JK2000 Posted September 6, 2008 Share Posted September 6, 2008 http://news.yahoo.com/s/ap/20080906/ap_on_...e_giants_crisis Link to comment Share on other sites More sharing options...
molson_golden2002 Posted September 6, 2008 Share Posted September 6, 2008 http://news.yahoo.com/s/ap/20080906/ap_on_...e_giants_crisis Can someone expalin to me why this is: The news, first reported on The Wall Street Journal's Web site, came after stock markets closed. In after-hours trading Fannie Mae's shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac's shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government's actions. Concern has been growing that a government rescue of Fannie and Freddie could not only wipe out common stockholders, but also be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares. Paulson has been in contact in recent weeks with foreign governments that hold billions of dollars of Fannie and Freddie debt to reassure them that the United States recognizes the importance of the two companies. If the government was going to back them up would this be a safe investment? Is it because they had bought the stock high and the government will take over the stock at its low value now? Link to comment Share on other sites More sharing options...
meazza Posted September 6, 2008 Share Posted September 6, 2008 Can someone expalin to me why this is: If the government was going to back them up would this be a safe investment? Is it because they had bought the stock high and the government will take over the stock at its low value now? The GSE's shares would no longer be listed as they will become Fed property. The debt would be backed by the Fed though. Link to comment Share on other sites More sharing options...
John Adams Posted September 6, 2008 Share Posted September 6, 2008 Can someone expalin to me why this is: If the government was going to back them up would this be a safe investment? Is it because they had bought the stock high and the government will take over the stock at its low value now? Nationalizing Freddie and Fannie will render the shares valueless. It's a good step, as long as the next steps are to break them up and put them out on the market for bidding, letting the government get out of the mortgage business. We'll see. Not sure what the plan is but Paulson likes the government's involvement in the Macs. Link to comment Share on other sites More sharing options...
GG Posted September 6, 2008 Share Posted September 6, 2008 Nationalizing Freddie and Fannie will render the shares valueless. It's a good step, as long as the next steps are to break them up and put them out on the market for bidding, letting the government get out of the mortgage business. We'll see. Not sure what the plan is but Paulson likes the government's involvement in the Macs. He's doing it first to shore up the capital base, then after they're stable, they'll sell stock back to the private markets and will remove the Fed guarantee from all Fan/Fred obligations, thus completely privatizing them. This realistically will take about 1 year, and by then the housing market should have stabilized and the Fed may even make money on the act. This is similar to the Bear intervention - the government is shortcutting the bankruptcy process by wiping out current shareholders but protecting the creditors. The same thing would happen if Fan/Fred filed Chapter 11, but this is faster and much more cheaper to the government (ie taxpayers). Link to comment Share on other sites More sharing options...
meazza Posted September 6, 2008 Share Posted September 6, 2008 He's doing it first to shore up the capital base, then after they're stable, they'll sell stock back to the private markets and will remove the Fed guarantee from all Fan/Fred obligations, thus completely privatizing them. This realistically will take about 1 year, and by then the housing market should have stabilized and the Fed may even make money on the act. This is similar to the Bear intervention - the government is shortcutting the bankruptcy process by wiping out current shareholders but protecting the creditors. The same thing would happen if Fan/Fred filed Chapter 11, but this is faster and much more cheaper to the government (ie taxpayers). So in terms of corp actions, this would basically just be a delisted stock with no merger value? The shareholders in Bear at least got some sort of cash from the takeover albeit very little. Link to comment Share on other sites More sharing options...
GG Posted September 6, 2008 Share Posted September 6, 2008 So in terms of corp actions, this would basically just be a delisted stock with no merger value? The shareholders in Bear at least got some sort of cash from the takeover albeit very little. When a company files bankruptcy (in the US), a judge and a federal trustee oversee the bankrupt estate. The line up the assets and the operations on one side and creditors and stockholders on the other side. All debts that the company owes before bankruptcy are essentially frozen and everyone waits for the resolution. The courts usually give the company some time to come up with a restructuring plan, after which they approve the exit from bankruptcy. Usually, upon emergence from bankruptcy previous shareholders get wiped out because the company won't have enough value to meet all the creditor claims and still have something left for shareholders. Very often, the old creditors get stock ownership in the restructured company because having too much debt was the reason the company filed Ch 11. In the Bear case, if it filed, the equity would have been wiped out. But the domino effect on the rest of the financials could have been devastating. That's why Fed forced a shotgun sale at $2. But the Bear shareholders had their finger on the nuclear button by threatening not to approve the sale and forcing bankruptcy. The Fed & JPM blinked and upped the price to $10. Difference to now is that the Fed & markets are much more prepared for a Fan/Fred bankruptcy and their shareholders don't have the same nuclear option as Bear shareholders did. The Fan/Fred nuclear option was held by Congress and they appear to be ready to hand over the keys to Fed/Treasury. Fan/Fred stock has not been trading at the fundamental value but at option value of whether the companies would be declared insolvent and be taken over. Link to comment Share on other sites More sharing options...
meazza Posted September 6, 2008 Share Posted September 6, 2008 When a company files bankruptcy (in the US), a judge and a federal trustee oversee the bankrupt estate. The line up the assets and the operations on one side and creditors and stockholders on the other side. All debts that the company owes before bankruptcy are essentially frozen and everyone waits for the resolution. The courts usually give the company some time to come up with a restructuring plan, after which they approve the exit from bankruptcy. Usually, upon emergence from bankruptcy previous shareholders get wiped out because the company won't have enough value to meet all the creditor claims and still have something left for shareholders. Very often, the old creditors get stock ownership in the restructured company because having too much debt was the reason the company filed Ch 11. In the Bear case, if it filed, the equity would have been wiped out. But the domino effect on the rest of the financials could have been devastating. That's why Fed forced a shotgun sale at $2. But the Bear shareholders had their finger on the nuclear button by threatening not to approve the sale and forcing bankruptcy. The Fed & JPM blinked and upped the price to $10. Difference to now is that the Fed & markets are much more prepared for a Fan/Fred bankruptcy and their shareholders don't have the same nuclear option as Bear shareholders did. The Fan/Fred nuclear option was held by Congress and they appear to be ready to hand over the keys to Fed/Treasury. Fan/Fred stock has not been trading at the fundamental value but at option value of whether the companies would be declared insolvent and be taken over. Thanks for the info. I actually work with corp actions for institutional clients/prime brokerage here in Montreal and our clients like to mostly invest in US Equity. For now... Link to comment Share on other sites More sharing options...
molson_golden2002 Posted September 7, 2008 Share Posted September 7, 2008 Tens of billions to the Macs, and now Detriot wants $50 billion in loans http://news.yahoo.com/s/ap/20080907/ap_on_...fSVBjJim..s0NUE Link to comment Share on other sites More sharing options...
molson_golden2002 Posted September 8, 2008 Share Posted September 8, 2008 Colonel Klink is in charge of this? Oh no, what will stallag 13 do without him? http://news.yahoo.com/nphotos/Mortgage-Cri...nXbu56X_LFv24cA Link to comment Share on other sites More sharing options...
DC Tom Posted September 8, 2008 Share Posted September 8, 2008 Tens of billions to the Macs, and now Detriot wants $50 billion in loans http://news.yahoo.com/s/ap/20080907/ap_on_...fSVBjJim..s0NUE Fannie and Freddie serve a role w/r/t market liquidity. They should suffer for their stupidity...but bailing them out makes sense. Detroit...not so much. Link to comment Share on other sites More sharing options...
meazza Posted September 8, 2008 Share Posted September 8, 2008 Fannie and Freddie serve a role w/r/t market liquidity. They should suffer for their stupidity...but bailing them out makes sense. Detroit...not so much. The auto makers that are suffering didn't really do much to out do the Japanese in terms of reliability and fuel efficiency... so why shouldn't they suffer? Link to comment Share on other sites More sharing options...
DC Tom Posted September 8, 2008 Share Posted September 8, 2008 The auto makers that are suffering didn't really do much to out do the Japanese in terms of reliability and fuel efficiency... so why shouldn't they suffer? Are you being rhetorical, or trying to disagree with me? Because I think they should. Of course, the government bailed out Chrysler 30 years ago, too...wouldn't surprise me if it happened again. Link to comment Share on other sites More sharing options...
meazza Posted September 8, 2008 Share Posted September 8, 2008 Are you being rhetorical, or trying to disagree with me? Because I think they should. Of course, the government bailed out Chrysler 30 years ago, too...wouldn't surprise me if it happened again. I misread your statement originally which is why I disagreed with you. After re-reading it, I agree with you. Link to comment Share on other sites More sharing options...
John Adams Posted September 8, 2008 Share Posted September 8, 2008 Fannie and Freddie serve a role w/r/t market liquidity. They should suffer for their stupidity...but bailing them out makes sense. Detroit...not so much. Yep. Shore up the Macs. Pray to god they break them up and auction them off to private industries. Let's get the govt out and set the mortgage business up as a private affair. $%^& Detroit. They are crawling out of the pit they dug. Link to comment Share on other sites More sharing options...
molson_golden2002 Posted September 8, 2008 Share Posted September 8, 2008 I take it I'm the only one to see the resemblence to Col. Klink? Link to comment Share on other sites More sharing options...
GG Posted September 8, 2008 Share Posted September 8, 2008 Of course, the government bailed out Chrysler 30 years ago, too...wouldn't surprise me if it happened again. Different era - Big 3 still had about 90% of the market then. Link to comment Share on other sites More sharing options...
DC Tom Posted September 8, 2008 Share Posted September 8, 2008 Different era - Big 3 still had about 90% of the market then. I know. Wouldn't surprise me...because government does stupid sh--. Link to comment Share on other sites More sharing options...
DC Tom Posted September 8, 2008 Share Posted September 8, 2008 I take it I'm the only one to see the resemblence to Col. Klink? No. You're apparently just the only one that thinks you needed a response. Link to comment Share on other sites More sharing options...
molson_golden2002 Posted September 8, 2008 Share Posted September 8, 2008 McCain's running mate, Alaska Gov. Sarah Palin, speaking in Colorado Springs, Colo., said Fannie and Freddie had "gotten too big and too expensive to the taxpayers." The companies, however, aren't taxpayer funded but operate as private companies. The takeover may result in a taxpayer bailout during reorganization. Just fantasic! Clap, clap, bravo! http://www.mcclatchydc.com/227/story/51940.html I saw her on C-span last night for the 2006 Alaska Governor's debate and she was pretty good. She can probably gaffe away all she wants and no one will care. Hell, they are saying in a McCain ad that she stopped the bridge to no where. Blatent lie, but who cares, she is hot, eats mooseburgers and has a small child Link to comment Share on other sites More sharing options...
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