Perhaps the Treasury Department has decided that desperate times call for desperate measures: [Hat tip to John and Mr. Twist!]
Treasury Department officials were working the telephones yesterday to make sure that Freddie Mac, one of the nation’s two troubled mortgage giants, will be able to sell $3 billion of its securities tomorrow in a previously scheduled sale that has now become a crucial test of investor confidence.
Though officials said they were optimistic the sale would be a success, anything less would pose new questions about how far the federal government is willing to go to prop up Freddie Mac, its sister Fannie Mae and other faltering financial enterprises.
Officials spoke yesterday with major banks that normally purchase securities, like the short-term debt offered by Freddie, to ensure these firms still plan to place bids tomorrow. This was part of an effort by officials at Treasury, the Federal Reserve and other agencies this weekend to gauge market sentiment and check that investors still have faith in Freddie Mac and Fannie Mae after the steep decline in their stock prices last week.
At the same time, Treasury officials were considering several options to backstop the sale in case they discover that interest in the securities is flagging, according to sources familiar with the discussions. Under one alternative, the Treasury or Fed would purchase the securities directly.
Other possibilities are allowing the Federal Reserve Bank of New York to buy the debt indirectly through private brokers or asking private firms to purchase the debt while extending to them either a public or private assurance that the government would back the securities if Freddie were ultimately unable to cover its obligations.
It doesn’t sound like the Treasury Department is very confident about this auction–so why should investors be? And just how will having the Fed or Treasury acting as "shill bidders" help instill confidence in investors?
With these kind of "confidence building" measures, the only investors likely to feel confident are the Freddie shorts.
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I know a few conspiracy theorists*grin*. There is the military industrial complex campers. They say jack-booted thugs will appear to kick in your door and socialism will rear its ugly head. Black helicopters, etc.
There are those who whisper about the Amero though. The conspiracy arose with NAFTA. Our currencies and markets, the theorists say, will merge. The Amero would have the silent backing of establishments like the Caymen Islands. Gold purchased by the drug cartels. Banks and factories run by smiling men with gurrilas in la jungla. Perhaps a screenwriter could make a good movie about it.
We already cater to racist, sexist, despotism in the middle east. Gives me goosebumps.
“how far the federal government is willing to go to prop up Freddie Mac,”
‘Treasury officials were considering several options to backstop the sale ”
“while extending to them either a public or private assurance that the government would back the securities”
way to answer your own question.
billydlight -
You rang?
After I retired from Doom posting I got a free account on MyT, the Telegraph’s blogging platform and probably the internet’s most user-unfriendly site. It was there that I posted occasional unpublishable poetry and assorted tinfoil hat scenarios when I spotted something in the world that made my blood boil. Fortunately the MyT community is sufficiently interested in other affairs that almost nobody ever reads my stuff.
Your comment has just reminded me of my MyT post “Amero after Monday NYNY markets-close” (Sept 20, 2007). Before you start laughing too hard, please consider this Bank of Canada graph — loonie vs dollar. The loonie was allowed to streak up to about $1.10 and then new BoC head Mark Carney has throttled it back to par, where it has been for the last 8 months or so. That is, the amero, at least between Canada and the US, is rapidly becoming a fait accompli.
SPP is actually the idea of a Canadian neocon branch plant, the Vancouver based Fraser Institute.
In fact, the bulk of the heavy stuff over the last couple of years can be traced back to Canada
The collapse of capitalism is being managed from Montreal. Nearly exactly 11 months ago, on Sunday August 12, 2008 (if you’re really paranoid, you will notice that’s the exact date of my comment twist reposted earlier today), bankers from all over the world flew into Desjardins HQ, ordered a truckload of St Hubert’s chicken and cobbled together the “Montreal Accord,” a debt restructuring that recently resulted in the biggest bankruptcy filing in Canadian history.
The reason Canada is ahead of the rest of the world on this issue is because of a quirk in our commercial law that let the banks flee ABCP and left ordinary investors holding the bag. Our experience is setting precedents for how the rest of the world will run through the debt crisis. (e.g. the SIV affair is around $300 billion, to ABCP’s approximately C$32 billion)
I followed (5 views, jeesh) the City’s adventures in CP rollover, also Sept ’07, and if Freddie can’t roll over their $3 billion in short term notes tomorrow, the game will be just about up. North American consolidation (ahead of the next elections in US, Canada, and Mexico) and the new amero currency may be the only possible way out for Paulson. The Fed can’t really start buying RMBS, the problem is bigger than their capital base. Remember, these guys are a group of actual banks. It’s going to be easier to reboot the continent (and less silly than starting another war over the next couple of days
)
John-
You appear to be very knowledgable in these matters. I am just a paranoid neophyte that has been spending too much time on tin foil hat blogs. I have read about the secret plans to switch to the Amero. What do you supose the haircut will be for those holding dollars? 10%, 20%, 50% more? They say cash is king but not if we are forced into even more devalued paper.
brucewho -
I am a slightly more battle-hardened paranoid, so for heaven’s sake don’t use that #3 rant as advice!
As we speak there is an ongoing panic in the stocks of commercial banks like WaMu to rival the panic over the GSE’s equity early Friday. Nobody knows what’s going down now, but if you wait until a few hours after markets close and the smoke of battle clears we should know a lot more.
By the way, Doom’s ratings are way down, which is a positive indication that “doom” is losing traction with the blogging public. Could that possibly indicate a bottom?
This is the sort of day that people with cool heads can make a fortune (or get totally wiped out — take your pick
) Be careful out there! (me I’m joining Igor in the bunker)
John-
I’m not a market player and staying safe is my ultimate goal. But how does one stay safe, is there such a thing in this turmoil. I’m almost all in cash and PM’s but my Mom isn’t. I cant bear (no pun intended) to watch WM go down. I tried to warn her about Bear and WM some time ago but the “nice” man at Smith Barney said everything would be OK. My Dad who wanted the high dividends those stocks provided earlier in this century is probably rolling over in his grave. It’s lost. I’m worried about my deposits in Chase, WF, USB and some local regionals. All under the 100K FDIC. Boy if they go its Mad Max time.