Weekday NEWS to Comfort the Disturbed and Disturb the Comfortable.
Thur 07.10.2008
Fannie, Freddie Tumble on Bailout Concern, UBS Cut Fannie Mae and Freddie Mac, the two biggest providers of financing for U.S. home loans, tumbled to the lowest levels in 17 years in New York trading after a former Federal Reserve president said the companies may need a government bailout. Fannie Mae tumbled as much as 24 percent and Freddie Mac slumped as much as 34 percent in New York Stock Exchange composite trading after UBS AG analysts said in a report today that Freddie Mac's decline creates "challenges'' for the company's plan to raise $5.5 billion. Chances are increasing that the U.S. will bail out Fannie Mae and Freddie Mac because they don't have enough capital to weather the worst housing slump since the Great Depression, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules. The fair value of Fannie Mae assets fell 66 percent to $12.2 billion, data provided by the Washington- based company show, and may be negative next quarter, Poole said.
U.S. Mulls Future of Fannie, Freddie $$ Administration Ramps Up Contingency Planning as Mortgage Giants Struggle The Bush administration has held talks about what to do in the event mortgage giants Fannie Mae and Freddie Mac falter, according to three people familiar with the matter, as the stock prices of both companies continue to fall sharply. These discussions have been going on for months and are part of normal contingency planning that the Treasury Department and other financial regulators regularly undertake. The talks have become more serious recently given the financial woes of the shareholder-owned, government-chartered companies, whose stability is vital to the functioning of the nation's housing market, these people say.
Fannie Mae and Freddie Mac Shares Tumble Fannie Mae and Freddie Mac, the mortgage lenders at the heart of the nation’s housing finances, fell to their lowest share prices in 17 years on Thursday on concern that the companies could face the possibility of a government bailout. Provocative comments from a prominent central banker — who labeled the firms “technically insolvent” — and a harsh report about Freddie Mac from analysts at UBS led to a rapid sell-off of the companies’ shares. Freddie Mac’s stock plunged more than 30 percent and Fannie Mae’s more than 20 percent in the first hour of trading. Shortly before noon, Freddie Mac was down 20 percent, to $8.24, and Fannie was down 9 percent, to $13.95. It was the second straight day of painful declines for the companies.
Cramer: Poole's Not All Wet Amazing. Just amazing. Bill Poole agrees with me: Fannie and Freddie are virtually kaput, they are insolvent. They don't have a right to be stocks. I know that when I did my rant last year, it was really focused on Bill Poole, the Federal Reserve member who had been most opposed to my view that the Fed had to cut and cut hard. I called him a reckless man. Put aside that I called for his resignation, because he was calling for my resignation. Now he understands it. Here's what I see happening: The people who own these stocks are going to lose everything. The man who understood this more than anyone in the country, Bob Steel, just jumped from the American frying pan to the Wachovia fire. But he was needed to figure out how to save Fannie Mae/Freddie Mac the companies -- forget the common stock.
Bernanke Urges Consolidated Investment Bank Oversight Federal Reserve Chairman Ben S. Bernanke said Congress should give a single federal regulator enhanced power to set standards for the capital, liquidity and risk management of investment banks. "Reforms in the oversight of these firms must recognize the distinctive features of investment banking,'' Bernanke said today in remarks prepared for testimony before the House Financial Services Committee. Federal supervisors must take care not "to induce a migration of risk-taking activities to less- regulated or off-shore institutions.'' The Fed is discussing with other federal agencies overhauling regulation of financial institutions following the near-bankruptcy of Bear Stearns Cos. and market turmoil triggered by the collapse of the subprime mortgage market. Bernanke didn't specify which federal agency needs more power.
Bernanke: Empower financial regulators FED CHIEF, PAULSON PUSH FOR NEW POWERS TO RESPOND TO HOUSING, CREDIT PROBLEMS Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson told Congress today that new regulatory powers are needed to insulate the national economy from damage if a big Wall Street firm collapses. Their recommendations were part of a broader debate before the House Financial Services Committee about the best ways to revamp the country's antiquated regulatory system. The idea is to brace the system to better respond to modern-day crises like the housing and credit debacles that have badly bruised the economy. Both Bernanke and Paulson endorsed creating new procedures by which the government can guide an orderly liquidation of a failing investment bank in an effort to minimize any fallout that might be inflicted on the broader financial system and the overall economy. Such procedures, which are in place for commercial banks, might have made the dissolution of investment firm Bear Stearns more orderly.
Inside Wall Street: The Real Reasons the U.S. Banking System Lost its Way Unlike Dorothy in "The Wizard of Oz," the brutalized U.S. banking system will never again return to that comfortable, cozy, and cushy capital place it once happily referred to as "home." But its "Wicked Witch" was its own greed. The curtain has finally been pulled back on the machinery, and the hot air used to pump up the U.S. banking system’s version of the Emerald City in the Land of Oz. For decades, American banks operated on a simple - and nicely profitable - business model: They took in deposits and lent out money. In the simplest model, a bank might take in deposits of a million dollars and lend out a million dollars. In a perfect world, such a "matched book" is established if they know that the deposit will be left in the bank for a year and the loan they made has a maturity of one year. If the bank pays the depositor 3% and charges the loan borrower 5%, it can assume a profit for the year of 2% (the difference between the 5% loan rate and the 3% payout to depositors). It Takes Money to Make Money - Disappear
US foreclosure filings surge 53 percent in June Foreclosure filings continue to rise as US housing crisis drags on The number of homeowners stung by the rout in the U.S. housing market jumped last month as foreclosure filings grew by more than 50 percent compared with June a year ago, according to data released Thursday. Nationwide, 252,363 homes received at least one foreclosure-related notice in June, up 53 percent from the same month last year, but down 3 percent from May, RealtyTrac Inc. said. One in every 501 U.S. households received a foreclosure filing last month.
Fed chief: Empower financial regulators Bernanke, Paulson call for safety net if Wall Street firm fails; Urge more regulatory clout Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson told Congress Thursday that new regulatory powers are needed to insulate the national economy from damage if a big Wall Street firm collapses. Their recommendations were part of a broader debate before the House Financial Services Committee about the best ways to revamp the country's antiquated regulatory system. The idea is to brace the system to better respond to modern-day crises like the housing and credit debacles that have badly bruised the economy.
Lehman tumbles to new low on more credit fears Lehman Brothers shares hit new low as Bernanke, Paulson indicate no bank is too big to fail Lehman Brothers Holdings Inc. shares plunged as much as 19 percent Thursday morning as continued credit fears shook Wall Street, and government officials again reiterated that no bank is too big to fail. Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson both testified before the House Financial Services Committee that the government's overhaul of regulators will help increase oversight. However, they both said that doesn't mean financial institutions are too big to fail.
Fannie, Freddie stocks and bonds plummet A firestorm of anxiety over the ability of U.S. mortgage giants Fannie Mae and Freddie Mac to get the capital they need to survive sent their debt and stocks plummeting on Thursday. Stoking concerns, former St. Louis Federal Reserve President William Poole said the two major U.S. mortgage finance companies were "insolvent" and may need a U.S. government bailout, according to Bloomberg News. The outlook was so dire that Bush administration officials were meeting with regulators to discuss contingency plans should they be unable to raise funds and support the worst housing market since the Great Depression, according to a report in the Wall Street Journal.
Abu Dhabi buys 90% of New York City's Chrysler Building The government of Abu Dhabi bought a 90 percent stake in the Chrysler Building on Tuesday for $800 million from German real estate investors and Tishman Speyer. But while it might seem that the buyer, the Abu Dhabi Investment Council, got a controlling interest in the Art Deco tower, a landmark, for that kind of money, that was not the case. Despite having only a 10 percent holding, Tishman Speyer Properties will continue to control the property and manage it, much as it has since 1997, because it controls the land beneath the 77-story tower, with its trademark stainless steel crown, gargoyles and elevator cabs that evoke the chrome-laden autos of the 1930s.
OPEC chief warns of 'unlimited' oil prices if Iran is attacked The head of the Organization of Petroleum Exporting Countries warned Thursday that oil prices would see an "unlimited" increase in the case of a military conflict involving Iran, because the group's members would be unable to make up the lost production. "We really cannot replace Iran's production - it's not feasible to replace it," Abdalla Salem El-Badri, the OPEC secretary general, said in an interview. Iran, the second-largest producing country in OPEC, after Saudi Arabia, produces about four million barrels of oil a day out of the daily worldwide production of close to 87 million barrels.
Iran Launches More Test Missiles, Draws Rebuke From Rice Iran conducted a second day of high-profile missile tests today, as Secretary of State Condoleezza Rice warned the Islamic republic that it would defend Israel or other Citing broadcasts on state-run Iranian television, the Associated Press reported out of Tehran that the country had continued an ongoing military exercise in the Persian Gulf with another round of missile tests. The tests included the use of more long-range rockets capable of reaching Israel, as well as other devices with what state-controlled media referred to as "special capabilities," though no further details were provided.
Rice Warns Iran That U.S. Will Defend Allies The confrontation between Tehran and Washington seemed to sharpen on Thursday as Iran said it tested missiles for a second day and Secretary of State Condoleezza Rice said the United States would defend its allies and protect its interests against an attack. Ms. Rice was speaking in the former Soviet republic of Georgia at the end of a three-day tour of Eastern Europe. Shortly after she spoke, state-run media in Iran began reporting the new missile tests, which followed a warning from an Iranian official earlier this week that Tehran would strike Tel Aviv and United States interests if Washington attacked it first. Iranian state television showed a missile blasting off in darkness, trailed by a fiery exhaust plume. The television said the new tests took place during the night into Thursday. A commander in the Revolutionary Guards had said earlier that night missile maneuvers would take place but did not give details.
U.S. spy cases raise concern on China's intentions Gregg Bergersen was a navy veteran who liked to gamble on occasion but spent far more time worrying about how to earn some serious money after he left his career as an analyst at the Defense Department. At 51 and supporting a wife and a child in the Virginia suburbs, he wondered how he could get himself cast in that distinctly Washington role many Pentagon types dream of: a rewarding post-retirement perch at one of the hundreds of military-related companies that surround the capital and flourish off lucrative government contracts and contacts. Bergersen believed he had found what he was seeking when he was introduced to Tai Shen Kuo, a native of Taiwan, who had lived in New Orleans for more than 30 years. Kuo, an entrepreneur who imported furniture from China, was active enough in civic affairs to have been named to a state advisory board on international trade. He told Bergersen that he was developing a defense consulting company.
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