Posts filed under “Taxes and Policy”

End of Illusions for GSEs

This is the single best piece I have read to date on Fannie Mae (FNM) and Freddie Mac (FRE) via the Economist:

"After a headlong plunge in the two firms’ share prices (see chart 1), Hank Paulson, the treasury secretary, felt obliged to make an emergency announcement on July 13th. He will seek Congress’s approval for extending the Treasury’s credit lines to the pair and even buying their shares if necessary. Separately, the Federal Reserve said Fannie and Freddie could get financing at its discount window, a privilege previously available only to banks.

The absurdity of this situation was highlighted by the way the discount window works. The Fed does not just accept any old assets as collateral; it wants assets that are “safe”. As well as Treasury bonds, it is willing to accept paper issued by “government-sponsored enterprises” (GSEs). But the two most prominent GSEs are Fannie Mae and Freddie Mac. In theory, therefore, the two companies could issue their own debt and exchange it for loans from the government—the equivalent of having access to the printing press…

This model was based on the ability of investors to see through one illusion and boosted by their willingness to believe in another. The illusion that investors saw through was the official line that debt issued by Fannie and Freddie was not backed by the government. No one believed this. Investors felt that the government would not let Fannie and Freddie fail; they have just been proved right.

Oh, and it gets worse . . .


End of illusions   
The Economist, Jul 17th 2008


Category: Bailouts, Credit, Real Estate, Taxes and Policy

Economic Witch Hunt

Interesting discussion:

"The political establishment is embracing a time-honored response to the nation’s economic turmoil. It’s going on a witch hunt.Politicians of all stripes worry that improper trading by short sellers has contributed to turmoil in the stock markets. And "excessive" oil traders have replaced oil-company executives — themselves twice keelhauled by congressional committees this year — as the bogeymen behind the run-up in gas prices.  For Washington veterans, the sharpened attacks are the incarnation of a standard political trope, one found especially in election years"

Economic Woes Get a Fix: Witch Hunt
WSJ, July 19, 2008; Page A3

Category: Markets, Taxes and Policy, Video

Bailout Nation: Treasury, SEC on Bailouts

I did three segments Tuesday on Yahoo Tech Ticker at the Nasdaq: 

Here is the last, on Bailouts, Fannie & Freddie:

Click for video

Bailout Nation: Paulson, Cox, Shorts Weigh in On Fannie, Freddie
Aaron Task
Yahoo Tech Ticker, Jul 15, 2008 07:00am EDT,FRE,GM,TM,%5EDJI,%5ESPX,XLF

Category: Bailout Nation, Books, Credit, Federal Reserve, Taxes and Policy, Video

Ethanol DeathWatch Map

Category: Commodities, Energy, Taxes and Policy

A Nation of Whiners? No, Just Wall Street Beggars

Category: Bailouts, Credit, Derivatives, Markets, Taxes and Policy

Idiots Fiddle While Rome Burns

Category: Credit, Derivatives, Federal Reserve, Politics, Taxes and Policy

Quote of the Day: Bailouts

Category: Politics, Taxes and Policy

Whining US CEOs: Economy is “Dismal”

Category: Economy, Employment, Psychology, Taxes and Policy

CEO Sees Dismal Economy (Bunch of Whiners!)

CEOs portray a gloomy forecast for the US Economy, according to a new survey by Chief Executive Magazine:

Category: Credit, Economy, Taxes and Policy, Video

Fannie & Freddie Heading for “Conservatorship”

Category: Credit, Real Estate, Taxes and Policy