Taxpayers: Get Ready to Pay for the “Fred-Fan” Bailout

Wednesday’s news of Freddie Mac‘s continued financial turmoil came as little surprise to most. Both of the mortgage-buying GSEs — Fannie Mae & Freddie Mac — are in challenging circumstances that have the companies looking at all possibilities to help address the financial morass they have both fallen into as a result of the mortgage/credit bust.  Freddie has more real estate properties in foreclosure now than it has at any point in its history (40 years).

The silver lining in this mess may be greater transparency and tighter governance for the GSEs. Congress appears to be considering additional federal regulations and some changes in oversight to better ensure the taxpayers don’t become the perma-backstop of these publicly-owned entities.

Fasten your seat belts! This ride could be a bit bumpy.


Stocks Rise, Even as Freddie Drops


August 6, 2008 4:53 p.m.

U.S. stocks rose as commodities stocks like Freeport McMoran Copper & Gold broke their recent fall, and despite another capital-shortage scare for Freddie Mac and Fannie Mae.

All three of the major indices are at their highest levels since June 25. The Nasdaq had its biggest two-day gain since the two days that ended July 17.

Fears that the spread of defaults and sliding home prices would bring about a government takeover of Freddie Mac and Fannie Mae brought the stock market to its lowest point of the credit crisis in mid-July. Wednesday, Freddie and Fannie sold off on a day when most stocks rose.

Shares of Freddie Mac, the smaller of the two providers of liquidity to the U.S. mortgage markets, fell 19% to $6.49, within $1.25 of its lowest close in more than 17 years, which was recorded on July 15. Freddie’s second-quarter loss of $821 million missed even the pessimistic Wall Street forecast, and it disclosed that it may fail to meet the capital requirements set by its federal regulator.

Freddie Posts Loss, Cuts Dividend as Slump Deepens

By Dawn Kopecki – Bloomberg.com

Aug. 6  2008-(Bloomberg) — Freddie Mac, the U.S. mortgage-finance company hobbled by record foreclosures, slashed its dividend at least 80 percent after posting a quarterly loss that was three times wider than analysts’ estimates.

Freddie dropped as much as 17 percent in New York trading and the larger Fannie Mae declined 14 percent on mounting concern that the government-chartered companies will sacrifice shareholders to bolster capital and avoid a bailout by the Treasury. Freddie doubled its reserves for future home-loan losses to $2.8 billion, signaling Chief Executive Officer Richard Syron sees no end in sight to the worst housing slump since the Great Depression.


Pimco’s Bill Gross Comments on the Future of Fannie & Freddie


3 Responses to “Taxpayers: Get Ready to Pay for the “Fred-Fan” Bailout”

  1. August 12, 2008 at 5:41 pm

    I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you down the road!

  2. August 14, 2008 at 8:27 am

    Your blog is interesting!

    Keep up the good work!

  3. 3 Paul N.
    September 21, 2008 at 2:06 am

    Lauren … here’s some interesting information from a recent episode of Bill Moyer’s Journal on PBS …

    “During the last five years of his tenure as CEO of Lehman Brothers, Richard Fuld’s total take was $354 million. The current chairman of Merrill Lynch, who’s been on the job just nine months, pocketed a $15 million signing bonus. His predecessor, Stan O’Neal, retired with a package valued at $161 million after the company reported an 8 billion dollar loss in a single quarter. And remember Bear Stearns chairman James Cayne? After the company collapsed and was up for sale at bargain prices, he sold his stake for more than $60 million. And the former heads of Fannie Mae and Freddie Mac, the gods who failed, are fighting to keep severance packages of close to $24 million combined on top of the millions in salary each earned last year while slaughtering the golden calf. As it is written in the gospel according to me first, when the going gets tough, the tough get going.”

    BTW, there was legislation pending to provide for more regulation of these financial institutions. The legislation was defeated. Coincidentally, these financial institutions donated large sums of money to both the Democratic and Republican parties. These people feel so invincible that they don’t even try and hide the fact that they are buying Congressman and political influence.

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