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bkkandrew

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bkkandrew

Paulson Plans to Take Control of Fannie, Freddie (Update1)


By Alison Vekshin and Dawn Kopecki

Sept. 6 (Bloomberg) -- Treasury Secretary Henry Paulson is preparing to announce plans to bring Fannie Mae and Freddie Mac under government control, seeking to halt the crisis of confidence in the companies that make up almost half the U.S. mortgage market.

Paulson met with Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron yesterday to tell them of the decision to put the companies into a conservatorship, where they would be removed from their jobs, according to a person briefed on the discussions. A public announcement is expected this weekend, the person said.

The decision follows the Treasury chief's repeated comments to lawmakers in July that he wasn't likely to use taxpayer funds to prop up the federally chartered, shareholder-owned firms hit by $14.9 billion in losses the past year. The shares of both companies slid since Paulson won powers to inject unlimited funds in the companies, and their borrowing costs rose.

Continued here:

http://www.bloomberg.com/apps/news?p...zyM&refer=home

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A funny thing happened today - Ant trolls, stalks, prevokes and generally upsets approximately 15 members of the board, yet Noodles goes to jail. Perhaps it was a dream...
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bkkandrew

From Robert Peston (BBC) commenting on Freddie and Fannie:

In fact, while I write, two of our own housing-finance institutions are being steered by the Financial Services Authority into safe harbour, as the Nationwide negotiates to take ownership of two rival building societies, the Cheshire and the Derbyshire.

These are tiny compared with Fannie and Freddie, but they are not trivial in a UK context.

Derbyshire is the UK's ninth largest building society with £7bn of assets and the Cheshire is number 11 with £5bn. Together they have not far off a million customers...

...So although neither of them are bust and there is no reason for their depositors to be unduly alarmed (their savings are safe), the City watchdog, the FSA, wants them under the stewardship of the more robust Nationwide.

Full report here:

BBC NEWS | The Reporters | Robert Peston

bkkandrew

^and bare in mind his temperate language is by virtue of the fact that many (foolishly) blamed his reports for the Northern Rock debacle...

If he was allowed to report correctly, it would read thus:

Cheshire and Derbyshire, the 9th and 11th largest lenders in the UK have run out of money. Due to being broke, the FSA thought that they would hand them to the Nationwide, as they are the most solvent BS in the UK...

bkkandrew

Finally, a post from another forum. I find it hard to disagree with many of the sentiments..:

America Avoids The "N" word.

N A T I O N A L I S A T I O N

This word failed to pass the lips of all "officials" involved in the biggest OBFUSCATION in the history of world finance. Yes folks, the most "successful" extreme capitalist nation on earth is NATIONALISING its biggest two mortgage banks. But it (cosily) calls this unprecedented and historically unheard of move "Conservatorship", a word that doesn't exist in the English language and has been invented in order to LIE to the American public whose tolerance of "Nationalisation" is less than zero. So remote is that word in the consciousness of the average American citizen that the feds have fallen back on creative English which trumps even the worst of existing US Euphemisms (see "Rendition").

This is big news. And yet nowhere in any sentence of the incompetent announcement was any reference made to the background of this development, whereby the worlds most zealous upholder of the free market has admitted defeat. At no point was any reference made to the FAILURE of either of these two banks to operate in a REASONABLE and CAUTIOUS way expected of two institutions whose business represents an enormous sum. Not a single sentence referred to the fact that these two banks THEMSELVES had precipitated this crisis through PROFLIGATE lending, a la Northern Rock but a hundred times worse. At no point was any bame apportioned. Not a single word was CRITICAL of these spiv banks which, like Northern Rock and Bradford and Bingley, but in an order of magnitude almost impossible to perceive, spent the last ten years lending on a wing and a prayer. The reason for this "Conservatorship" was not the remote and etherial conditions of the credit crunch; It was the banks THEMSELVES which CAUSED the credit crunch in the first place.

The US government has now no choice other than to practically bankrupt itself. The amount of tax payers' cash needed to "save" these lamentable organisations is so enormous that the US has now no choice other than to literally print money. This is hugely inflationary. Furthermore, many British banks will have traceable pledges to the debt that these reprehensible institutions have brought about.

It really is time for unequivical blame to be attached, but it's not going to happen. Even the generally rather dim American public will see through this, though looking at the bland and accepting response to our own troubles as somehow being not related to any identifiable action and policy of the whole banking industry, maybe I'm wrong.

bkkandrew

Main Bank of China Is in Need of Capital


KEITH BRADSHER


Published: Friday, September 5, 2008 at 4:18 a.m.
Last Modified: Friday, September 5, 2008 at 4:18 a.m.

HONG KONG — China’s central bank is in a bind.


Associated Press



Dollar and yuan currency at a bank in China. China’s central bank has accumulated about $1 trillion in United States debt.



It has been on a buying binge in the United States over the last seven years, snapping up roughly $1 trillion worth of Treasury bonds and mortgage-backed debt issued by Fannie Mae and Freddie Mac.

Those investments have been declining sharply in value when converted from dollars into the strong yuan, casting a spotlight on the central bank’s tiny capital base. The bank’s capital, just $3.2 billion, has not grown during the buying spree, despite private warnings from the International Monetary Fund.

Now the central bank needs an infusion of capital. Central banks can, of course, print more money, but that would stoke inflation. Instead, the People’s Bank of China has begun discussions with the finance ministry on ways to shore up its capital, said three people familiar with the discussions who insisted on anonymity because the subject is delicate in China.

The central bank’s predicament has several repercussions. For one, it makes it less likely that China will allow the yuan to continue rising against the dollar, say central banking experts. This could heighten trade tensions with the United States. The Bush administration and many Democrats in Congress have sought a stronger yuan to reduce the competitiveness of Chinese exports and trim the American trade deficit.

The central bank has been the main advocate within China for a stronger yuan. But it now finds itself increasingly beholden to the finance ministry, which has tended to oppose a stronger yuan. As the yuan slips in value, China’s exports gain an edge over the goods of other countries.

The two bureaucracies have been ferocious rivals. Accepting an injection of capital from the finance ministry could reduce the independence of the central bank, said Eswar S. Prasad, the former division chief for China at the International Monetary Fund.

“Central banks hate doing that because it puts them more under the thumb of the finance ministry,” he said.

Mr. Prasad said that during his trips to Beijing on behalf of the I.M.F., he had repeatedly cautioned China over the enormous scale of its holdings of American bonds, emphasizing that it left China vulnerable to losses from either a strengthening of the yuan or from a rise in American interest rates. When interest rates rise, the prices of bonds fall.

Officials at the central bank declined to comment, while finance ministry officials did not respond to calls or questions via fax seeking comment. Data in a study by the Bank of International Settlements based in Basel, Switzerland, sometimes called the central bank for central banks, shows that many central banks had small capital bases relative to foreign reserves at the end of 2002, though few were as low as the People’s Bank of China.

Given the poor performance of foreign bonds, the Chinese government could decide to shift some of its foreign exchange reserves into global stock markets.
The central bank started making modest purchases of foreign stocks last winter, but has kept almost all of its reserves in bonds, like other central banks.

The finance ministry, however, has pushed for investments in overseas stocks. Last year, it wrested control of the $200 billion China Investment Corporation, which had been bankrolled by the central bank. That corporation’s most publicized move, a $3 billion investment in the Blackstone Group in May of last year, has lost more than 43 percent of its value.

The central bank’s difficulties do not, by themselves, pose a threat to the economy, economists agree. The government has ample resources and is running a budget surplus. Most likely, the finance ministry would simply transfer bonds of other Chinese government agencies to the bank to increase its capital. But even in a country that strongly discourages criticism of its economic policies, hints of dissatisfaction are appearing over China’s foreign investments.

For instance, a Chinese blogger complained last month, “It is as if China has made a gift to the United States Navy of 200 brand new aircraft carriers.”

Bankers estimate that $1 trillion of China’s total foreign exchange reserves of $1.8 trillion are in American securities. With aircraft carriers costing up to $5 billion apiece, $1 trillion would, in theory, buy 200 of them.

By buying United States bonds, the Chinese government has been investing a large chunk of the country’s savings in assets earning just 3 percent annually in dollars. And those low returns turn into real declines of about 10 percent a year after factoring in inflation and the yuan’s appreciation against the dollar.

The yuan has risen 21 percent against the dollar since China stopped pegging its currency to the dollar in July 2005.

The actual declines in value of the central bank’s various investments are a carefully guarded state secret.

Still China finds itself hemmed in. If it were to curtail its purchases of dollar-denominated securities drastically, the dollar would likely fall and American interest rates could soar.

China spent more than one-eighth of its entire economic output last year on foreign bonds, and then picked up the pace during the first half of this year. Chinese officials have suggested in recent comments that they are increasingly interested in stopping the yuan’s rise, and thus are willing to continue buying foreign securities to support the dollar. In fact, the yuan weakened slightly against the dollar last month after 26 consecutive months of gains.

Along with Treasuries, China has invested heavily in mortgage-backed bonds from Fannie Mae and Freddie Mac, the struggling mortgage finance giants that are sponsored by the United States government. Standard & Poor’s estimates China’s holdings at $340 billion.

Some bond traders suspect that the central bank has scaled back its purchases of these securities, as have China’s commercial banks. But the central bank trades this debt through many third parties in many countries, making its activity opaque to outside analysts.

The central bank has gone to great lengths to maintain its foreign purchases. The money to buy foreign bonds has come from the reserves required that commercial banks must deposit with the central bank. In effect, China’s commercial banks have been lending the central bank more than $1 trillion at an interest rate of less than 2 percent.

To keep the banks strong when they were getting such little interest on their reserves, the central bank has kept deposit rates low. The gap between what banks are paying on deposits and the rates they are charging ordinary customers to borrow is several percentage points. This amounts to a transfer of wealth from ordinary Chinese savers to the central bank and on to Americans who are selling their debt to the Chinese.

The central bank is now under considerable pressure to reduce the commercial banks’ reserve requirements to encourage growth as the Chinese economy shows signs of slowing.

Victor Shih, a specialist in Chinese central banking at Northwestern University, said that when he visited the People’s Bank of China for a series of meetings this summer, he was surprised by how many officials resented the institution’s losses.

He said the officials blamed the United States and believed the controversial assertions set forth in the book “Currency War,” a Chinese best seller published a year ago. The book suggests that the United States deliberately lured China into buying its securities knowing that they would later plunge in value.

“A lot of policy makers in China, at least midlevel policy makers, believe this,” Mr. Shih said.

bkkandrew

^The step towards the US debt repudiation and complete monetary collapse continues apace.

Its only days to go now - as the Chinese have found out to their cost!

Accidental Ajarn

^

I can't be bothered to read all this dribble, but has the US economy crashed and burned yet like that nutjob BKKA predicated?

Seems no matter how many times he gets it wrong, Bkka keeps coming back up even wackier predications. Does anyone, besides himself, take this moonbat seriously?

bkkandrew

Ah, I do love this:

Today, 03:03 PM Remove user from ignore list
Accidental Ajarn This message is hidden because Accidental Ajarn is on your ignore list.


Anyway:

Lenders With `Outsize' Fannie, Freddie Stakes May Need Capital

By Linda Shen



Sept. 8 (Bloomberg) -- Sovereign Bancorp Inc., Gateway Financial Holdings Inc. and smaller lenders with ``significant'' stakes in Fannie Mae and Freddie Mac may be left grasping for capital after the U.S. government seized the mortgage companies and placed them into so-called conservatorship.

The takeover announced yesterday replaced the government- sponsored companies' chief executives and eliminated their dividends, leaving preferred shareholders second in line for claims and holders of common stock last. U.S. bank regulators may be concerned the market will conclude smaller banks' capital will be completely depleted, said Ira Jersey, a Credit Suisse Holdings USA Inc. interest-rate strategist.

``While the preferreds aren't being formally wiped out, their value is largely gone,'' said Sterne Agee & Leach Inc. analyst Sean Ryan yesterday. The takeover has ``pretty ugly implications for capital adequacy'' for some lenders, he said.

Some smaller lenders that bought preferred stock to cushion against loan losses have holdings valued at a significant percentage of capital. Banks that don't maintain minimum capital levels as a cushion against losses may face curbs on their business, dividends and management, and in some cases can be shut down.

The Federal Reserve, The Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision said yesterday they would work with those lenders on ``capital restoration plans.''

Sovereign, the second-largest U.S. savings and loan, has stakes in the companies valued at $623 million as of June 30 and said it may take ``significant'' charges on its holdings. The Philadelphia-based bank's stakes are ``not technically part of our capital,'' and are ``simply within our investment portfolio,'' Chief Financial Officer Kirk Walters said in an August interview.

`Worst-Case Scenario'

``When we raised $1.9 billion in new regulatory capital in May, a number of factors were taken into consideration including a possible decline in our investments,'' said Sovereign Chief Executive Officer Joseph Campanelli in an e-mailed statement. ``Sovereign is well capitalized and even in a worst-case scenario, would remain so and have adequate cushion under all regulatory standards.''

Gateway Financial, based in Virginia Beach, Virginia, has $38.5 million in preferred shares representing about 22 percent of its tangible capital after tax adjustment, KBW Inc. analyst Samuel Caldwell said in an Aug. 26 note to investors. A message left for Chief Executive Officer D. Ben Berry outside of normal business hours wasn't returned.

`Unambiguously Bad'

The takeover is ``unambiguously bad'' for preferred shareholders who, along with holders of common stock, ``will in all likelihood be wiped out,'' Gimme Credit LLC analyst Kathleen Shanley said in a statement Sept. 7. ``The government opted not to sweeten the pill for bank holders of preferred stock,'' and the move is ``likely to set a precedent for any future rescue transactions,'' she said.

The U.S. government took over Fannie and Freddie after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies making up almost half the U.S. home loan market.

``For the industry at large, it's unfortunate given that we're in capital replenishment mode already, to the extent that there's another ding to capital, that's a negative,'' said Sandler O'Neill & Partners LP analyst Scott Siefers. ``While there might be some specific company fallout, the impact to the industry as a whole is certainly manageable.''

`Betting on Paulson'

Midwest Bank Holdings Inc., based in Melrose Park, Illinois, has $67.5 million in preferred shares worth as much as 23 percent of its risk-based capital. The lender is ``betting on Paulson,'' Chief Investment Officer Don Wiest said in August.

``A lot of banks own it, but they don't own outsized amounts of it,'' Jersey said. For lenders with ``outsized'' holdings, ``those institutions will have more of a capital problem and will need to raise capital,'' he said.

Frontier Financial Corp. owns $5 million in Fannie and Freddie securities and cut its dividend by two-thirds in June, saying deterioration in the housing market was affecting borrowers. Its stock has declined 41 percent this year. Valley National Bancorp, the Wayne, New Jersey-based lender, said last week it may be forced to take a $25.7 million, or 19 cent-a- share, charge on its Fannie and Freddie holdings.

From:

http://www.bloomberg.com/apps/news?p...uzc&refer=home

Accidental Ajarn

Hey

That world famous economist, bkka, has learned how to cut and paste from the internet. Ain't he smart?

Butterfly

giving up already, troll ? can't let that happen

You are a fraud, and you know it

should we go back to your silly claims and lies ?

bkkandrew

^Like this one:

http://teakdoor.com/us-domestic-issu...tml#post745642 (A note of caution for those with deposits in US Banks)

When will you just simply hang your head in shame?

Butterfly

^ you are back !!! what shame ? the same one as the one you claim to be a MD or FD for a fictional company ?

or the one where you claim that price elasticity will raise oil price forever ?

bkkandrew

^I haven't gone anywhere.

You have a fixation with me being an MD, don't you. FWIW, I have been an MD or FD of 12 companies and am currently semi-retired at 35. How are you doing?

Butterfly

and you are living in a 5k condo ? lol !!!

bkkandrew

^I have a 5K condo (brand new) in Ratchada, slightly bigger that the one I was paying 14K for next door. I still have a 4.5K one near On Nut and a large house in Somerset, UK. I did, however, sell 4 properties in the UK last lear (at the height of the house price boom).

Again, how are you doing?

Butterfly