and either nationalize or privatize their securitization function (which guarantees payment of interest and principal on conforming, high credit quality mortgages, for a servicing fee).
 

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Fannie Mae was well capitalized. Freddie was in the weaker position. They were more susceptible to being under capitalized.

I think the seizures were in large part due to foreign investments (evidenced by Bank of China reducing holdings) unwilling to provide more capital and Fannie/Freddie reducing their exposure all the while the Treasury and Fed bank were trying to get increased capital to move the credit market along. This move placated the foreign funds and provide a de facto guarantee for them to increase their investments (evidenced by the large drop in basis point from their recent credit swaps after the seizure announcements).
 

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Fannie Mae was well capitalized. Freddie was in the weaker position. They were more susceptible to being under capitalized.

I think the seizures were in large part due to foreign investments (evidenced by Bank of China reducing holdings) unwilling to provide more capital and Fannie/Freddie reducing their exposure all the while the Treasury and Fed bank were trying to get increased capital to move the credit market along. This move placated the foreign funds and provide a de facto guarantee for them to increase their investments (evidenced by the large drop in basis point from their recent credit swaps after the seizure announcements).
Hmm.... why would equity investors want to add more capital to a corporation that basically violated SEC reporting rules (they missed their filing deadlines by years, not months), was continually overmarking their positions to inflate bonuses, and not giving any confidence to their loss estimates?

If they were a hedge fund they'd have been bankrupt long ago...
 

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Hmm.... why would equity investors want to add more capital to a corporation that basically violated SEC reporting rules (they missed their filing deadlines by years, not months), was continually overmarking their positions to inflate bonuses, and not giving any confidence to their loss estimates?

If they were a hedge fund they'd have been bankrupt long ago...
Because they don't operate by the same rules as a hedge fund. And those reservations you point out is counterbalanced by the fact that these 'investors' hold huge amounts of Fannie/Freddie notes on their books. They're literally tied at the hip. If Fannie/Freddie folded, their entire economies would collapse.
 

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Because they don't operate by the same rules as a hedge fund. And those reservations you point out is counterbalanced by the fact that these 'investors' hold huge amounts of Fannie/Freddie notes on their books. They're literally tied at the hip. If Fannie/Freddie folded, their entire economies would collapse.
Lots of investors hold FNMA and FHLMC notes... including foreign sovereign debt funds, hedge funds, pension funds, insurance companies, etc. Most risk models used to have agency paper rated at 0% default risk... because most people thought that there was an implicit US gov't guarantee. If they actually did default, it would trigger a series of defaults throughout the debt markets, both here in the US and abroad. That's not even taking into account the multi-trillion dollar mortgage-backed market, that's backed by Fannie and Freddie's credit also. Definitely a case of "too big to fail", if there ever was one.

You're right, they don't operate by the same rules as a hedge fund. And they shouldn't have been able to run one through their "portfolio holdings"...
 

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"Together, Daniel H. Mudd of Fannie Mae and Richard F. Syron of Freddie Mac are eligible for as much as $24 million in severance, retirement benefits and deferred compensation."
 
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