Another weekend, another bailout, another market reaction:
How many Sunday press releases is it going to take to save the financial system from ruin? If you’re are keeping score at home, this is now the sixth Sunday night/Monday morning press release
in 14 months aimed at saving the financial system. Consider the recent history of these weekend rescues:
• August 2007, when the credit crunch was officially recognized by the Fed, when they cut the discount rate.
• December 2007, with the announcement of the TAF and other credit facilities;
• January 2008 Soc Gen panic, and a 75 bps emergency cut;
• March 2008 with the Bear Stearns bailout.
• July 2008 the first Fannie/Freddie rescue attempt
• September 2008 the actual Bailout of Fannie/Freddie
Five observations/questions/takeaways from the past of weekend rescues history:
1. A strong rally lasts for a while, but it eventually fades and makes a new lower low;
2. Each "rescue rally" has been shorter in duration and weaker in intensity than the immediately prior one;
3. Friday’s close becomes your new line in the sand; If and when that is breached, look out below.
4. The pre-Asian open news pattern reveals the Asset price focus is a large part of these issues; It also speaks to our overseas creditors/Overlords;
5. What form of free markets have we evolved into? It is not Capitalism, it is not Socialism, it is not intelligent regulation. WTF is this?!?
Lastly, who wants to bet me that this will be the very last bailout? Any takers? Any?
So much for a relaxing weekend! We spilled plenty of pixels on Fannie (FNM) & Freddie (FRE)this weekend, as did lots of other folks. What follows is all of the relevant commentary I could scratch together:
Here’s TBP recap:
• Fannie & Freddie Bailout: In terms of Conservatorship, Management, Shareholders, Mortgages, Legislation, Foreign Holders, Financial sector, Politics, Timing, & GSE Insolvency
All of the Treasury, Federal Reserve and FDIC news releases:
Treasury Department Reports (PDFs):
- FHFA Director Lockhart Remarks on Housing GSE Actions
- Fact Sheet: FHFA Conservatorship
- Fact Sheet: Treasury Preferred Stock Purchase Agreement
- Fact Sheet: Treasury MBS Purchase Program
- Fact Sheet: Treasury GSE Credit Facility
- Freddie Mac Warrant to Purchase Common Stock
- Freddie Mac Certificate
- Freddie Mac Senior Preferred Stock Purchase Agreement
- Fannie Mae Warrant to Purchase Common Stock
- Fannie Mae Certificate
- Fannie Mae Senior Preferred Stock Purchase Agreement
FDIC React to Takeover
Fannie Mae & Freddie Mac Shareholder Ownership, via MSN:
Treasury News Conference:
GSE Bazooka Fired Ticker Forum, Karl Denninger (Video)
Wall Street Research
First thoughts on the market impact of the Treasury’s GSE plan, Goldman Sachs (PDF)
Paulson Begins Gradual Wind-Down of GSEs within Conservatorship, Institutional Risk Analyst
What the Mainstream Media had to say:
Monday, September 8, 2008
Mounting Woes Left Officials With Little Room to Maneuver WSJ
U.S. To Take Over Mortgage Giants Fannie, Freddie NPR Audio
The Dilemma of Fannie and Freddie NYT
In Crisis, Paulson’s Stunning Use of Federal Power Washington Post
The How, Why and What Of Fannie-Freddie Plan MORNING BRIEF
Here are the official statements on the Fannie & Freddie bailouts:
Statement by Secretary Henry M. Paulson, Jr. on Treasury and Federal
Housing Finance Agency Action to Protect Financial Markets and Taxpayers:
Good morning. I’m joined here by Jim Lockhart, Director of the new independent regulator, the Federal Housing Finance Agency, FHFA.
In July, Congress granted the Treasury, the Federal Reserve and FHFA new authorities with respect to the GSEs, Fannie Mae and Freddie Mac. Since that time, we have closely monitored financial market and business conditions and have analyzed in great detail the current financial condition of the GSEs – including the ability of the GSEs to weather a variety of market conditions going forward. As a result of this work, we have determined that it is necessary to take action. (continued after jump)
-Treasury Department, September 7, 2008
Treasury Department Reports:
September 5, 2008
The Honorable Henry M. Paulson, Jr.
Secretary United States Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220
Re: Fannie Mae/Freddie Mac Restructuring
Dear Secretary Paulson:
We understand that a Treasury plan for Fannie/Freddie ("the GSEs") may be announced this weekend. We thought you might find useful some further thoughts on potential GSE solutions.
As you are likely aware, we had previously distributed a proposed restructuring plan for the GSEs. In that plan, under a prepackaged conservatorship, equity interests would be extinguished, subordinated debt would be exchanged for warrants, and senior debt would be exchanged for new senior debt and common equity in the newly recapitalized entities. The government would write a put to the new common equity holders which would expire in three years.
It appears, however, that the GSEs may need help more quickly, and conservatorship may not be triggered until the GSEs are formally determined to be undercapitalized. As such, in the event the government needs to inject capital immediately, we suggest you consider the following transaction ("the Transaction").
Jim McTague, a dyed in the wool Republican, is surprisingly negative on the McCain/Palin team. Recall that McTague forecast the GOP would retain both houses in 2006, based on a calculation relying on campaign fund raising. McTague sounds more like a Democrat than a Republican.
Note the discussion on bailouts at the end:
THE 2008 REPUBLICAN PLATFORM RELEASED at the party convention in St. Paul last week is a grandiloquent document, replete with Reaganesque calls for lower taxes, smaller government, and greater self-reliance. An honest librarian would file it in the fiction section.
I’m not a naïf. I appreciate that searching for candor among politicians is about as productive as shopping for a Rolex at the corner drugstore. All politicians make promises that they never intend to keep. You generally can wrest a straighter answer from 16-year-old teenager intent on deceiving you than you can from a campaigning politician.
Even so, this GOP document is so divorced from reality that it approaches parody. The authors should have penned the document in cuneiform, because it describes an ancient GOP, not the party of today.
One of the platform’s most monumental political principles is daily being trampled upon by the Bush administration, with the acquiescence of most GOP members of Congress. This is contained in a section devoted to the housing crisis that declares, "We do not support government bailouts of private institutions. Government interference in the markets exacerbates problems in the marketplace and causes the free market to take longer to correct itself. We believe in the free market as the best tool to sustained prosperity and opportunity for all…"
Democrats are depicted as the party of big, intrusive government, willing to "ignore fiscal problems while squandering billions on ineffective programs." The GOP, however, has no moral legs to stand on when it hurls such insults.
The Bush administration has bailed out Wall Street, and stands ready to bail out mortgage giants Fannie Mae and Freddie Mac — in the process abetting a slide into more intrusive government. If we are headed down the road to socialism, then the GOP can be credited with setting the pavers. (Emphasis added)
The GOP has lost its way.
Spinning a Grand Old Fantasy
MONDAY, SEPTEMBER 8, 2008 D.C. CURRENT