“U.S. Rescue Seen at Hand for 2 Mortgage Giants”, by Stephen Labaton and Andrew Ross Sorkin, New York Times, September 5, 2008.

Senior officials from the Bush administration and the Federal Reserve on Friday informed top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, that the government was preparing to seize the two companies and place them in a conservatorship, officials and company executives briefed on the discussions said.

“Rescue plan near for Fannie and Freddie”, Financial Times, September 6, 2008.

The US Treasury has moved closer to a rescue plan for Fannie Mae and Freddie Mac, the two struggling government-sponsored mortgage groups whose fate is key to the future of the US housing industry and financial markets.

The exact form of the proposed government rescue remained unclear, but share prices for Fannie Mae and Freddie Mac declined 30.3 per cent and 26.6 per cent respectively in after-hours trading, reflecting investor concerns that the rescue plan would wipe out holders of equity in the groups while guaranteeing their debt.

Many credible stories on this followed the markets’ close, including one that mentioned catered food all weekend at FHouFA.

“Treasuries Drop on Speculation of Government to Assist Agencies”, by Dakin Campbell and Daniel Kruger, Bloomberg, September 5, 2008.

Treasuries fell amid speculation the U.S. is close to reaching a plan to help troubled mortgage finance companies Fannie Mae and Freddie Mac, easing the haven appeal of government debt.
…

Backstop

“Prices just evaporated” after the newspaper report broke, said Tom di Galoma, head of U.S. Treasury trading at Jefferies & Co., a brokerage for institutional investors in New York. “There’s probably some good story on the senior debt, that there’s going to be a backstop set.”

The plan may involve a “creative use” of Treasury’s new authority to pump capital into the companies as well as changes to senior management, the Journal reported on its Web site, citing a person it didn’t name. Treasury spokeswoman Brookly Mclaughlin declined to comment on the contents of the article.

Treasury Secretary Hendry Paulson was scheduled to meet today with Federal Reserve Chairman Ben S. Bernanke and the heads of Fannie Mae, Freddie Mac and the Federal Housing Finance Agency, the Journal said.
…

Central Bank Sales

“The critical thing now is getting the details of whether the design of this package is something that will convince the market that this is turning a corner and things are getting better,” said Torsten Slok, a senior economist at Deutsche bank AG in New York. “This has the potential to be very significant.” [well, now you know ]

Foreign central banks sold $12.7 billion in agency and agency mortgage-backed debt in August, the first monthly sale since April 2004, according to the Fed. Foreign monetary officials bought $50 billion of Treasury bonds, the largest increase since December 2003. So-called agency debt is issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

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P.S.

I thought I recognized that particular brand of econo-baffle squid-ink

Doom cited Mr. Slok in The Inequality Firewall (Feb 9, 2007), a post that discussed government and industry efforts to proclaim containment of the incipient subprime crisis. Doomers should go to the link to review Slok’s arguments (since, sadly, overtaken by events ) but I’m going to take the liberty of repeating what this blogger thought of them at the time.

Before proceeding off to a soothing discussion about how financial institutions are much better hedged against a shock like this than in the 1980s, Slok uses some arguments I didn’t quite follow to show that subprime borrowers in the loser quintile can’t hurt the economy. Since the economy is consumer-driven, and these people are so poor, whatever happens to them won’t have a serious impact. Is this really how America works nowadays? If nothing else, this proves beyond a doubt that Jesse Jackson was in the right room on Wednesday when he spoke at Senator Dodd’s predatory loan hearing.

I prefer not to think about how much Slok gets paid to say what he says compared with what we in the Castle rake in. (and you can stop looking at me like that Igor, you get license fees and all the spam you can eat)

P.P.S. It was great fun re-reading the comments from that early 2007 post. Crispy, Aaron and the gang — even Igor — were really smokin’ that week!

Our National Debt has risen by approx. 1117% since 1980! There is an end to the amount of debt that any nation can incur.

In 1980, the U.S. was the largest creditor nation on earth, by 2005, we had become the largest debtor nation on earth.

In the first 204 years of our existence, our accumulated National Debt was $850 Billion.
Congress recently raised the Debt Ceiling by $800 Billion for one year!

This is not a small micro problem that can be fixed with growth, yet that seems to be the opinion that prevails.

“Russia says further cuts Freddie, Fannie holding”, Reuters, September 5, 2008.