Chief
07-13-2008, 06:29 PM
http://online.wsj.com/article/SB121597057216549037.html?mod=hps_us_whats_news
By JAMES R. HAGERTY, DEBORAH SOLOMON and SUDEEP REDDY
July 14, 2008
The U.S. Treasury and Federal Reserve, capping a weekend of high-stakes maneuvering, attempted to shore up confidence in Fannie Mae and Freddie Mac by announcing a plan that placed the federal government firmly behind the battered mortgage giants.
In a statement timed to precede the opening of Asian markets Monday, as well as a closely watched auction of debt by Freddie, the Treasury said it plans to seek approval from Congress for a temporary increase in a longstanding Treasury line of credit for the two companies.
The Treasury also said it would seek temporary authority so that it could buy equity in either company "if needed" to ensure they have "sufficient capital to continue to serve their mission" of providing a steady flow of money into home mortgages. The plan, which requires congressional approval, also calls for a provision to give the Federal Reserve a "consultative role" in the process of setting capital requirements and other "prudential standards" for Fannie and Freddie.
The Fed's Board of Governors met Sunday in Washington and voted to grant the New York Fed authority to lend to Fannie Mae and Freddie Mac "should such lending prove necessary," the central bank said in a statement. The move would effectively give the two companies access to the Fed's discount window if necessary, providing a backstop in case the firms were to face a short-term funding crisis down the road.
Officials are hoping that, by promising bold action if needed, they can instill enough confidence in the battered companies that such intervention will ultimately prove unnecessary.
Buying Bank Loans
Fannie and Freddie are the nation's dominant providers of funding for home mortgages. They buy loans after they are made by banks, package most of them into securities, and sell many of them to investors all over the world.
The moves reinforced the notion that investors can always count on the government to bail out Fannie or Freddie in a crisis -- a belief the Bush administration until recently tried hard to quash.
The moves highlight Treasury's concern about market conditions. A senior official said the steps are intended to help "stabilize" the current situation. While Treasury does not think the financial situation of either firm has deteriorated since Friday, "as we've watched market developments, we decided it was time for policy makers to act," said one administration official.
Surge in Defaults
The government is relying heavily on the two companies to prop up the U.S. mortgage and housing markets, weakened by a surge in mortgage defaults over the past two years. If either company ran into serious financial trouble -- a prospect that seemed more real last week when their stocks fell nearly 50% -- it would be a blow to the already weak housing market and economy.
The weekend move means that Fed Chairman Ben Bernanke, who has been steadily accumulating authority as the U.S. grapples with the financial crisis, will have even more power. The Treasury envisions the Fed working with the mortgage giants' regulator to help prevent situations that could be a risk for the entire financial system. The move builds on Treasury's broader goal of remaking financial regulation to give the Fed broader influence over financial-market stability.
**SCHNIPP**
Pretty serious stuff, and this is what keeps driving the negative pressure on the economy.
Indymac Bank failed on Friday, and a Federal Trustee was named today to start liquidating assets that are insured by the FDIC.
There is open talk about eight or nine impending major bank failures across the country now as well. No other names, but for the record, Indymac was not on the top 20 list of banks that were expected to fail soon...
Gonna be a long hot summer boys and girls.
cewl
By JAMES R. HAGERTY, DEBORAH SOLOMON and SUDEEP REDDY
July 14, 2008
The U.S. Treasury and Federal Reserve, capping a weekend of high-stakes maneuvering, attempted to shore up confidence in Fannie Mae and Freddie Mac by announcing a plan that placed the federal government firmly behind the battered mortgage giants.
In a statement timed to precede the opening of Asian markets Monday, as well as a closely watched auction of debt by Freddie, the Treasury said it plans to seek approval from Congress for a temporary increase in a longstanding Treasury line of credit for the two companies.
The Treasury also said it would seek temporary authority so that it could buy equity in either company "if needed" to ensure they have "sufficient capital to continue to serve their mission" of providing a steady flow of money into home mortgages. The plan, which requires congressional approval, also calls for a provision to give the Federal Reserve a "consultative role" in the process of setting capital requirements and other "prudential standards" for Fannie and Freddie.
The Fed's Board of Governors met Sunday in Washington and voted to grant the New York Fed authority to lend to Fannie Mae and Freddie Mac "should such lending prove necessary," the central bank said in a statement. The move would effectively give the two companies access to the Fed's discount window if necessary, providing a backstop in case the firms were to face a short-term funding crisis down the road.
Officials are hoping that, by promising bold action if needed, they can instill enough confidence in the battered companies that such intervention will ultimately prove unnecessary.
Buying Bank Loans
Fannie and Freddie are the nation's dominant providers of funding for home mortgages. They buy loans after they are made by banks, package most of them into securities, and sell many of them to investors all over the world.
The moves reinforced the notion that investors can always count on the government to bail out Fannie or Freddie in a crisis -- a belief the Bush administration until recently tried hard to quash.
The moves highlight Treasury's concern about market conditions. A senior official said the steps are intended to help "stabilize" the current situation. While Treasury does not think the financial situation of either firm has deteriorated since Friday, "as we've watched market developments, we decided it was time for policy makers to act," said one administration official.
Surge in Defaults
The government is relying heavily on the two companies to prop up the U.S. mortgage and housing markets, weakened by a surge in mortgage defaults over the past two years. If either company ran into serious financial trouble -- a prospect that seemed more real last week when their stocks fell nearly 50% -- it would be a blow to the already weak housing market and economy.
The weekend move means that Fed Chairman Ben Bernanke, who has been steadily accumulating authority as the U.S. grapples with the financial crisis, will have even more power. The Treasury envisions the Fed working with the mortgage giants' regulator to help prevent situations that could be a risk for the entire financial system. The move builds on Treasury's broader goal of remaking financial regulation to give the Fed broader influence over financial-market stability.
**SCHNIPP**
Pretty serious stuff, and this is what keeps driving the negative pressure on the economy.
Indymac Bank failed on Friday, and a Federal Trustee was named today to start liquidating assets that are insured by the FDIC.
There is open talk about eight or nine impending major bank failures across the country now as well. No other names, but for the record, Indymac was not on the top 20 list of banks that were expected to fail soon...
Gonna be a long hot summer boys and girls.
cewl