Wow… It’s a brave new world.
Everyone expected this, Gross called Paulson out earlier in the weak. Rumor has it that Morgan Stanley was to be involved in more than advisory role… the scope of the all but killed that idea. Network, Network, Network… you’ll never know how it will save your hide.
Sure. Everyone expected it except the stock that is going to be worthless closed at $4 or something on Friday.
some of the reports are saying common and preferred will be worthless. i doubt it. The wash post says common will be diluted (probably highly diluted imho) but the preferred will be spared. http://www.washingtonpost.com/wp-dyn/content/article/2008/09/05/AR2008090503351.html?hpid=topnews "The value of the companies’ common stock would be diluted but not wiped out, while the holdings of other securities, including company debt and preferred shares might be protected by the government. " - Washington Post Wash Post knows almost nothing about business but they do have great sources in DC.
HIG, for example, has around $400 million of FRE and FNM preferred exposure. This is in addition to the billions of sub-prime and CMBS portfolio. Given the widening of the CMBS spreads and the drop in the ABX, in addition to GSE preferred becoming worthless, some big names in the insurance sector are looking ripe to contribute to the financial miseries.
WOW - WHAT A SHOCKER - YOU MEAN TO TELL ME CONGRESS HAS GIVEN TAX PAYERS THE SHORT END OF THE STICK…AGAIN? This is pathetic that CONgress has gotten on its knees to suckk off Gross, Paulsen and his henchmen, China and other Foreign Central Banks because they threatened economic warfare against the U.S. government. Yes, all the aforementioned characters have basically said to the U.S. government, that unless you tax YOUR CITIZENS, we will no longer fund you or the GSEs. WAKE UP PEOPLE - the U.S. government and all affiliated parties are committing TREASON right under the U.S. citizens’ nose. As I stated in the past, the GSEs are entities who have done nothing but ROB ordinary Americans of their dream to own affordable housing. They provided a massive liquidity backstop for housing speculators that resulted in an orgy of mortgage fraud, appraisal fraud, stratospheric house prices, and an expansion of credit that has wiped out any real purchasing power the American public once had, all the while the GSE executives have reaped millions by building the biggest hedge fund known to man kind. All the entities have done is given “investors” an extra yield at the expense of the tax payer, because the implicit guarantee is now going to become explicit, even though the front page of each agency prospectus contains the phrase “NOT guaranteed by the Government of the United States of America.” Paulsen, Congress, Bernanke, Greenspan, Gross, and last but not least the REPUBLICRATS all say they support the bailout of the GSEs or the bailout of the GSEs needs to happen because they are “TOO-BIG-TO-FAIL” I’m still waiting for an intelligent answer as to why people, not the aforementioned swindlers, agree that these entities are “TOO-BIG-TO-FAIL” The United States government and any affiliated entity disgust me. Welcome to the Socialism and the end of free markets. Tax payer fraud is now institutionalized. The more I age, the more I read, the more I get educated, the more I know that sovereign patriotism is a farce and even though I’m an American citizen, I’m proud to say I’m NOT for America.
now, now cfa_gremlin, why should common sense stand in the way? Privatize the profits, publicize the debt - true gse model…
no big deal - if US tax-payers bail out LTCM, Bear, etc they’re gonna bail out anyone! GSEs were the first great off balance sheet funding vehicles - to get the liabs off US balance sheet - was always gonna have to bring it back on balance sheet some day. The whole idea of tax-payers backing home mortgages and bank deposits (FDIC) was crazy and was always going to lead to misallocation of resources, reckless lending, etc. It was only a question of when, not if…
and hopefully China will keep buying up more US bonds…just go back cap-in-hand and say: “please china, can I have some more?” (appologies to Dickens)
Ok, I’m going to admit it out loud here. I work for one of the GSEs and am paid extremely well to do so. In my defense, I work for the multifamily division and we’re making more money this year than, well, maybe any multifamily firm–ever. So we’re carrying our weight. And here’s what I’ve come to believe based on what I know: 1.) The GSE model is truly absurd. Either they need to be public or private. You have no idea the kind of contradictory things we have to do to both 1) make profit and 2) meet affordable housing targets. Multifamily affordable housing is actually profitable–very profitable–but single-family is rarely profitable. In fact, some of the loans we were forced to buy by policy mandates (almost entirely from the Democrats) have a 50% default rate. 2) I disagree that the senior managers are the profit-taking bad guys. Most FRE and FNM senior managers could be making a lot more at REITs, hedge funds, IBDs, PE firms, etc. I’ve been in a lot of meetings with senior managers (I think there are 35 VPs) and some of those guys have been at the firm for decades. I’ve seen near tears. A lot of emotion. I don’t believe there was fraud–just a lot of bad decisions. These guys genuinely care about the company and about the people. Most of the senior managers have taken huge personal losses as they own a lot of stock and are subject to the same buy/sell window as anyone else. 3) My GSE purchased almost no subprime debt. It’s an abject lie that we were taking on clearly inordinate risk. Looking back, it’s clear that was the case, however. 4) The senior managers lied to the company for months. They’ve been telling us that everthing is fine and no one is being taken over and discussions weren’t happening. That simply was not true. 5) I disagree 100% with the cfa_gremlin. YES! The GSEs are too big to fail. The GSEs are involved in 70% of single-family loans today and about 90% of multifamily loans. And the GSEs own about $5 trillion in liabilities, or about half of the U.S. housing market. If they failed, we’d be heading into a depression of epic proportions as liquidity in the United States would cease to exist. Look, I’m a conservative Republican–politics is my passion–but this is one situation where, in the present, you can’t let your ideology blind you to reality. 6) I AGREE 100% with cfa_gremlin. Now, going forward, the GSEs should be given a huge cash infusion from the gov’t and split into a half dozen or so fully private firms and split further into multifamily and single family divisions. With the incredible bureaucracy I deal with every day, I can tell that economies of scale have been exhausted by the enormity of the firms. The inherent problem with the existence of the GSEs is that they are simply social engineering firms–a way for the gov’t to encourage people to be homeowners, many of who should never see the light of day of a loan. The gov’t has no business at all in the housing business. This is just another example among dozens of how the gov’t ruins almost everything it touches, which is fundamentally why I am a conservative.
kkent - thanks for the insight - good to have an inside view of things - we need more facts and informed comment on this board! - with your political/philosophical view of the world, what are you doing in a GSE? - I wish you every success in your career in whatever comes out of this mess cheers (surely it’s “beer-o’clock” over where you are!)
null, I’m there 'cause I work in real estate and was laid off. Wanted to continue in such a capacity and was offered double the money I was making before. Money money money. And I have a sexual commute (across the street).
Bad for the common of FNM and FRE, they will be worth nothing. Bond holders will be made whole and the missing peice is whether the preferred will be made whole or not. People dont understand how important this is that the bonds and prefferred be made whole because if they are not all the banks that hold this paper will be forced write it down further so it would further erode book values. I think the rumor is the preferreds are going to be made whole thats why you are seeing all the financials rally after hours.
- it’s a bit of a worry that Greenspan is offering “solutions” - Helllllllooooooo! you’re either part of the problem or part of the solution - now go away already! kkent - no harm you going to a GSE - if they pay you double it’s pretty hard to knock it back - now they need skilled, experienced people like you to stick around and help in the work-out - good luck
“5) I disagree 100% with the cfa_gremlin. YES! The GSEs are too big to fail. The GSEs are involved in 70% of single-family loans today and about 90% of multifamily loans. And the GSEs own about $5 trillion in liabilities, or about half of the U.S. housing market. If they failed, we’d be heading into a depression of epic proportions as liquidity in the United States would cease to exist. Look, I’m a conservative Republican–politics is my passion–but this is one situation where, in the present, you can’t let your ideology blind you to reality.” kkent - we are heading into a depression anyway. FNM and FRE are only a PART of this credit orgy that is now bursting at a rapid pace. The GSEs only started being a massive part of the housing market since 1999 or so, so why do you say that liquidity in the U.S. would cease to exist? You mean the overbloated liquidity CAUSED by the GSEs that has resulted in rampant inflation on a GLOBAL scale. They are NOT too big to fail. They’re only too big to fail for the swindlers on Wall Street and D.C. History tells us that government intervention only postpones the inevitable and makes the inevitable worse down the road, So I ask again, why are the GSEs too big to fail when mathematics proves that they have done nothing to make housing more affordable for Americans? In fact, all they have done is initiated this epic housing bubble and wiped out real purchasing power for the Average American. You say to split the GSEs into private companies. I agree as long as the government doesn’t guarantee any of the existing GSE debt. “I disagree that the senior managers are the profit-taking bad guys. Most FRE and FNM senior managers could be making a lot more at REITs, hedge funds, IBDs, PE firms, etc. I’ve been in a lot of meetings with senior managers (I think there are 35 VPs) and some of those guys have been at the firm for decades. I’ve seen near tears. A lot of emotion. I don’t believe there was fraud–just a lot of bad decisions.” So you feel sorry for them that they were incompetent and didn’t understand the risk and idiocy of leveraging themselves 70+ to 1 and buying Alt-A mortgages as investments thereby adding more liquidity into the system and feeding housing speculators? They shed a tear when they took in mid 6-figure salaries while the republic crumbles in foreclosures? Boo hoo. Sorry but I say FAHCK THEM.
“People dont understand how important this is that the bonds and prefferred be made whole because if they are not all the banks that hold this paper will be forced write it down further so it would further erode book values.” Gadzooks. It would break my heart if the taxpayers didn’t bail out large banks who bought preferred stock. In fact, I think it’s important that we run up debt for my children to pay so we don’t have any more bank failures. Maybe we should cut Medicare spending to pay for it because my mother-in-law doesn’t need those meds anyway. Maybe we should just tax wage earners a little more.
Bondholders should get a haircut. THEY DESERVE IT!
Tone it down Gremlin. I don’t think there are many responsible people who think the right thing to do is just let the GSE’s crash and burn. If we want lessons of history, it’s not “government intervention only postpones the inevitable” which even as a huge generalization doesn’t seem true. History tells us that a decent role of gov’t is to collectively mitigate disasters. In this case, it means bringing the GSE’s to as soft a landing as possible. This is going to be a tough one to solve and the bleeding is not close to over. While we’re going through this, we need to think about the proper role of collectively distributing risk. Gov’t backing of agencies has contributed an enormous amount of liquidity to home financing. Liquidity is an unmitigated good thing. Bad intermediation leading to excessive risk is a bad thing. Let’s not throw out the baby with the bath water.
cfa_gremlin, that’s more misinformation. Alt-A loans were purchased by FRE and FNM, but were only a VERY small percentage of their books. The overwhelming majority of the portfolio consists of standard, credit-worthy loans. The problem is that the housing market has fallen around 20%, and caused billions of dollars of ACCOUNTING losses. Because of these ACCOUNTING losses, the GSEs have had trouble reaching the requisite capitalization required by its government regulator, OFEHO. It’s an utter myth that FRE/FNM took on a large number of risky loans. In fact, it’s an outright lie. Any risky loans taken on by the GSEs were almost certainly due to government affordable housing mandates, and these risky loans were basically immaterial relative to the size of the portfolios. I don’t know how you can possibly say that the nation would be better off presently if the GSEs all of a sudden disappeared. You understand the reason that they have 90% of the multifamily business, for example, is because their private competition is non-existant after the bloodshed of the last year. I challenge you to find a finance job in real estate right now. The GSEs’ competition has either gone out of business, refuses to take on any more debt, or doesn’t have the capacity to issue more debt. If tomorrow the GSEs disappeared there isn’t some magical replacement for them. THERE WOULD BE NO DEBT LIQUIDITY IN THE RESIDENTIAL MARKETS. There is at least $10 trillion in housing assets in the U.S. that would automatically lose, I don’t know, half of their value. It would be virtually impossible for even creditworthy people to get loans. Who do you think banks and other lenders sell their loans to en masse? The GSEs. It would cause countless millions of foreclosures and many cities and towns would turn into ghost towns within months and there would be thousands of bank closures for which the FDIC wouldn’t have the capacity to insure. There is no easy solution, but the worst idea is to immediately dissolve the GSEs and let the private sector immediately take over. Because there is no private sector.