With the take-over of Fannie Mae and Freddie Mac by the federal government, we have seen the last vestiges of the independent Secondary Mortgage Market collapse and disappear. With the failure and loss of liquidity of the investment banking community for Mortgage Backed Securities, and the slipping confidence in all collateralized debt obligations, and the deterioration of the consumer banking community as bank failures begin to increase at an alarming rate, we are watching a virtual roll-back to the 1930's...slowly but surely we are moving ever so close to DEPRESSION and the virtual collapse of the econimic system we have come to know and rely upon.
Folks, this is very serious business!!! The value of your home and safety of your entire investment portfolio is now at extreme risk. Your ability to purchase anything on credit is definitely going to get a LOT TOUGHER, if the money will be available at all.
These financial realities will likely set the stage for final events as described in the Great Controversy and other writings of Ellen G. White. Up to this point, I have watched and wondered, now I am certain.
Simply put, Humpty Dumpty fell off the wall. All the kings men and all the kings horses could not put humpty dumpty back together again. "...They struggle in vain..." declares EG White!!! And she states very many times that "National Apostacy is followed by National Ruin...".
In summary, neither candidate will have a solution for this economic mess and you can look for the winner to seek a scapegoat and to call for "reformation" such as we have never seen before. I do not believe the Democratic ticket is likely to set in place events that will lay the foundation for final escatology, particularly given that it is headed by two lawyers. On the other hand, an ultra-conservative reformer from Alaska and a military families' son would likely be willing and able to do exactly that in an effort to serve the people they feel they represent.
I am sure some will say I am crying wolf, but if you understand the degree to which the entire banking system has been compromised by the wine of financial revelry for so many years and the taking down of the Glass Segal wall of separation between investment banking and commercial/consumer banking, and now the absolute collapse of that system with the remnants in the firm grip of the Federal Government, we now have a significant foundational stage upon which the eschatology of final events may be played out.
This shocking story was broken by the Wall Street Journal and now picked up by the national media. It will be Mondays headline development. It is no small development. It is expropriation without due process, it is the collapse of two giant mortgage conduits "too big to fail", and leaves banks and mortgage companies with ever greater restrictions to credit access. And if your Fico is less than a 580, you are persona non grata...if your fico is between 580 and 620 you will be suspect and very closely considered...only if you are safely over 620 and can fully document your income and expenses will you get serious consideration. And given the extremely high delinquency rate of 6.41% of mortgages, and climbing, and record auto reposessions, leasing companies gone and
commercial hedge funds in disarray, we have a perfect economic storm with record bankruptcies and rising unemployment.
I hate to be a pessimist, but this scenario must be seriously considered and studied. If economic events continue the current path and pace, expect the false revival to begin to build and the US will drive events that will lead to the the rise of Romanism yet again. Time to study and show thyself approved. Time to warn of the impending crisis. Time to prepare for that most vital roll!!!
Gailon Arthur Joy
U.S. Near Deal on Fannie, Freddie
Plan Could Amount to Government Takeover;
Management Shakeup Is Expected
By DEBORAH SOLOMON and DAMIAN PALETTA
September 6, 2008; Page A1
WASHINGTON -- The Treasury Department is putting the finishing touches to a plan designed to shore up Fannie Mae and Freddie Mac, according to people familiar with the matter, a move that would essentially result in a government takeover of the mortgage giants.
REAL TIME ECONOMICS
• Foreclosure Effect on Home Prices May Be Small1The plan is expected to involve putting the two companies into the conservatorship of their regulator, the Federal Housing Finance Agency, said several people familiar with the matter. That would mean the government would take the reins of the companies, at least temporarily.
It is also expected to involve the government injecting capital into Fannie and Freddie. That could happen gradually on a quarter-by-quarter basis, rather than in a single move, one person familiar with the matter said.
In addition, Treasury's plan includes a top-level management shakeup at both companies, according to people familiar with the plans. Daniel H. Mudd, chief executive of Fannie Mae, and Richard Syron, his counterpart at Freddie Mac, are expected to step down from their posts eventually.
An announcement could come as early as this weekend. Some details are still being worked out, and terms of the arrangement could change.
Any move by Treasury would represent perhaps the most significant intervention by the government in the financial industry since the housing bust touched off turmoil in the credit markets a little more than a year ago. From the $168 billion economic-stimulus package in February through the bailout of investment bank Bear Stearns Cos., the Bush administration and the Federal Reserve have taken an increasingly aggressive stance in responding to what has become one of the worst financial crises in decades.
Fannie and Freddie are vital cogs in the U.S. housing market. Their troubles have threatened to worsen the bursting of the housing bubble, which has led to a surge in foreclosures. (See related article2.) A Treasury intervention could help Main Street borrowers by keeping interest rates on mortgages lower than they would be in the event of continued instability.
The Treasury's emergency powers to backstop Fannie and Freddie, which it won as the result of legislation passed by Congress in July, last until the end of 2009. A decision about their future role could be handed off to the next administration and the next Congress.
The woes of Fannie and Freddie mark a remarkable comedown for two of Washington's most powerful and feared institutions, known for their financial clout and no-holds-barred lobbying prowess. Fannie and Freddie shares, which were up during the regular session Friday, dropped 25% and nearly 20% respectively in the after-hours session.
Treasury's likely plan is supported by Federal Reserve Chairman Ben Bernanke and James Lockhart, chief of the Federal Housing Finance Agency, according to people familiar with the matter. On Friday afternoon, Messrs. Syron and Mudd were summoned to a meeting at the offices of the agency. Also attending were Mr. Bernanke and Treasury Secretary Henry Paulson.
The meetings Friday were in part aimed at getting Messrs. Mudd and Syron to agree to the plan, though their approval was not necessary, these people said.
Mr. Mudd arrived for the meeting at 2:50 p.m., flanked by the company's general counsel, Beth Wilkinson, and Rodgin Cohen of Sullivan & Cromwell, one of the country's top banking lawyers. A few minutes later, Mr. Bernanke followed.
Associated Press
Treasury Secretary Henry Paulson
"We are making progress on our work," said Treasury spokeswoman Jennifer Zuccarelli, who declined to comment further. Spokesmen for Fannie and Freddie declined to comment on the expected Treasury moves.
In July, Treasury won authority to intervene in the two companies, but it didn't say how or when it would act. Since then, federal officials have been working with bankers at Morgan Stanley to figure out how to prop up the mortgage giants.
Freddie and Fannie own or guarantee more than $5 trillion of mortgages. They have suffered combined losses of about $14 billion over the past four quarters as they make provisions for a wave of defaults. Investors worried that a government bailout would wipe out the value of existing stock, and those fears have sent the shares down about 90% from a year ago. Many U.S. banks as well as foreign governments own stock or debt in the two giants, meaning their financial woes could cause broad problems beyond the housing market.
Mr. Paulson's push to win authority was meant to reassure investors that the government wouldn't allow Fannie Mae and Freddie Mac to fail. But some believe it ultimately forced Treasury's hand. The federal government's involvement complicated the companies' already-difficult task of raising capital through the sale of common or preferred shares. Investors were leery of buying either while the government's intentions were unknown, because they feared the newly issued shares might become worthless as the result of federal action.
Bill Gross, chief investment officer of Pacific Investment Management Co., the large Newport Beach, Calif., bond manager, said in an interview Friday he believes private investors would buy new shares in Fannie and Freddie only if the Treasury acts first to bolster their capital. "Investors are saying, 'We want to see [the Treasury] in there with us,'" Mr. Gross said. The Treasury will have to "swim in the pool, not just be a lifeguard," he added
Among the issues with which Treasury has been wrestling is whether to make an investment at such a low price that shareholders are effectively wiped out. Mr. Paulson is cautious about any plan that appears to benefit shareholders because he doesn't want the government to be seen as bailing out investors who for years profited from the companies' success.
The two companies were chartered by Congress to support the housing market, and therefore were seen as having the backing of the government. That allowed them to borrow funds at favorable rates close to those of U.S. Treasurys, even though they are both profit-making entities answerable to shareholders.
Sen. John McCain, the Republican nominee for president, has said his goal is to make the companies "go away" and to push for regulation that "limits their ability to borrow, shrinks their size until they are no longer a threat to our economy and privatizes and eliminates their links to the government." Sen. McCain supported giving Treasury the authority to backstop the firms but has said any use of taxpayer funds should be combined with an ouster of management and a ban on lobbying by the companies.
Sen. Barack Obama, the Democratic nominee, has said the companies are a "weird blend" and that "if these are public entities, then they've got to get out of the profit-making business, and if they're private entities, then we don't bail them out."
In a sign that some action was imminent, Freddie Mac changed its bylaws Thursday in a way that investors said could pave the way for Treasury or another large investor to take a controlling stake. Previously, Freddie Mac had a bylaw that prevented an investor with a stake of 20% or greater from voting without the approval of the other shareholders. It eliminated that restriction. Freddie Mac's board also put its protracted search for a chief executive on hold, according to people familiar with the situation.
Freddie Mac directors began interviewing CEO candidates last spring and hoped to pick someone by early September. The board was ready to offer the job to David Vitale, a longtime Chicago banking executive and the former head of the Chicago Board of Trade, according to a person familiar with the matter. Mr. Vitale had agreed to take the job and Freddie Mac ran its selection by its regulator but had not received a response.
In recent weeks, Treasury officials have been reaching out to foreign central banks and other overseas buyers of securities or debt sold by the two companies, to reassure them of the creditworthiness of these instruments.
In one such conversation, at the end of August, the Treasury sought to reassure the Bank of Mexico, according to a person familiar with the matter, of the soundness of agency securities held by the bank. Treasury officials have also had similar conversations with Japanese investors who are buyers and holders of agency debt.
Despite turmoil in their shares, Fannie and Freddie have had little or no difficulty selling or rolling over their senior debt, though they have had to pay rates that include higher premiums over yields on Treasury bonds.
The timing of Treasury's announcement could have been coordinated to land between the end of the Democratic and Republican party conventions and the convening of a congressional session next week.
Congress created Fannie as a government agency in 1938, during the Great Depression, to buy government-insured mortgages from lenders, providing them fresh money to make more loans. Fannie continued to function as a government-run agency during the 1940s and 1950s, even as it took steps toward privatization. In 1968, President Lyndon Johnson decided to turn Fannie into a shareholder-owned company.
--James R. Hagerty, Joann S. Lublin, Serena Ng and Aparajita Saha-Bubna contributed to this article.
Write to Deborah Solomon at deborah.solomon@wsj.com3 and Damian Paletta at damian.paletta@wsj.com4
AP
Friday September 5, 11:12 pm ET
By Alan Zibel, AP Business Writer
Government may soon take over troubled mortgage finance giants Fannie Mae, Freddie Mac
WASHINGTON (AP) -- The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation's mortgage debt, a person briefed on the matter said Friday night.
Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.
Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the troubled companies into a conservatorship.
The news, first reported on The Wall Street Journal's Web site, came after stock markets closed. In after-hours trading Fannie Mae's shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac's shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government's actions.
The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.
That confirmed what investors saw in Fannie and Freddie's recent financial results: trouble in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with little or no proof of their income and assets.
Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.
While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.
Many in Washington and on Wall Street hadn't expected Treasury Secretary Henry Paulson to intervene unless the companies had trouble issuing debt to fund their operations.
This summer, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the two companies if needed.
Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.
Supporters, however, argue the Bush administration had little choice but to support Fannie and Freddie, which together hold or guarantee $5 trillion in mortgages -- almost half the nation's total.
Representatives of Fannie and Freddie declined to comment on the government assistance plan.
Treasury spokeswoman Brookly McLaughlin said officials "have been in regular communications" with Fannie and Freddie, but refused to comment saying, "We are not going to comment on rumors."
Concern has been growing that a government rescue of Fannie and Freddie could not only wipe out common stockholders, but also be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares.
Paulson has been in contact in recent weeks with foreign governments that hold billions of dollars of Fannie and Freddie debt to reassure them that the United States recognizes the importance of the two companies.
The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
Mudd, the son of TV anchor Roger Mudd, was elevated to Fannie Mae's top post in December 2004 when chief executive Franklin Raines and chief financial officer Timothy Howard were swept out of office in an accounting scandal. Syron was named Freddie Mac's CEO in 2003, replacing former chief Gregory Parseghian, who was ousted in after being implicated in accounting irregularities.
He formerly was executive chairman of Thermo Electron Corp., a Waltham, Mass.-based maker of scientific equipment, served head of the American Stock Exchange was president of the Federal Reserve Bank of Boston in the early 1990s.
Fannie Mae was created by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.
A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office.
But the epic decision highlights the size of the threats facing the housing market and the economy. On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns by JP Morgan Chase.
AP Business Writers Martin Crutsinger and Jeannine Aversa contributed to this report.
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Topic: Banking system faces complete collapse (Read 9903 times)
