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Tuesday, September 9, 2008

Fannie Mae and Freddie Mac Takeover Reactions

A false sense of security may have overcome everyone when the Treasury came riding in a “painted” white horse to save the day. Perhaps the horse they were riding was a black stallion adorned with armor as was its rider. They are prepared for battle, not for the good of the people but for some other causes.

Initial reactions by the mortgage market was an increase in rates, yesterday and another increase in rates today while the stock markets had a positive upswing. You will see a potential reason for this below.

Below are excerpts and my commentary from an article posted in one of the most honest publications on the web, Mortgage News Daily. Titled, “Experts Moderate Initial Enthusiasm for GSE Takeover”. As you will see, the quotes were taken by MND from sources such as Forbes, The Wall Street Journal and The New York Times.

“Reading through it all one gets a strong feeling that Freddie and Fannie aren't necessarily dead, a huge battle is looming, and the Bush administration may pay a price for their actions.”

Larry: I believe we will all pay a price for this.

"…by the end of the day Monday, concerns about bank solvency and the weak economy returned."

“Former Presidential candidate Steve Forbes, writing in his magazine suggests that the Treasury Department's actions were taken months too late but that now the two companies (who Forbes has renamed Fonie and Fraudie) should be broken up into 12 new companies, recapitalized to the tune of $300 billion and both common and preferred stockholders in the old companies allowed to trade their shares for common stock in the new companies.”

Larry: Fonie and Fraudie, very appropriate Mr. Forbes. I also agree that stockholder should be protected and not wiped out.

“The New York Times is reporting that "policy makers and Congress began [on Monday] what promises to be an epic political fight over how to revamp the companies once the current crises ends." These same factions, The Times reported, have also begun the ritual of assigning blame for events leading to that crisis.”

Larry: The blame game again. Why don’t they just accept the blame as they should?

“The Times states that some senior Treasury Department officials want to shrink the companies and turn them into public utilities. This would result in tightly regulated entities with smaller investment portfolios. Another version would turn the GSEs into pure government agencies with management vested in government officials and profits returned to the Treasury. However, the paper also reports that many Democratic lawmakers still see Fannie and Freddie as instrumental in providing more affordable housing."

Larry: As I warned, watch out. Shrinking the companies reduces money availability. Having given Treasury too much power they can now do what ever they want. They are not for the people.

“In the meantime, Congress and the White House exchanged angry words over how the mortgage debacle played out. Presidential press secretary Dana Perino said that Congress had failed to act on administration recommendations for avoiding the crisis while Senator Dodd accused Treasury Secretary Henry Paulson of misleading lawmakers into giving him authority to spend huge amounts of money the rescue the GSEs while "assuring them at the time that he had no intention of using that authority." Dodd said that he had taken the administration at their word and said it found it hard to believe that the takeover was going to happen.”

Larry: Treasury lied to Sen. Dodd. No, our government doesn’t lie to us, do they?

“Both Schwartz and the three reporters who wrote the WSJ article referenced above (Deborah Solomon, Michael Corkery, and Liz Rappaport) suggested that the takeover was pushed to a great extent by concern expressed by Asian investors who apparently regarded the close association of Freddie and Fannie with the U.S. government as a guarantee of their investments in the two companies.”

Larry: As President Reagan used to say, “here we go again”. I agree this move was meant for Asian investors. We need China, how else would Wal Mart stock their shelves. So, let’s protect Asian Investors by screwing American and other investors. Truly a government working for our common good.

I rest my case!

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