(US) Government not expected to help more companies (other than Freddie and Fannie ...)

[UpInArms]

Source: Associated Press

NEW YORK - The U.S. government is signaling it won't throw a lifeline to struggling financial companies — except for mortgage linchpins Fannie Mae and Freddie Mac — marking a shift to a new and potentially more volatile phase of the credit crisis.

Such an approach could mean beaten-down investment banks like Lehman Brothers Holdings Inc. and regional banks must now fend for themselves as they try to recover from billions of dollars in mortgage-related losses — unlike Bear Stearns Cos., whose buyout the government helped orchestrate in March. That is bound to unnerve an already turbulent Wall Street and make investors even more anxious as they await financial companies' earnings expected to be down a stunning 69 percent from a year ago when all the numbers are in.

<snip>

The short-term uncertainty about Freddie Mac and Fannie Mae — which together hold or guarantee half the nation's mortgage debt — was to an extent relieved on Sunday. Federal officials again threw their support behind the government-sponsored enterprises; the Treasury pledged to expand its current line of credit to the two companies and Treasury Secretary Henry Paulson also said the government could, if needed, buy equity capital in the companies, whose stocks lost half their value last week. The Treasury's moves would require congressional approval.

Meanwhile, the Federal Reserve said it will provide additional loans if needed.

But some of Wall Street's biggest investors believe there was another message in the government's announcement — the rest of the financial sector seems unlikely to get a helping hand. Global banks and brokerages have already written down nearly $300 billion in soured mortgage investments — a number projected to ultimately reach $1 trillion.

"The credit crisis has obviously entered into a new phase — the government has one bailout left in them, and this is it," said Jeffrey Gundlach, chief investment officer of TCW Group in Los Angeles, which invests $160 billion.

Read more: http://news.yahoo.com/s/ap/credit_crisis_new_phase

---

one bailout left - and then the whole ship sinks quickly beneath the huge waves of debt

:hide:

[Doremus]

1. Unfortunately they won't reveal the names of the 90 banks on their watch list.

I guess I'll pull everything out and buy gold and silver.

Hell if I know what else to do.

Tin can in the backyard?
Cash in the mattress?
Burn it in the fireplace for heat this winter?

[Dr.Phool]

3. Nice guy that I am, I'm willing to hold it for you.

I'll even pay you a little interest.

And, I'm trustworthy, just ask my uncle. He's a financier in Nigeria.

[tekisui]

2. I heard that to bail out Freddie and Fannie would cost in the Trillions of dollars.

[paparush]

6. Fannie & Freddie hold or guarantee $5 TRILLION of mortgage debt.

That's half the outstanding mortgage debt in the US.

http://biz.yahoo.com/ap/080713/mortgage_giants_crisis.html

Edited to add link.

[Tutonic]

4. Well that is what they said after they bailed Bear Stearns. And

that lying Bernake said yesterday that Freddie and Fannie should not be looking for a bailout. So what changed during the last 24 hours? Bernake and Paulson should take this show out on the road where they can face real people--who have lost their life savings from trusting these large mortgage lenders. There must be a really dank corner of Hell reserved for these two bed in a bag losers!

[Robeson]

5. So, I'm going to assume the Pentagon will agree to a budget cut in order...

...help out with this domestic crises...

[soothsayer]

7. the pentagon could find the $3 triliion they admitted to losing on sept 10, 2001

somehow we all forgot rumsfeld told us that the very next day. I ferget what distracted us. so if they find the $3 trillion that the pentagon's accountant, some actual rabbi, lost---that would be a step in the right direction.

[paparush]

12. Excellent Point Robeson...."we must all make sacrifices in these trying times.."

[paparush]

8. Government not Expected to Help More Companies

Source: AP

Government pledges support for Fannie, Freddie; but banks, brokerages might be left to founder

NEW YORK (AP) -- The U.S. government is signaling it won't throw a lifeline to struggling financial companies -- except for mortgage linchpins Fannie Mae and Freddie Mac -- marking a shift to a new and potentially more volatile phase of the credit crisis.

ADVERTISEMENT
Such an approach could mean beaten-down investment banks like Lehman Brothers Holdings Inc. and regional banks must now fend for themselves as they try to recover from billions of dollars in mortgage-related losses -- unlike Bear Stearns Cos., whose buyout the government helped orchestrate in March. That is bound to unnerve an already turbulent Wall Street and make investors even more anxious as they await financial companies' earnings expected to be down a stunning 69 percent from a year ago when all the numbers are in.

And, for consumers already squeezed by tightening credit standards, it could mean getting a mortgage will become even harder.

Read more: http://biz.yahoo.com/ap/080713/credit_crisis_new_phase.html

---

Where does the Fed draw the line in the sand?

[PDJane]

9. Where the interests of their friends stop. eom.

[Deja Q]

10. Aren't Fannie and Freddie ran partly by the government?

[paparush]

11. Started by the govt, but now publicly owned

Fannie was created by the government in 1938 to provide more Americans the chance to own a home by giving financial institutions an outlet to sell mortgage loans they originated, freeing more cash to make more home loans. It moved from government to public ownership in 1968 and Freddie was started two years later.

[KoKo]

13. You might like this article:

What Do Fannie Mae and Freddie Mac Do?

March 10, 2003

"What are Fannie Mae and Freddie Mac, and what do they do?"

Fannie Mae and Freddie Mac are "government-sponsored enterprises" (GSEs). This means that they are privately owned, but receive support from the Federal Government, and assume some public responsibilities.

The GSEs provide a secondary market in home mortgages, purchasing mortgages from the lenders who originate them. They hold some of these mortgages, and some are "securitized" -- sold in the form of securities which the GSEs guarantee.

The two GSEs today are among the largest corporations in the world.

What mortgages do the GSEs purchase?

"Conforming mortgages" as they are called consists of all home mortgages that meet the underwriting requirements of the agencies, and are no larger than the largest loan the GSEs are allowed by law to purchase. In 2003 the maximum was $322,700. It is raised every year in line with increases in home prices. The mortgages the GSEs can purchase account for roughly 80% of the conventional (non-FHA/VA) home loan market.

What kind of support do the GSEs receive from Government?

The major support consists of the credit lines with the US Treasury. This, along with their histories -- both were public institutions before they became privately owned -- mark them as having a special claim for Government assistance in the event they ever get into financial trouble. As a result, investors consider the notes they issue and the mortgage securities they guarantee almost as good as securities issued by the Federal Government itself.

Do the GSEs have competitors?

Not in the conforming loan market. Because of their Government backing, the GSEs can sell notes and securities at a lower yield than any strictly private secondary market firm. This gives them a monopoly -- or rather a duopoly, since there are two of them -- in the market in which they operate.

The GSEs do have emulators, however, in the non-conforming market. While the cast of players changes, at any one time there are usually 15 or more strictly private firms that purchase non-conforming loans and securitize them in much the same way as the GSEs.

"Why do two private firms receive Government support, while the others don’t?"

The Government did not select the two firms for special treatment. Both the GSEs began as Government entities, and the major objective in privatizing them (while retaining Government support) was to encourage development of a private secondary market. The other firms arose later, based on the GSE model, so that objective was achieved.

If the objective was achieved, why do the GSEs continue to receive special support?

The GSEs are unwilling to give it up, and they have become so powerful politically that they have managed to thwart the several attempts that have been made to take it away.

Do I have anything at stake in this issue?

If you are a potential borrower eligible for a conforming loan, your interest rate will probably be about 1/4% lower than it would be absent the GSEs. This reflects their relatively low funding costs, part of which is passed through to borrowers.

In addition, if you are a low or low-to-moderate income borrower, and/or reside in an underserved area, you might find a loan through a GSE. As part of their public responsibility, the GSEs commit to purchase specified numbers of such loans. How many would not be made without the GSEs, however, is not clear.

As a taxpayer, on the other hand, you have a cause for concern. The low borrowing costs of the GSEs is based on implicit Government backing for their $3+ trillion of debt and guarantees. If the GSEs ever have a financial disaster, the Government will have to bail them out and you and I will be on the hook for the cost.

"Is anybody regulating the GSEs to prevent such a disaster?"

A few years ago Congress gave that responsibility to the Department of Housing and Urban Development (HUD). Very few informed observers believe that HUD is up to the task.

"Is there a way to eliminate the risk of a financial disaster by removing Government support without hurting investors who rely on that support?"

It could be done by 1) revoking the credit line the GSEs now have with the Treasury, and b) providing an explicit Federal guarantee of all debt and GSE guarantees outstanding on the date the credit line is revoked. An explicit guarantee on the old claims would prevent any repercussions in the financial markets, yet put the markets on notice that news ones are not guaranteed. Over time, the volume of guaranteed claims would gradually decline.

Copyright Jack Guttentag 2003

[abelenkpe]

14. Seems like a bandaid

Of the over 5 trillion mortgages Fannie and Freddie have, some have estimated that only 300 billion are troublesome. So the cure is 15 billion from the Treasury? Seems like the real estate market will still be frozen though since wages don't support current prices without exotic financing. So who makes out here? This bailout doesn't appear to be aimed at keeping homeowners in their homes. And prices of homes will continue to slide until wages can support traditional conservative mortgages, so homeowners relying on equity are still out of luck. Is this just to protect investors? I read that China and Russia and several large funds like Fidelity are heavily invested in Fannie and Freddie. I dunno. It doesn't make sense, and it seems like too little money to prop up such a big problem. A problem that without a real solution to the wage/price gap could potentially just continue to grow requiring even more money to bailout. What do you guys think?

[JawJaw]

15. Don't Panic!!

"BIG GOVERNMENT"

will be there (yet again) to bail out these private companies.

Funny how Big Government has its uses, after all....


Can't have things getting too bad just before the election, can they?

[Hugin]

16. Just stopped by to see if the cheerleaders had arrived, yet...

Hollering about how Bear Stearn IndyMac this latest Freddie Fannie fiasco is teh bottom!!!

Hmm... More stuff done late on a Sunday. (Note to self: They've started Sunday news dumps.)

I dig those pom-poms.

:hi:

[lse7581011]

17. Had To Get Up Early To Get in Line

at the bank!