FNM and FRE bailout bullish or bearish

Discussion in 'Trading' started by jlie, Sep 7, 2008.

  1. jlie


    I cant figure it out: Will a Government bailout be bullish or bearish for the market averages? (Of course, the shareholders of FNM/FRE would be toast, but would the market open up of down tomorrow on that news???)
  2. taowave


    Probably bullish

    Equity holders are $%^$ed,tax payers are %$^$ed,credit holders get oxygen....

    BULLISH short term,but the problems still exist

  3. Market tanks on Monday regarding Ike.
  4. IMO Monday's market is gonna be the takeover. Ike will be Tuesday-Wednesdays market news. Looking at the storm track on Ike, it could turn down and head towards the Texas-Mexico border thus avoiding the oil rigs.
  5. GTS



    Treasury Press Release which Paulson is reading now (live on CSPAN)

  6. 1)decision to place both enterprises in conservatorship

    2)Treasury and FHFA have established Preferred Stock Purchase Agreements, contractual agreements between the Treasury and the conserved entities. Under these agreements, Treasury will ensure that each company maintains a positive net worth. These agreements support market stability by providing additional security and clarity to GSE debt holders – senior and subordinated – and support mortgage availability by providing additional confidence to investors in GSE mortgage backed securities. This commitment will eliminate any mandatory triggering of receivership and will ensure that the conserved entities have the ability to fulfill their financial obligations. It is more efficient than a one-time equity injection, because it will be used only as needed and on terms that Treasury has set. With this agreement, Treasury receives senior preferred equity shares and warrants that protect taxpayers. Additionally, under the terms of the agreement, common and preferred shareholders bear losses ahead of the new government senior preferred shares.

    3)the establishment of a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.....facility is intended to serve as an ultimate liquidity backstop

    4)to further support the availability of mortgage financing for millions of Americans, Treasury is initiating a temporary program to purchase GSE MBS.
  7. wow great link basically gave us everything before the media got their hands on it and molded it inot some fancy headline, thanks.

    just a question but in that link it said the government would "buy mbs" and in some cases guarantee them or did i read that wrong but if that that were to happen because that effectivly puts the whole 5 trillion dollar debt these two companies have togethor on Us balance sheet?

    here is an exerpt my favorite blog over the last couple months

    "<<< 1. Placing the firms into conservatorship (effectively Chapter 11 bankruptcy for them, “prepackaged”) is fine. In fact, it needed to happen a couple of years ago. That’s the good news.
    2. Running down the firms’ portfolios is both a good idea and is necessary. We simply cannot have these firms play “hedge fund”, and it is clear that the only way to stop it is to strip them of the ability to do so.
    3. These firms bought, intentionally, nearly one trillion dollarsbetween them of subprime and “ALT-A” no-doc or reduced-doc mortgages. These are not prime loans, they are loans made to speculators, and they are the ones most at risk! We must not and cannot bail these people out.
    4. Guaranteeing the existing debt of these firms, which was sold with a black-letter statement on the front of every single prospectus, is unacceptable and exposes the United States Taxpayer to the full $5 trillion in debt that these firms hold and control. This is equal to the entire public float of The United States Treasury and more than 1 trillion of it is in the hands of foreign central banks in nations such as China and Japan. They bought this debt with the full knowledge that it was not guaranteed.
    5. There is every reason to believe that Treasury Bond Yields will shoot higher in the coming weeks and months. If this happens it will “take back” any benefit from this so-called “bailout” immediately, and worse, it will hike borrowing costs across the economy - not just in housing - when we are already in a credit crunch. The result of such an event could be disastrous and it is what I have been warning about for months.

    it can be found here http://mrmortgage.ml-implode.com/
  8. just to clarify so is this short term extremely bullish because all the debt the financials (with the exception of common and some preferred) is backed by the government. But medium to long term (and by medium i mean within a month) this is extremely bearish because this could send the dollar ALOT lower.
  9. I thought the general expectation was for the common shares to be wiped out. This sounds like a bailout for the common. So what if they "bear losses ahead of the new preferred", the companies are fully backed by the Treasury now. What a joke..

    Any ideas where the common will open up tomorrow?
    #10     Sep 7, 2008