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Posted by raylopez99 on July 19, 2008, 10:43 am
Here is a blurb from the Economist magazine, which is usually
pessimistic. But you can see from the below FNM is a buy: Paulson may
even buy shares (helps hold up the price).
Add this to the list of reasons why FNM is a buy: real estate bust
over, you need 30% drop in price before FNM is financially impaired
(see article below), government guarantees help FNM customers, keeping
FNM's monopoly, SEC naked short rule, FRE dilution did not hurt FRE on
Friday, and any dilution by FNM, if any, will not hurt FNM, and last
but not least FNM did not lend to deadbeats (ALT-A) as much as people
think (see below)
RL
Economist.com:
After a headlong plunge in the two firms=92 share prices (see chart 1),
Hank Paulson, the treasury secretary, felt obliged to make an
emergency announcement on July 13th. He will seek Congress=92s approval
for extending the Treasury=92s credit lines to the pair and even buying
their shares if necessary. Separately, the Federal Reserve said Fannie
and Freddie could get financing at its discount window, a privilege
previously available only to banks.
The absurdity of this situation was highlighted by the way the
discount window works. The Fed does not just accept any old assets as
collateral; it wants assets that are =93safe=94. As well as Treasury
bonds, it is willing to accept paper issued by =93government-sponsored
enterprises=94 (GSEs). But the two most prominent GSEs are Fannie Mae
and Freddie Mac. In theory, therefore, the two companies could issue
their own debt and exchange it for loans from the government=97the
equivalent of having access to the printing press.
Absurd or not, the rescue package notched up one immediate success.
Freddie Mac was able to raise $3 billion in short-term finance on July
14th. But the deal did little to help the share price of either
company or indeed of banks, where sentiment was dented by the collapse
of IndyMac, a mortgage lender (see article). The next day Moody=92s, a
rating agency, downgraded both the financial strength and the
preferred stock of Fannie and Freddie, making a capital-raising
exercise look even more difficult. As a sign of its concern, the
Securities and Exchange Commission, America=92s leading financial
regulator, weighed in with rules restricting the short-selling of
shares in Fannie and Freddie.
Investors have got quite a bit of protection against a housing bust
because of the type of deals that Fannie and Freddie guaranteed. The
duo focused on mortgages to borrowers with good credit scores and the
wherewithal to put down a deposit. This was not subprime lending.
Howard Shapiro, an analyst at Fox-Pitt, an investment bank, says the
pair=92s average loan-to-value ratio at the end of 2007 was 68%; in
other words, they could survive a 30% fall in house prices. So far,
declared losses on their core portfolios have indeed been small by the
standards of many others; in 2008, they are likely to be between 0.1%
and 0.2% of assets, according to S&P
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Posted by Buff-Meister \"BUFFETTHATER\" on July 19, 2008, 12:00 pm
This is a short term trade, not an investment. Never confuse the two
bean-boy.
Here is their biz model. Issue bonds at 9% and make mortgages at
6. And only an idiot would say housing has bottomed. the last
housing melt down took 8 years to resolve itself without the added
pressure of energy costs.
The highways are littered with fools that think realty has bottomed,
commercial realty is just now showing the cracks that crumble.
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Posted by raylopez99 on July 19, 2008, 12:20 pm
On Jul 19, 9:00=A0am, "Buff-Meister "BUFFETTHATER""
> This is a short term trade, not an investment. =A0 Never confuse the two
> bean-boy.
And why is that, hater of the rich? I might become poor like Jew?
You like that don't you?
> Here is their biz model. =A0 Issue bonds at 9% and make mortgages at
> 6. =A0
They don't do that, liar. You're thinking of the S&L crisis of the
1980s--you're stuck in the past (no wonder your wife left you--or,
that's right, you choose to be by yourself). Liar. Like the liar
loan you got to move into your trailer park, trash.
>=A0And only an idiot would say housing has bottomed. =A0 the last
> housing melt down took 8 years to resolve itself without the added
> pressure of energy costs.
Which country fool? And those eight years, if the USA, were boom
times. Idiot.
> The highways are littered with fools that think realty has bottomed,
> commercial realty is just now showing the cracks that crumble.
Hahaha! Stay poor then, blanco basura.
RL
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Posted by raylopez99 on July 19, 2008, 3:09 pm
Read this carefully FNM shorts! What all these guys are saying is that
with the new government guarantee, FNM is a buy! Cover them shorts,
shorty!
I like the part by Siegal--FNM longs have a great bet: heads I win,
tails the government loses! A great bet if you're an FNM long (and
terrible for FNM shorts).
ALL the experts below --ALL of them--agree FNM will not fall. Five out
of five doctors of economics can't all be wrong!
http://www.newsweek.com/id/147760/page/2
The Dangers of Getting Too Cozy
Larry Lindsey, former governor of the Federal Reserve and former
economic adviser to President George W. Bush
The recent troubles at Fannie Mae, Freddie Mac and IndyMac show just
how messy things can get when the relationship between the government
and the market gets too cozy. Fannie and Freddie are private for-
profit concerns that operate for the benefit of the shareholders, but
with government intervention both in their mission and as a source of
bailout money when things go badly. This leads to both the
privatization of profits with the socialization of losses and
political interference in the processes of profit making and loss
mitigation.
The plan advanced by Secretary [Henry] Paulson provides an open-ended
source of funding for the government to buy the stock of the companies
and to lend them unlimited amounts of money. While it may be a
necessary last-ditch effort to save them, the plan leaves existing
management and directors in place and asks for no explicit
accountability for existing shareholders and other investors.
Unfortunately, this appears to be related to the enormous political
power Fannie and Freddie have developed through decades of political
contributions and management by politically connected individuals like
Frank Raines [Clinton's OMB director and former chief of Fannie Mae]
and Jim Johnson [until recently an Obama adviser. Johnson was also
chairman of the Goldman Sachs board's compensation committee while
Paulson was its CEO].
The Lessons of the Great Depression
Jeremy J. Siegel, professor at Wharton Business School
Given the turmoil in U.S. capital markets, our government had no
choice but to rescue Fannie Mae and Freddie Mac. These mortgage
giants, which had long been undercapitalized, had become far too
important to the faltering housing market to see them go under.
Now that the government has stepped in, it is mandatory that Congress
structure its investment so as to capture any gain in their stock
price, similar to the profit that the government realized when it
bailed out Chrysler Corp. in 1980. There is no reason that this deal
should only become a "heads, the stockholders win" and "tails, the
taxpayers lose" proposition.
Peter Wallison, general counsel for the Treasury and the White House
in the Reagan administration, now Arthur F. Burns fellow in financial
policy at the American Enterprise Institute
Assuming that congress adopts the Paulson plan, the Fannie MAE and
Freddie Mac crisis is likely to fade away. The secretary's package
assured the markets that the U.S. government stands behind Fannie and
Freddie, and hence assures a continuing flow of the funds they need to
operate. This will enable them to survive until and unless their
regulator declares that they are insolvent, and this is unlikely to
happen if housing prices stabilize over the next three or four months.
Of course, if housing prices continue to deteriorate, Fannie and
Freddie will both be in jeopardy of insolvency, in which case the
government will have to step in and take control of them. But this I
assess as unlikely.
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Posted by Blash on July 19, 2008, 5:05 pm
raylopez99 wrote on 7/19/08 3:09 PM:
> ALL the experts below --ALL of them--agree FNM will not fall. Five out
> of five doctors of economics can't all be wrong!
Their credentials are ALMOST as good as the guys from Long Term Capital
Management(LTCM)......
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