Freddie. Fannie. Foofa.

Twist handed this [1] over to me before she left for a brief appointment. Doom will be following this breaking story through the rest of the day.

STATEMENT OF FHFA DIRECTOR JAMES B. LOCKHART

Good Morning

Fannie Mae and Freddie Mac share the critical mission of providing stability and liquidity to the housing market. Between them, the Enterprises have $5.4 trillion of guaranteed mortgage-backed securities (MBS) and debt outstanding, which is equal to the publicly held debt of the United States. Their market share of all new mortgages reached over 80 percent earlier this year, but it is now falling. During the turmoil last year, they played a very important role in providing liquidity to the conforming mortgage market. That has required a very careful and delicate balance of mission and safety and soundness. A key component of this balance has been their ability to raise and maintain capital. Given recent market conditions, the balance has been lost. Unfortunately, as house prices, earnings and capital have continued to deteriorate, their ability to fulfill their mission has deteriorated. In particular, the capacity of their capital to absorb further losses while supporting new business activity is in doubt.

…

 

Let the Fannie Mae / Freddie Mac / Federal Housing Finance Agency double-three-legged marathon begin.

________________________

Notes and References

[1]: "STATEMENT OF FHFA DIRECTOR JAMES B. LOCKHART", Press release, OFHEO [well, really not, last week they ... oh never mind], September 7, 2008.

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11 Comments for this entry

  1. John M. says:
    September 7, 2008 at 10:28 AM

    I suddenly had this image of Hank walking up and down Main Street with a bell crying: “Bring out your Dead!”

    “FDIC to help small banks with Fannie, Freddie exposure”, by Michael R. Crittenden, MarketWatch, September 7, 2008.

    “Any negative impact will be narrowly focused only on a few smaller institutions. Regulators will be working closely with those few banks to develop capital plans to assist their recovery,” Federal Deposit Insurance Corp. Chairwoman Sheila Bair said in a statement.
    …

    “The agencies encourage depository institutions to contact their primary federal regulator if they believe that losses on their holdings of Fannie Mae or Freddie Mac…are likely to reduce their regulatory capital below ‘well capitalized’,” Paulson said. “The banking agencies are prepared to work with the affected institutions to develop capital restoration plans consistent with the capital regulations.”

    (that wasn’t nice, Igor, “bankrun” indeed …)

  2. John M. says:
    September 7, 2008 at 10:54 AM

    “There is no reason to expect taxpayer losses from this program, and it could produce gains”

    “Paulson Engineers U.S. Takeover of Fannie, Freddie”, by Rebecca Christie and Dawn Kopecki, Bloomberg, September 7, 2008.

  3. dale says:
    September 7, 2008 at 12:36 PM

    Sad outcome for something that should have been resolved many years ago.
    We have been warned for at least 5 years by Doom, Wall Street Journal, Forbes and many others about the shabby accounting and lack of adult supervision of these outfits.
    If this was Enron, lots of Fan & Fred officers and their political cheerleaders would be going to jail.
    Officers, past & present, should be forced to give back the bonuses they received because of their creative accounting.
    Every politician who accepted donations (bribes) from these companies should return the money at once and resign. They certainly have violated their public trust. Barney Frank & Chuck Shumer should go first if they have any honor left. It is an amazing neglect of duty to have been warned for so many years and failed to act; worse even to support the criminal neglect of Fan & Fred. Lets at least get their names and vote them out of office.

  4. John M. says:
    September 7, 2008 at 3:51 PM

    I was wondering how long it would be before this angle started coming up. The GSEs’ hedging efforts made them huge counterparties in all manner of derivatives, not to mention side-bets.

    “Watershed event for $8 trillion in MBS, agencies unfolds”, by Al Yoon, Reuters, September 7, 2008.

    Subordinated debt yield spread premiums ballooned by more than 2 percentage points in a single day in mid-August to about 6 percentage points after Barron’s asserted a government intervention was near and would not spare the bonds.

    But the Treasury’s conservatorship may trigger financial insurance contracts on subordinated debt, prompting holders of the “credit default swaps” to demand payment, one investor said. Subordinated debt values will depend on analyses of how protected it will be in the future, he said.

  5. twist says:
    September 7, 2008 at 7:05 PM

    John- [#2]

    “There is no reason to expect taxpayer losses from this program, and it could produce gains”

    I thought that was the funniest comment all day today.

  6. brucewho says:
    September 7, 2008 at 7:29 PM

    This thing is going to be engineered right to the bottom. The engineering being cover for the fraudsters and banksters to exit with their bonuses and golden whatevers. I love how y’all groove on the techincal aspects. For me it’s quite amusing to watch the death spiral except we’re all on board. Even the Chineese think they can out smart these sharks. We’ll see who gets the last laugh. It sure won’t be me and you. I’m still looking for my cave.

  7. agnostic says:
    September 7, 2008 at 8:23 PM

    John -

    Lotsa Merrill/Lehman/Goldman etc. lawyers reading the fine print on those CDS contracts tonight, fo sho.

  8. Idaho_Spud says:
    September 7, 2008 at 10:18 PM

    John M,

    Let me be among the first to congratulate you on your prescience regarding Fannie and Freddie.

    If I recall correctly, shortly after you were asked to co-blog here, you asserted (with proof) that these entities were a systemic risk and would either be nationalized or require some form of government assistance.

    You took a lot of “tinfoil hat” type grief from commenters who apparently only like smiley faces in their lives, notably one Old Mike. Looks like you get the last laugh on this one, although its also a sad, preventable event.

    John, you da MAN!

  9. twist says:
    September 7, 2008 at 10:27 PM

    Idaho Spud-

    You have no idea how proud we at Doom are of John’s insight- also his modesty. John’s maturity and wisdom kept him from using the headline I would have picked for his post today, “Ha Ha! Told Ya!“

  10. h.pylori2 says:
    September 8, 2008 at 7:13 AM

    Twist #9

    John M needn’t brag…when you remain rational and analytical during the go-go periods (something I did not); you are laughing all the way to the bank! Well done John M…

    Anti-spam word…TRICKERY!!!

  11. John M. says:
    September 8, 2008 at 8:25 AM

    guys -

    Thanks for all the kind words :)

    I’m (fortunately!) tied up in post-retirement 1st year college courses and stuff Sunday to Wednesday until December so will only be dropping in occasionally.

    Any links to stories here or via e-mail to me or twist much appreciated — our time to look for stuff is going to be pretty short.

Comments are now closed.