Mae and Mac disaster-- Interesting Read

[tomf-1]

July 14 (Bloomberg) -- The U.S. Treasury Department's plan to shore up
Fannie Mae and Freddie Mac is an ``unmitigated disaster'' and the largest
U.S. mortgage lenders are ``basically insolvent,'' according to investor
Jim Rogers.

Taxpayers will be saddled with debt if Congress approves U.S. Treasury
Secretary Henry Paulson's request for the authority to buy unlimited stakes
in and lend to Fannie Mae and Freddie Mac, Rogers said in a Bloomberg
Television interview. Rogers is betting that Fannie Mae shares will keep
tumbling.

Goldman Sachs Group Inc. analyst Daniel Zimmerman said the mortgage finance
companies' shares may fall another 35 percent and lowered his share-price
estimate for Fannie Mae to $7 from $18 and for Freddie Mac to $5 from $17.
Freddie Mac fell 18 cents, or 2.3 percent, to $7.57 at 11:16 a.m. in New
York Stock Exchange trading, while Fannie Mae rose 13 cents, or 1.3
percent, to $10.38.

``I don't know where these guys get the audacity to take our money,
taxpayer money, and buy stock in Fannie Mae,'' Rogers, 65, said in an
interview from Singapore. ``So we're going to bail out everybody else in
the world. And it ruins the Federal Reserve's balance sheet and it makes
the dollar more vulnerable and it increases inflation.''

The chairman of Rogers Holdings, who in April 2006 correctly predicted oil
would reach $100 a barrel and gold $1,000 an ounce, also said the
commodities bull market has a ``long way to go'' and advised buying
agricultural commodities.

Going `Bankrupt'

Rogers, a former partner of hedge fund manager George Soros, predicted the
start of the commodities rally in 1999 and started buying Chinese stocks in
the same year. He traveled the world by motorcycle and car in the 1990s
researching investment ideas for his books, which include ``Adventure
Capitalist'' and ``Hot Commodities.''

Fannie Mae and Freddie Mac each surged more than 20 percent in pre-market
trading today after Paulson moved to stem a collapse in confidence in the
two companies that purchase or finance almost half of the $12 trillion in
U.S. home loans.

Fannie Mae's market value is now about $10 billion, down from $38.9 billion
at the end of 2007. Freddie Mac's market value has shrunk to about $5
billion from $22 billion at the end of last year.

``These companies were going to go bankrupt if they hadn't stepped in to do
something, and they should've gone bankrupt with all of the mistakes
they've made,'' Rogers said. ``What's going to happen when you Band-Aid and
put some Band-Aids on it for another year or two or three? What's going to
happen three years from now when the situation's much, much, much worse?''

Last Week's Slump

Paulson's proposal, which the Treasury anticipates will be incorporated
into an existing congressional bill and approved this week, signals a shift
toward an explicit guarantee of Fannie Mae and Freddie Mac debt.

The Federal Reserve separately authorized the firms to borrow directly from
the central bank.

Washington-based Fannie Mae slid 45 percent last week, while McLean,
Virginia-based Freddie Mac sank 47 percent on concern they may require a
bailout that would wipe out shareholders.

Former St. Louis Federal Reserve President William Poole last week said in
an interview that Freddie Mac is technically insolvent under fair value
accounting, which measure a company's net worth if it had to liquidate all
its assets to repay liabilities. Poole said Fannie Mae may also become
insolvent this quarter.

Shorts Uncovered

Rogers said he had not covered his so-called short positions in Fannie Mae
and would increase his bet if it were to rally. Short sellers borrow stock
and then sell it in an effort to profit by repurchasing the securities
later at a lower price and returning them to the holder.

The U.S. economy is in a recession, possibly the worst since World War II,
Rogers said.

``They're ruining what has been one of the greatest economies in the
world,'' Rogers said. Bernanke and Paulson ``are bailing out their friends
on Wall Street but there are 300 million Americans that are going to have
to pay for this.''

To contact the reporters on this story: Carol Massar in New York at
cmassar@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net.

[pdisme]

What happens to a loan if the bank who loaned you the money goes bankrupt? I assume you don't just get to stop paying. :)

[tomf-1]

What happens to a loan if the bank who loaned you the money goes bankrupt? I assume you don't just get to stop paying. :)

son,

how do you think i paid for your college tuition !!!!!!:beerchug:


ps: your obligation doesn't go away.....unfortunately.

[pdisme]

I think I double paid my college then if you were paying them for me too! :)

[GLC65]

I am no veteran by any means, but I have never seen the credit markets as bad as it is. Even last year, I had mutliple lenders soliciting me for business. Now, everyone and their mothers are afraid to lend. They are using every excuse humanly possible not to lend. Citibank is lending again but their maximum cap is no more than $5 Million. I have alot of old debt that I need to retire but I am at a stand still with the credit markets the way they are. I am no Greenspan, but in my opinion, I think it will get much worse before it gets better. I am in the multifamily housing business and I remember back in 2004-2005 where a large percentage of my paying tenants all were moving and purchasing homes with zero or no money down. Some of them were bragging that they were getting cash back at closing. It was a tough time for me where I lost alot of long term tenants and ended up with bunch of deadbeats scumbags who got evicted applying for new apartments. Now those people that purchased those homes, are seeing their mortgage payments balloon to double or triple the amount of what they were paying. I know of at least a dozen people that are losing their homes just because of the adjustable mortgages. I hate to admit it, but I do think it is a major crisis that will eventually lead to a worldwide major depression. To top this off, you got this Barack Obama who is totally inexperienced and that will probably promote and enhance Ghetto USA be President of the United States. Not good in my opinion. What do you guys think?

[gday]

What happens to a loan if the bank who loaned you the money goes bankrupt? Its still an asset that is sold to someone... normally the highest bidder.

-mick

[Craftsman]

As Tom pointed out there was Poole's and Rogers' lucid observations. Then there were some fairly disturbing statements on Bloomberg last week. One politician in congress was concerned that after fmae and fredmac contributed over $200 million to politicians over the last 10 years they should be restricted from that endeavor if the bailout was to proceed. He tried to bring forth an amendment on the bill but was blocked by Dodds the senate banking commitee chair. Then Dodds comes on camera later in the day and says this bill needs to be pushed through the process as quickly as possible so that we can stop more than 1000 people being foreclosed on every day. He then states " There are no winners in this". No winners? Trading in the markets no matter what the vehicle is a zero sum game. One cannot win without another losing and vice versa. Then Bloomberg's ticker shows Ford and Gm short interest advancing on fears they may not have enough cash to fund operations. Are they the next bailout? Paulson's gse bailout took what, 2 maybe 3 weeks to push through. That's awfully quick for something of this magnitude to happen in Washington D.C..