FED to rescue Fannie Mae?

[flower]

About Fannie Mae

 

Fannie Mae provides stability, liquidity, and affordability to the nation's housing finance system under all economic conditions. We are a shareholder-owned company with a public mission. We exist to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market.

 

Fannie Mae has a federal charter and operates in America's secondary mortgage market to ensure that mortgage bankers and other lenders have enough funds to lend to home buyers at low rates. Our job is to help those who house America.

___________________________________________________________________________

 

A truncated overview for those not familiar with Fannie Mae and Freddie Mac. They are ultimately backed by the US Government.

 

Both have been in trouble for a year, and are seen as the ONLY hope to halt the US housing decimation.

 

Trouble is: Overnight they both plunged 17%.

 

So my question is: Is the NEXT problem for the FED?? How much longer will the world tolerate this eternal printing of US Dollars--or God Forbid---will the FED let them go bust?

 

[Livas1]

In reply to: flower on Tuesday 08/07/08 01:53pm

Hi flower

 

They plunged overnight because Lehman came out and said due to a change in accounting standards (FAS140) they may have to bring their off balance sheet debt (ie securitised assets) onto their balance sheetsÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ and therefore to maintain capital adequacy ratios the two will need to raise over US$75b in capital.

 

The word on the street is that as Fannie and Freddie are GSEÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s, they will be exempt.

 

Cheers

Livas1

 

[flower]

In reply to: Livas1 on Tuesday 08/07/08 02:04pm

Livas 1. Thats what I'm hearing also. HOWEVER: How many more financial disasters can this bunch of ............s rescue, ignore, brush aside etc.

 

At what point does the world say: Enough is enough. Already the ECB is putting intolerable pressure on the non US world to RAPIDLY increase interest rates to TRY and stave off their own acknowledged rampant inflation, whereas the US loonies simply carry on as nothing is wrong. We have no inflation they say.

 

It's beyond belief and comprehension.

[Livas1]

In reply to: flower on Tuesday 08/07/08 02:49pm

Hi flower

 

This came through this morning from one of the brokers. Its a summary of a report they produced. Interesting perspective...

 

Cheers

Livas1

 

 

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ Although the Federal Reserve and other central banks would like policymakers in emerging economies to lean against inflation, exchange rate arrangements make this quite difficult.

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ So isnÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t it time for a change? Well this could be a solution. But it is one that is unlikely to be favoured by the US and this is the tension that lies at the heart of the calls by the Federal Reserve for monetary tightening in emerging economies.

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ One unexpected change of recent years has been an improvement in the net international investment position of the US. The US still has more foreign liabilities than assets. But at a market value the ratio to US GDP has fallen markedly since 2002.

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ Given the massive current account deficits since then, this outcome is a surprise. The data certainly show huge inflows from foreigners into US securities, especially corporate bonds and equities. So what is the source of the improvement?

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ The answer lies in the sharp rise in the value of US investments in foreign securities. The value of foreign equity investments has soared since 2002.

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ A significant gap has opened up between the value of foreign equity investments in the US and US investments in foreign equities. This is one of the key reasons for the turn in US net foreign liabilities.

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ One factor is outperformance by foreign equity markets compared to US equities. But a big decline in the value of the $US has also done wonders to boost the value of foreign equities to US investors.

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ This is where the real advantage of the $US as the global reserve currency comes into play. $US weakness has not been accompanied by capital flight. While the private sector may be a bit wary, official investment has picked up the pace since 2002.

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ So the US can reap the advantages of a weak currency in terms of boosting its export performance and cutting its foreign liability exposure. Yet at the same time the US can easily attract capital despite underperforming asset markets and a falling currency.

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ No country would give up these advantages easily. But by tying many emerging market currencies to the $US, it makes it difficult for the necessary tightening of monetary policy in those economies.

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ The most likely outcome is that global inflation remains a problem for many years.

 

[Livas1]

Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) shares rebounded from 15-year lows, after the mortgage finance companies' main regulator said proposed accounting rules should not force them to raise more capital. The comments eased fears the companies' value would be diluted by a massive capital increase.

 

Fannie Mae shares rose 11.9 percent to $17.62 and Freddie Mac shares jump 13 percent to $13.46.

 

[flower]

In reply to: Livas1 on Wednesday 09/07/08 09:41am

Spin the wheel, no more bets. Black or Red? Casino it is!

[Danville]

In reply to: Livas1 on Wednesday 09/07/08 08:41am

 

 

QUOTE

Fannie Mae shares rose 11.9 percent to $17.62 and Freddie Mac shares jump 13 percent to $13.46.

 

Ha! Spin the wheel is right. Last night these two plunged 13% and 23%.

 

 

[cooma]

In reply to: Danville on Thursday 10/07/08 09:05am

Fannie Mae has always been a bellweather for the US economy !! Houston we have a HUGE problem.

 

Bail out by the Fed ! They didnt even see the train wreck comming .

 

I wonder if they see the next train wreck on their doorstop....Credit default swaps.

 

The Fed has very little ammunition now, : let being able to stop the 3rd train...Credit card defaults. http://www.sharescene.com/html/emoticons/thumbdown.gif

[Livas1]

I have read the Lehman report on Fannie and Freddie and they will not be required to raise that amount of capital to bring all those MBS on balance sheet.

[Livas1]

I should add that fannie fell overnight because the market thinks they are in trouble bc they had to pay 74 bps over UST for $3bn worth of 2 year notes.