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FED to rescue Fannie Mae?


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In reply to: Livas1 on Thursday 10/07/08 10:29am

Hi Livas,

 

But wasnt that big hike in spread due to market dis-regarding the false AAA rating on Fannie/Freddie, and pricing in more risk associated with the two companies...

 

I.e. like earlier this year market is dis-regarding the bogus ratings, and is pricing risk based on their own assessment, not on the assessment/ratings of Moodys, S&P etc...

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In reply to: thresher on Thursday 10/07/08 11:10am

Hi thresher

 

S&P still have a AAA rating on them with a stable outlook.

 

That Lehman Bros report states that Fannie Mae has $13B of excess capital net of their minimum capital requirements and Freddie Mac will also have $13b once it complets its $5.5b capital raising.

 

So I think, at this stage, the ratings are valid.

 

The cost of funding has blown out (as per the 2Y note issue overnight) which hits their margins.

 

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In reply to: Livas1 on Thursday 10/07/08 12:07pm

Freddie Mac will also have $13b once it complets its $5.5b capital raising.

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Livas, grave doubt must now exist concerning the ability of FM to raise one cent, let alone $5.5bn.

 

Apparantly world Central Banks hold masses of Mae/Mac paper, so youd think they cant be allowed to go bust.

 

But because in essence they are a private company whilst being backed by the FED if push come to shove the US Government may be forced to sort of nationalise them, apparantly should this happen the equity holders get NOTHING, but the Bond holders KEEP their assets safe, lets face it even GWB couldnt allow powerfull CB's to suffer such ignomy.

 

Apparantly between them they now hold 80% OF ALL US MORTGAGES---so imagine the dramas that may ensue for 80% of US Moms/Dads. Billions needed suddenly become TRILLIONS!!!

 

But--dont worry, Helicopter Ben and the intrepid Paulson face Congress tonight, their chosen adress subject: FINANCIAL MARKETS and REGULATION!!!!!!!!!!!

 

Meanwhile feast yourself on the chart of Freddie Mac.

post-37-1215657079.gif

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In reply to: Livas1 on Thursday 10/07/08 12:07pm

The cost of funding has blown out (as per the 2Y note issue overnight) which hits their margins

======================================================

 

L1

yield of 2y note droped and price went up over night.

 

correct me if i'm wrong!!

 

 

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In reply to: stezz on Thursday 10/07/08 04:36pm

Lawmakers in Washington may question Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson at a 10 a.m. hearing today about the financial health of the companies and whether they jeopardize the financial system.

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Stezz, THAT should make to night fascinating in the extreme, WHAT are those two comedians going to advise Congress about what should be done with 80% of the US families with a house mortgage.

 

Its IMPOSSIBLE to imagine a greater problem!!!!

 

Its been coming for 30 years---Time to bite the bullet?????

 

Then again maybe the question wont be posed by the worthy Congress.

 

Stay tuned for another days fun at Casino USA.

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Thanks for the article

 

A couple of points

 

While their assets are not enough to cover their liabilities, their liabilities arise over the next 30-40 yearsÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ so no issues there.

 

Secondly, the US Government are not going allow them to fail

 

Thirdly, all this talk about issuing at 74 over treasuries meaning that they are in trouble is sensationalising the issue. Issuers of RMBS borrow money at 250-300 bps over UST so if Fannie/Freddie need to borrow at 74 over it still gives then a significant NIM (Net Interest Margin).

 

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In reply to: Livas1 on Thursday 10/07/08 05:03pm

Livas, of course they cant be allowed to fail.

 

HOWEVER: What are the inflationary consequences for bailing out nearly all the US mortgagees? How many ADDITIONAL $trillion will need printing?

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