In a move that was clearly aimed at preventing a market crash on Monday (or at least hoping it would prevent one), the Treasury Department issued their plan for Fannie and Freddie just moments before US futures trading began. In a rare Sunday announcement, the Treasury and the Federal Reserve issued a statement about how they will provide capital to Fannie Mae and Freddie Mac (see previous article for details).
It reminds us of the Sunday evening back in March, when the deal was announced on the Bear Stearns implosion. They issued their statement before trading began in the Asian markets, hoping to stem the bloodshed in the global markets. Tonight’s announcement clearly tells us that the conditions with Fannie and Freddie are much worse than they have admitted publicly. We have been writing about the dire situation with these companies, even though the official stance by the US Government has been ‘all is well’. The point is, if all is well, then why such drastic action this evening to provide these companies with a channel for funds? Hank Paulson says this move is to ‘restore confidence’ and the funds would be available should they need it. It is our view that they do need these funds. Otherwise, there would not have been high level Government meetings all weekend long devising a plan to provide a direct channel between Fannie and Freddie and our wallets.
How will this plan be perceived by the markets? Will it be successful? Is this only the first step to a full nationalization of Fannie and Freddie? If the plan backfires, then nationalization will be next. And what would make it backfire? If the housing market continues to decline (which we believe it will) and Fannie and Freddie have to continue rolling over the ‘loans’ they get from the Fed, then the issues facing Fannie and Freddie will be nothing compared to what could come next.
Initial market reaction to the news was a rise in S&P futures from 1240 to 1252. The US dollar index rose slightly and gold has held relatively stable. It is the price of gold that has me most concerned, for if confidence was truly felt to be ‘restored,‘ I would have expected to see some selling in gold. However, this has not happened yet. The rise in the S&P futures has a long way to go before the US markets open tomorrow and a lot can happen between now and then. Traders need time to digest and analyze this information. At this time the market is set to open higher tomorrow, but it is very important to mention that this news is being interpreted differently by many people. Some think it is a short term fix, some think it will lead to further erosion of the entire housing market, and many just don’t know what to make of this action yet. So the market may very well open higher tomorrow and then quickly sell back down. The scenarios for the market tomorrow are many.
Hank Paulson said that any credit line or stock investment ‘would carry terms and conditions to protect the taxpayer’. Until we know what those terms are, the risk to the economy is not fully known. Going back to the Bear Stearns bail out: the Government took possession of $29 Billion in collateral from the now extinct Bear Stearns company. We don’t know the risk to the US taxpayers, because the portfolio of that collateral is ‘classified information’. So no one, except for the Federal Reserve, Hank Paulson, a few members of Congress, and the President know what the taxpayers have paid for. You and I are left in the dark intentionally. Will the terms and conditions for this new bail out be kept ‘classified’ or will those of us paying for this get to know what it is?
It is ironic that the Government has been calling "shame on you" to lenders that have been providing mortgages without properly checking the facts. They have also been saying that the American people need to fully understand loan documents before they sign them (referring to how some people feel they were duped into mortgages they couldn’t afford).Yet, here we are being forced into paying for something that the US Government won’t even divulge the details of, and we are being forced to "sign the check" blindly, on the faith that the US Government is doing the right thing.
I don’t know about you, but I want to call my bank and issue a "stop payment" on that check.
Recent Posts:
- Taxpayers to the Rescue of Afghanistan Banking Crisis?
- Economic Data and Earnings Schedule for September 2 2010
- Christina Romer Makes a Final Recommendation Before Leaving To Teach Keynesian Economics
- Homebuilder Hovnanian (HOV) Reports Dismal Quarter
- Auto Sales Data for August 2010
- Stock Market Rewind – September 1, 2010
Great intervention Ben and Henry, let’s not tell everyone what’s really going on. Let’s let everyone think that we can fix the problems with our lying, cheating and stealing.
I dumped most of my shorts last week. Looking to reload this week if there’s a nice bounce, thanks Henry and Ben. This may be the last bounce before the cliff diving begins??
Can we rename “Fannie Mae”,once we the taxpayers are on the hook for her debt? My suggestion is “Enola Gay” Of course Freddie could be called “Fat Boy”
Hank the IDIOT said couple days ago – there is no need for any special help for them, let’s keep it like always… standard… and his statement just killed them… And now they really need it… Can you see how dangerous these guys are? I don’t fucking believe it is an accident… they are manipulation markets and people to be allowed for such as action like nationalisation… beware of them… the era of real socialism is comming into USA..
It’s hilarious watching futures going nuts this morning on the news that Paulson will singlehandedly save the free world. S/b a fine day to lock and load on some new shorts.
Let us not forget that Paulson is a humble, modest, poor, champion of the people— “He joined Goldman Sachs in 1974, working in the firm’s Chicago office. He became a partner in 1982. From 1983 until 1988, Paulson led the Investment Banking group for the Midwest Region, and became managing partner of the Chicago office in 1988. From 1990 to November 1994, he was co-head of Investment Banking, then, Chief Operating Officer from December 1994 to June 1998; eventually succeeding Jon Corzine (now Governor of New Jersey) as its chief executive. His compensation package, according to reports, was US$37 million in 2005, and US$16.4 million projected for 2006. His net worth has been estimated at over $700 million.”(Source: Wikipedia)
”his net worth has been estimated at over $700 million.â€(Source: Wikipedia)”
there are some people that say that the Ben and Hank show is borne of stupidity,
in reality these guys knew what would happen, and know what will happen.they are crooks plain and simple.
This is soooo amazing! I wonder how “turning the printing presses up to full speed” is considered “bullish”. PPT in action it seems. This is a regular riot “Alice”. Well, as we already know, whatever rally happens, will more than likely fizzle as things continue to erode backstage in their little drama. Stars of the show include Uncle Ben and Hank Paulson with production services by various Wall Street clans. Catering by Federal Reserve, Inc. As for Paulson and the gang, one has to wonder (I don’t) how these people amass rather large fortunes while in “public service” honorably. Level playing field….really now…best keep some silver and gold.