So Fannie and Freddie were taken over by the government yesterday. You’d think this would be done because the government thought they could run things better than the existing management. It sounded like that because, among other reasons, mistakes had been made:
There were reports that auditors called in by Treasury and FHFA had found accounting irregularities at the two firms and that their capital base was smaller than expected.
At first, Paulson had talked in terms of an equity investment in the two firms. But after the review, a full-scale takeover of the two firms was seen as the only option.
Clearly, this is a very significant regulatory action, and I know many of you will be concerned about how it will affect you and your work at Fannie Mae. I hope the following information will allay those concerns.First, your jobs are secure. There will be no change in your employment status with Fannie Mae as a result of the conservatorship. Your jobs, compensation, and benefits will continue without interruption.
And second, it is very important to us to do whatever we can to ensure that Fannie Mae’s operations and activities also continue without interruption. To help Fannie Mae return to financial strength, the Conservator will delegate authorities to Fannie Mae’s management to move forward with business operations. Your cooperation with Mr. Allison and the conservatorship team are critical to these efforts.
Some of you will be contacted directly by FHFA staff who will be at Fannie Mae to assist with the transition and answer any questions you may have. Rest assured that they are not there to do your jobs, but rather to facilitate the conservatorship, and ensure business is proceeding.
How fortunate for the employees of Fannie Mae that all of them are outstanding at what they do and all the blame for mistakes lay outside the company. Most organizations looking at a takeover like this would experience a major shakeup in personnel. But then, these organizations aren’t quite like any other, are they?
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Democratic presidential nominee Barack Obama said yesterday that “some” intervention was necessary to prevent a “larger and deeper crisis.” After the current crisis subsides, “the plan must move toward clarifying the true public and private status of our housing policies,” he said.
“We’ve got to keep people in their homes,” Republican presidential candidate John McCain said in an interview with CBS’s “Face the Nation” program. “There’s got to be restructuring, there’s got to be reorganization, and there’s got to be some confidence that we’ve stopped this downward spiral.”
AS I HAVE SAID, OVER AND OVER, FOR A LONG LONG TIME, WE ARE MOVING TOWARD A BAN ON HOUSING EVICTIONS. WHERE ARE THE MORAL HAZARD CREEPOS NOW?
As soon as an employer tells you that your job is secure, it’s time to bust out that resume and polish up those interviewing skills.
What about Sarbanes-Oxley?
Here is a kind of recent article from marketwatch on SOX.
http://www.marketwatch.com/news/story/sarbanes-oxley-turns-five-proponents-see/story.aspx?guid=%7B864E903B-7DED-4544-AD41-9DD5BFC5173E%7D&dist=msr_1
So, the government employees who are doing workouts in Detroit and Cleveland are getting paid more than the government employees flying CAP over Washington or manning the panels at SAC-NORAD and CENTCOM. Brilliant.
>>“We’ve got to keep people in their homes,”
>> Republican presidential candidate John
>> McCain said
If these people owe more on the mortgage than the home is worth, those houses or in no way, shape or form THEIR home.
Why does anybody want to protect the stupid segment of the public from their mistakes, at the expense of those more intelligent to get caught up in this mess?
Why? …because the real intention is not to save the public, despite what McCain says, but to save the fat cats and banks. Saving the public just so HAPPENS to be part and parcel of saving the rich in this case. You only need to look to other issues (eg. health care) to know that McCain et al doesn’t really care at all about the public.
MikeC -
Here’s a letters-of-fire quote on who’s getting bailed out. There’s still daylight between treasuries and agencies. Which is to say that next week Congress will consider raising the National Debt ceiling by $5.4 trillion
“A US government bail-out of foreign investors”, by John Gapper, FT blog, September 8, 2008.
Here is an article (pretty good read), about why the bailout of Fannie & Freddie will fail.
http://www.moneyandmarkets.com/Issues.aspx?NewsletterEntryId=2198
toysarefun (#8) -
That was pretty entertaining. Once again we see the footprints of the historic turnaround in foreign demand for agency debt.
“Why The Fannie-Freddie Bailout Will Fail”, by Martin Weiss, Money and Markets, September 8, 2008.
Doom first encountered Money and Markets more than two years ago when Weiss’ colleague Mike Larson put out a frantic early warning about “early payment defaults.” Seven months later HSBC’s Tom Zimmerman made a presentation at the AEI nailing just this phenomenon as what triggered the subprime crisis.
Money and Markets tends towards over-the-top fear mongering, but they do have a track record
Toysarefun-
I had thought before reading Money and Markets that to some extent, this bailout seemed like rebranding GSE debt as Treasury debt and wondered if it would work. After reading this, I’m even more convinced it won’t.
John: Nice job filling in the blanks with the Money and Markets link.
This whole scenario with buying and selling debt is crazy. Even school districts and municipalities bought CDO’s
For some reason, it keeps reminding me of musical chairs, and hot potato.
Thursday afternoon should be interesting; spreads better but … yikes!
“Fannie Raises $7 Billion in Largest Single Debt Sale”, by Jody Shenn, Bloomberg, September 10, 2008.
Igor says, “Unreal.”
First, your jobs are secure. There will be no change in your employment status with Fannie Mae as a result of the conservatorship. Your jobs, compensation, and benefits will continue without interruption.
WTF! So basically you ran one of the largest companies into the ground. Even after receiving tons of federal funds over the last few quarters. How are things going to improve as long as the same boneheads are making all the decisions. I thought most of the people there were on their way out.