Prometheus 6

today. This is a big deal.

It really is.

The Feds can't bail out Bear Sterns and not bail out Freddie Mac and Fannie Mae.

P6, I recently read a long piece in the latest issue of Vanity Fair about the collapse of Bear Stearns. Contrary to reports, the feds kicked the company to the curb. Here is the link: http://www.vanityfair.com/politics/features/2008/08/bear_stearns200808

in mortgages. They must step in.

The fact that the stock price of FreddieMac and FannieMae is going down does not mean either firm is approaching or is close to insolvency. Bear Stearns, according to the article in Vanity Fair, had over $18 billion in cash reserves when its stock price began to plummet. Senior officials at Bear Stearns are absolutely convinced that the firm was targeted by short-sell speculators who started rumors that Bear Stearns was in trouble when it was not.

I managed an operation department on Wall St. for over a decade. Corporate Actions for those who still know...we handled the actual exchanges necessary due to mergers, buyouts, bankruptcies, etc. I was also in charge of handling new transactions and developing standardized operation procedures for them.

All that to say I am very, very clear what happened to Bear Sterns, and how CMOs screwed the credit market.

I repeat: The Feds can't bail out Bear Sterns and not bail out Freddie Mac and Fannie Mae.

Yes, the Feds will bail our Fannie Mae and Freddie Mac but we need to get an understanding of why this would be necessary if both firms are adequately capitalized and neither, as far as I know, were involved in the subprime mortgage market.

neither, as far as I know, were involved in the subprime mortgage market.

Sorry, but they were. Their reason to exist is to buy up mortgages and repackage them into debt securities. Also, being publically owned corporations they bought up bad paper like all the other financial giants, secure in their AA ratings.

The fact is, there is no financial entity of any significance that is not caught up in the subprime market because the only bigger money maker is issuing subprime credit cards.

Their participation in the sub-prime market comes as a revelation to me. Fannie Mae is a notoriously risk-adverse lender. I wonder what the extent of its exposure is in the sub-prime market because six years ago it was avoiding these homebuyers like the plague.

I just did a little research. The losses that Fannie Mae and Freddie Mac have experienced are related to the general downturn in the housing market and the economy, not the sub-prime debacle.

Holy s*#t, Batman! We really might be headed for a complete financial meltdown in this country.

"Their reason to exist is to buy up mortgages and repackage them into debt securities."

Yes, I have known this for years but Fannie and Freddie avoided the sub-prime market. Their position may have changed over the past five or six years given the political pressure that the Republicans brought to bear on them.

This paragraph was lifted from an article published in today's online edition of the New York Times. It does not appear until the second page and after 30 paragraphs. What we are still not told is what is the extent of these two companies exposure in the sub-prime debacle.

"....Ultimately, what most hurt the companies was the failure of home buyers to pay off subprime and other risky mortgages that were packaged into bonds and sold to investors by Wall Street banks like Bear Stearns, Lehman Brothers and Citigroup, with Fannie and Freddie playing a lesser role. But they are suffering from the reverberations of the foreclosure wave, as the value of their mortgage assets declines along with home prices everywhere."

Hey, maybe it's all a distraction..."The took over INDYMac...but hey, at least Fannie and Freddy settled down."

No , something is happening but those of us down here on the ground are not being given enough information to understand what is going on. Sure, a lot of the mortgages that Fannie and Freddie bought have gone south but what percentage of their total mortgage portfolio do these bad mortgages represent? We don't know and the news reports are not telling us. Are these firms actually approaching insolvency or is that their share price is only dropping? A loss of investor confidence does not mean that they do not have sufficient cash reserves to cover short and mid-term losses. We are being told the sky is falling but nobody is telling us why.

If the mortgages they own are worth less than the debt they owe, they'll be insolvent regardless of their cash position. Several things can contribute to that, including people leaving the market altogether to become renters.

This simply isn't about wealth. It's about faith.

"If the mortgages they own are worth less than the debt they owe..."

This is an issue about faith but there is no reason at this point to believe that ALL of the mortgages they own are worth less than the debts they owe on the bonds.

They can calculate that the value is dropping faster than the debt plus operating expenses.

You mean their faith in the value of the stock is dropping faster than the debt plus operating expenses. (:~)

(The relationship between their cash reserves, current operating expenses and short term debts is simple arithmetic.)

The White House is asking for authority to buy shares of stock from Fannie Mae and Freddie Mac. I'm voting for Obama because he and the folks he brings along will be better at arranging the deck chairs on the ship but we have hit an iceberg and we are taking on plenty, plenty water.

I got fired from Fannie Mae. I say I'm better off. Now let's pick up as much FNM as possible and keep it moving. No hard feelings, Mudd.