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View Full Version : Government assumes control over mortgage giants Fannie Mae and Freddie Mac




Jamsie 567
09-07-2008, 11:10 AM
This ring a bell this is how the Federal Reserve gained power. Now the Fed owns the mortgage industry. We are now deeper in debt to our governement than ever imagined. What if this was part of the plan all along? Pray for America we need it.

http://l.yimg.com/a/i/ww/news/2008/09/07/090708freddie.jpg

WASHINGTON (AP) -- The Bush administration, acting to avert the potential for major financial turmoil, announced Sunday that the federal government was taking control of mortgage giants Fannie Mae and Freddie Mac.

Officials announced that the executives and board of directors of both institutions had been replaced. Herb Allison, a former vice chairman of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.

Treasury Secretary Henry Paulson says the historic actions were being taken because "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe."

The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.

"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance," Paulson said.

Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.

The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans."

The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.

Paulson said that it would be up to Congress and the next president to figure out the two companies' ultimate structure.

"There is a consensus today ... that they cannot continue in their current form," he said.

Paulson and James Lockhart, director of the Federal Housing Finance Agency, stressed that their actions were designed to strengthen the role of the two mortgage giants in supporting the nation's housing market. Both companies do that by buying mortgage loans from banks and packaging those loans into securities that they either hold or sell to U.S. and foreign investors.

The companies own or guarantee about $5 trillion in home loans, about half the nation's total.

Lockhart said that both Fannie and Freddie would be allowed to increase the size of their holdings of mortgage-backed securities to bolster the housing industry as it undergoes its worst downturn in decades.

Lockhart said in order to conserve about $2 billion in capital the dividend payments on both common and preferred stock would be eliminated. He said that all lobbying activities of both companies would stop immediately. Both companies over the years made extensive efforts to lobby members of Congress in an effort to keep the benefits they enjoyed as government-sponsored enterprises.

Both Paulson and Lockhart were careful not to blame Daniel Mudd, the CEO of Fannie Mae, or Freddie Mac CEO Richard Syron for the companies' current problems. While both men are being removed as the top executives, they have been asked to remain for an unspecified period to help with the transition

freelance
09-07-2008, 11:34 AM
Lockhart said that both Fannie and Freddie would be allowed to increase the size of their holdings of mortgage-backed securities to bolster the housing industry as it undergoes its worst downturn in decades.

Sure, why not? Just keep doing the same thing they're doing, except that we're all on the hook.

BLuegreengrey
09-07-2008, 11:52 AM
scary stuff

surf
09-07-2008, 11:56 AM
LIQUIDATE, damnit.

Johnnybags
09-07-2008, 12:04 PM
were solvent as is, now the government takes em over and cancels dividend payments and more than likely steals common holders and some preferred or alls value? So the Chinese and big bond investors can get paid interest? If they were fine for now like Frank said what gives the FEDS the right to sieze value at this point? Looks like lawsuits will be flying.

Kludge
09-07-2008, 12:12 PM
now the government takes em over and cancels dividend payments

Errr... Why would a failing corporation pay dividends?

apc3161
09-07-2008, 12:20 PM
I just sent this letter to my congressmen. Feel free to plagiarize.

To my Floridian Congressmen:

I will keep this short. Please don’t support any legislation to bail out the banks, mortgage companies, auto industries, airlines, etc.

All of these industries are in financial problems due to their own negligence. They are not entitled to tax-payer funded bailouts. If they have to declare bankruptcy and liquidate their assets, so be it. Then the more efficient companies who have been responsible and competent can rise up and take their place in the market place. Please do not use taxpayer money to prop up irresponsible and negligent companies. Such action would create moral hazard and lead to more irresponsible behavior in the future.

Johnnybags
09-07-2008, 12:23 PM
Errr... Why would a failing corporation pay dividends?

the firm never failed. The company said it was solvent and had capital for now. Frank said it was solvent but noone believed it. My point is the FEDS had no right at this time to do anything if they were solvent. They stole from a solvent company or so say the people who run it. Someone lied, either Frank and the company or the FEDS. Truth is they were not going to be able to refinance debt on the 30th and the big bond investors told the FEDS to take em over or they would not buy more debt. Either that or it would have cost em near double digits to raise it causing mayhem in the bond market and throughout the world. So the FEDS basically stole equity investors money to please big bond investors. And now all those banks that were allowed to use the preferred as capital in their balance sheets are shidada luck. They have to raise the capital thru dilution of current equity holders. Transferred wealth from one to another as if by magic, and thats the problem I have with it.

apc3161
09-07-2008, 12:25 PM
Errr... Why would a failing corporation pay dividends?

In order to maintain a good share price, companies will do almost anything to maintain dividends. Lowering your dividends is financial suicide for the stock price, and its the CEO's job to keep it that price healthy. If it goes low, the CEO will probably get fired. Companies often take on debt and issue bonds just to maintain dividends.

Also, sometimes to executives and directors have a lot of money invested in their companies, so its in their best interest to keep the stop price high as long as they are invested in it. They will maintain dividends at all costs, even if it is not in the best interest of the company in the long run.

JAlli41
09-07-2008, 03:59 PM
the scary part is that the fed and the state still somehow believe they are more powerful than the market and that it can regulated and corrected without consequences. Those who don't learn history are doomed to repeat it.

constituent
09-07-2008, 04:03 PM
In order to maintain a good share price, companies will do almost anything to maintain dividends. Lowering your dividends is financial suicide for the stock price, and its the CEO's job to keep it that price healthy. If it goes low, the CEO will probably get fired. Companies often take on debt and issue bonds just to maintain dividends.

Also, sometimes to executives and directors have a lot of money invested in their companies, so its in their best interest to keep the stop price high as long as they are invested in it. They will maintain dividends at all costs, even if it is not in the best interest of the company in the long run.

jesus christ. let the purging begin.

Feelgood
09-07-2008, 05:39 PM
Can you post the link for this story please? Would like to add it to my site. Thanks...

Jamsie 567
09-07-2008, 10:15 PM
Can you post the link for this story please? Would like to add it to my site. Thanks...

It's an AP sotry so it's hitting all the major wires now. Thanks for spreading the news I am surprised not more people here are talking about this.

http://news.yahoo.com/s/ap/20080908/ap_on_bi_ge/mortgage_giants_crisis;_ylt=AkdWREYIxaHndBccVNJtik iyBhIF