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Sunday, September 7, 2008

The Big Bailout: Fannie Mae & Freddie Mac are Nationalized

Treasury Secretary Henry M. Paulson Jr., left, and James B. Lockhart, FHFATreasury Secretary Henry M. Paulson Jr. and Jim Lockhart at
announcement of government takeover of Fannie Mae and Freddy Mac

United States - Department of The Treasury:
Statement by Secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance Agency Action to Protect Financial Markets and Taxpayers — Washington, DC —
Good morning. I'm joined here by Jim Lockhart, Director of the new independent regulator, the Federal Housing Finance Agency, FHFA.

In July, Congress granted the Treasury, the Federal Reserve and FHFA new authorities with respect to the GSEs, Fannie Mae and Freddie Mac. Since that time, we have closely monitored financial market and business conditions and have analyzed in great detail the current financial condition of the GSEs – including the ability of the GSEs to weather a variety of market conditions going forward. As a result of this work, we have determined that it is necessary to take action.

Since this difficult period for the GSEs began, I have clearly stated three critical objectives: providing stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers – both by minimizing the near term costs to the taxpayer and by setting policymakers on a course to resolve the systemic risk created by the inherent conflict in the GSE structure...

Reactions from other gov't agencies:

Fact Sheets from Treasury:
Wall Street Journal:
Mounting Woes Left Officials With Little Room to Maneuver - [how the plan came together]

Edmund L. Andrews / New York Times:
U.S. Unveils Takeover of Two Mortgage Giants -- The Treasury Department on Sunday seized control of the quasi-public mortgage finance giants, Fannie Mae and Freddie Mac, and announced a four-part rescue plan that included an open-ended guarantee to provide as much capital as they need to stave off insolvency...

Washington Post:
Treasury to Rescue Fannie and Freddie -- regulators are trying to prevent Fannie Mae and Freddie Mac's problems from triggering a new wave of failures among banks, which hold vast reserves of bonds and preferred shares issued by the two firms...

AP / OC Register:
Fannie, Freddie deal helps some borrowers, not all -- “The bailout will give the mortgage industry a stability that we haven’t had in a couple of years,” said Rich Cosner, president of Prudential California Realty. “But frankly no, it won’t help [struggling borrowers] to refinance.” ...

Fitch Affirms Fannie Mae & Freddie Mac's 'AAA' IDR; Lowers Pfd Stock; Sub Debt on Watch Evolving -- Fitch has also downgraded FNM and FRE's preferred stock to 'C/RR6' from 'BBB-'. The downgrade of the preferred stock reflects the subordination of the preferred to any Treasury interest and interest payments are unlikely to resume in the foreseeable future. Thus, any recovery is expected to be minimal...

WSJ: U.S. Outlines Fan-Fred Takeover
Bloomberg: Paulson Engineers US Takeover of Fannie, Freddie
CNN/Money: U.S. seizes Fannie and Freddie
Reuters: U.S. seizes Fannie, Freddie, aims to calm markets
Forbes: After The Bailout
Boston Globe: Takeover seen easing loan crisis
Financial Times: A delicate balance in the Freddie and Fannie action
BBC: US takes over key mortgage firms
Mish's... Trend Analysis:
Paulson Rolls The Dice At Taxpayer Expense -- The title of the [Paulson] statement suggests two things.
  1. This agreement will not reduce risk on the financial markets
  2. This agreement will not protect the taxpayer ...
Floyd Norris / NY Times:
A Tangled Web With Many Raveled Threads -- No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. — Matthew 6:24

Fannie Mae and Freddie Mac were intended to serve at least two masters — the investors who put up capital and a government that wanted to help the housing industry and extend home ownership...
Calculated Risk: Fannie & Freddie Thoughts
Calculated Risk: Statement by Paulson on Fannie and Freddie
The Huffington Post: The Fannie/Freddie Bail-Out: The Plan and Why Now?
Barry Ritholtz / The Big Picture: Treasury Takeover of GSEs: 10 Key Points
James Ostrowski / LewRockwell: Fannie and Freddie Bailouts
Tyler Cowen / Marginal Revolution: Conservatorship for the mortgage agencies
Tyler Cowen / Marginal Revolution: What if we didn't bail out the creditors?
Arnold Kling / EconLog: Freddie, Fannie: No Exit?

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