Paulson wants to nationalize FNM or FRE for $15 billion

Discussion in 'Wall St. News' started by The Kin, Jul 12, 2008.


    US TREASURY secretary Hank Paulson is working on plans to inject up to $15 billion (£7.5 billion) of capital into Fannie Mae and Freddie Mac to stem the crisis at America’s biggest mortgage firms.

    The two companies lost almost half their market value last week as rumours of a government bail-out swept the stock markets, hammering share prices around the world.

    Together, the two stockholder-owned, government-sponsored companies own or guarantee almost half of America’s $12 trillion home-loan market and are vital to the functioning of the housing market.

    The capital-injection plan is said to be high on a list of options being considered by regulators as a means of restoring confidence in the lenders. The move would protect the American housing market, but punish shareholders in both companies.

    US Government considers taking control of mortgage giants
    Paulson calms market jitters over Fannie Mae
    Under the terms of the proposed move, the US government would receive a new class of shares in exchange for the capital, which would be hugely dilutive to shareholders.

  2. The capital injection would also see both lenders granted permission to use the Federal Reserve’s discount window - a short-term emergency funding source.

    Freddie Mac has a $3 billion short-term funding line that comes up for renewal tomorrow. The short-term debt is one of the hundreds of funding lines that the two agencies use.

    Diddn't FRE try a bond issue recently that failed? If could not roll over its debt, and every single asset is zero bid. They probably would have fallen into default Monday.

    Interesting stuff this weekend.
  3. Digs


    ..."which would be hugely dilutive to shareholders. "....

    I think this means the current equity holders of FNM and FRE are worth ZERO !


    More stock market negative days ahead !
  4. Jim Rogers just popped a blood vessel.
  5. $15 billion is the combined worth of both companies :D

    I think all this planning on the government's part is futile.

    Let's say $2 trillion in mortgage assets and we have just a 2% write-down. That's $40 billion.
  6. It's insanity that GSE's are public companies. Nationalize them asap. Paulson has this right.
  7. Digs



    ..."Let's say $2 trillion in mortgage assets and we have just a 2% write-down. That's $40 billion."..

    Sorry its $5 trillion

    and 1% is 50 Bn, IF YOUR LUCKY !
  8. WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson is insisting that if Fannie Mae and Freddie Mac need rescuing, the plan should not benefit shareholders of the giant mortgage finance firms, the Wall Street Journal said on Saturday.

    Citing people familiar with the matter, the newspaper said a possible intervention by the Bush administration to help the government-sponsored mortgage enterprises could happen as early as Monday morning.

    That is around the time Freddie Mac is due to sell $3 billion worth of short-term debt, a barometer of market appetite for its securities.

    A Treasury Department spokesman called the article "thinly sourced speculation" but declined to elaborate.

    Paulson indicated on Friday the administration had no plans to nationalize the congressionally chartered but privately owned companies, which finance nearly half of U.S. homes.

    Shares of Fannie Mae and Freddie Mac, trading at a fraction of their value a year ago, fell sharply this week as fears mounted they would not have enough capital to make it through the worst U.S. housing crisis since the Great Depression.

    Home foreclosures, falling prices, tighter credit for buyers and the overall state of the U.S. economy have become major issues in the campaign for the presidential and congressional elections in November.

    Fannie Mae and Freddie Mac said on Friday their finances were sound enough to withstand the housing crisis and government officials scrambled to make statements to restore confidence in them.

    The abrupt erosion of the share values of the two companies raised the specter of a government rescue operation similar to the sale in March of failing investment bank Bear Stearns. Continued...
  9. talk about over leveraged :eek: :p
  10. I was being conservative. The point being I think it will be near impossible for these companies not to fail. Only solution is to liquidate both into the U.S. Treasury.

    Paulson's solution is a mere band-aid to cancer patients.
    #10     Jul 12, 2008