CHICAGO: Questions 67 & 68
Dear Spleen ~ I have a question for your readers:
Are you disturbed or relieved that this is what President Bush was doing yesterday afternoon after his Treasury secretary had just announced what could become the biggest bailout in world history?
Here's James Lockhart, Fannie and Freddie's chief regulator on March 19:The actions we're taking today make the idea of a bailout nonsense in my mind. The companies are safe and sound, and they will continue to be safe and sound.Morning Brief: U.S. government seizes Fannie and Freddie
Ending a summer of speculation, the U.S. government seized control of mortgage behemoths Fannie Mae and Freddie Mac Sunday in what it is calling a "conservatorship" arrangement.
"Based on what we have learned about these institutions over the last four weeks," Treasury Secretary Hank Paulson announced, "I concluded that it would not have been in the best interest of the taxpayers for Treasury to simply make an equity investment in these enterprises in their current form." (More from Treasury here.)
"Freddie and Fannie have been de facto nationalized, at least for awhile," former Treasury official Ted Truman explains. "This is not a permanent solution," says Bill Ackman of Pershing Square Capital Management. "[W]hat they've done is they've bought 15 months."
Bill Poole, former president of the Federal Reserve Bank of St. Louis, expects U.S. taxpayers to be on the hook for as much as $300 billion. "The coming series of events could end up as the biggest bailout in the history of the world," economist Tyler Cowen observes.
Foreign bond investors, who bought tens of billions of the two companies' debt in recent years, "breathed a sigh of relief." Shareholders such as Legg Mason, who are getting what in Wall Street parlance is a "haircut," did not. (Deal Journal tallies the winners and losers.)
So, what's next? "[T]here are likely to be further government moves ahead," predict Bob Davis and Jon Hilsenrath of the Wall Street Journal. But "the broader strains now facing the markets are not as easily relieved by central banks or governments," their colleagues Peter Eavis and David Reilly warn.
Paulson and James Lockhart, director of the Federal Housing Finance Agency, stressed that their actions were designed to strengthen the role of the two mortgage giants in supporting the nation's housing market. Both companies do that by buying mortgage loans from banks and packaging those loans into securities that they either hold or sell to U.S. and foreign investors.
foreign investors
foreign investors
foreign investors
foreign investors
Joel Grey & Liza Minelli in Cabaret
Money ~ 1972
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