Posted 2010-10-07 18:30
by Karl Denninger
Source: Market Ticker
Posted 2010-10-07 18:30
by Karl Denninger
Source: Market Ticker
June 14 (Bloomberg) — The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.
Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts.
“It is the mother of all bailouts,” said Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry.
* Q1 provision for credit losses $5.4 bln
* Focused on improving credit quality – CEO
* Signs of housing market stabilising – CEO
* But expect big rise in distressed sales – CEO
WASHINGTON/NEW YORK, May 5 (Reuters) – Freddie Mac, the second-largest provider of U.S. residential mortgage funds, on Wednesday asked for an additional $10.6 billion in federal aid after it lost $8 billion in the first quarter.
The company warned it would continue to need billions more in government funds because the housing market remains fragile.
The loss was $6.7 billion before a $1.3 billion dividend payment on senior preferred stock owned by the U.S. Treasury.
Date: 24th Apr 10
House Financial Services Chairman Barney Frank caused a bit of an uproar Friday when he suggested the U.S. government does not guarantee the debts of Fannie Mae and Freddie Mac.
Rep. Frank later recanted and backed a Treasury Department statement reassuring investors that, yes, Fannie and Freddie Mae debt is guaranteed by the U.S. government. “Going forward,” he said in a statement, we “will make sure that there are no implicit guarantees, hints, suggestions, or winks and nods…we will be explicit about what is and is not an obligation of the federal government.”
But after years of winks and nods, there’s no doubt that Fannie and Freddie now enjoy an explicit guarantee, according to most observers. The U.S. government placed Fannie Mae and Freddie Mac in conservatorship in September 2008: “This means that the U.S. Taxpayer now stands behind $5 trillion of GSE debt,” according to the Congressional Research Service.
The problem is that $5 trillion of so-called agency paper is not treated as if it is a debt of Uncle Sam for accounting purposes, says Richard Suttmeier, chief market strategist at Niagara International Capital and ValueEngine.com.
“Get it on the balance sheet – that’s where it belongs,” Suttmeier says. “Add it to the $14.2 trillion in [federal] debt and let’s move on.”
Another Time Bomb Ticking
But $5 trillion is a lot of money – even by government standards — and moving on may be the problem because of ongoing problems in the housing market, Suttmeier says. “There’s a general concern on Main Street U.S.A. that ‘my neighbors are throwing in their keys, there’s more for sale signs in my community…do I want to buy a new home, risking there’s still downside risk to housing?’ “
(CNSNews.com) – Rep. Jeb Hensarling (R-Texas) says the Obama administration is using an accounting “gimmick” in its budget by not including the debt owed by mortgage firms Fannie Mae and Freddie Mac.
“The accounting gimmicks that are used today would make an Enron and WorldCom accountant blush,” Hensarling told reporters. “The American people know that under the policies of this administration-under the policies of this Congress-we are drowning in a sea of red ink.”
Hensarling, a member of the House Financial Services Committee, joined a group of House Republicans Tuesday in announcing the introduction of a bill that would require President Obama’s Office of Management and Budget to include the liabilities of Fannie and Freddie in the national debt calculation.
The two companies are defined as government-sponsored enterprises (GSEs) whose portfolios include trillions of dollars in American mortgages, many of which are now “under water.” The federal government took control of the mortgage giants in 2008, as they neared financial collapse.
Billions of taxpayer dollars ($61 billion for Fannie Mae and $51 billion for Freddie Mac) has been spent so far to keep the GSEs solvent. Just this week, Freddie Mac reported a $7.8 billion loss in the final three months of 2009, but said it will not require another taxpayer infusion at this time.
Hensarling on Tuesday suggested that the administration is under-reporting the nation’s debt by failing to account for the potential liability incurred if Fannie and Freddie go deeper into the red.
The potential liabilities incurred by Fannie and Freddie, Hensarling said, would amount to “the mother of all bailouts.”
“When the final chapter is written on the history of our financial debacle, it will show that the cause was the government policies that cajoled, incented (sic) and mandated financial institutions to lend money to people to buy homes that, ultimately, they could not afford,” Hensarling said. “At the epicenter of those federal policies was Fannie Mae and Freddie Mac, and before all the dust settles in the final accounting, they will prove to be the mother of all bailouts.”
Rep. Spencer Bachus (R-Ala.), the ranking member of the House Financial Services Committee, estimated that the unfunded liabilities of Fannie and Freddie could exceed $5 trillion.
Under Republican’s proposed bill, the White House Office of Management and Budget would have to treat the GSEs’ estimated liabilities as part of the federal debt, and those liabilities along with the rest of the debt would have to remain under the debt ceiling.
Congress recently voted to raise the debt ceiling above $14 trillion dollars for the first time to accommodate other spending.
It’s good to see that US officials and former officials continue acting to par, God forbid they actually shock us and change their stripes. The latest tripe out of the mouths of the mega corrupted and their hand picked puppets is Henry Paulson’s tripe about Russia trying to collapse the US economic bubble and that being the reason that the US is now down on its luck.
And why not? After all, Russia only had some $450 BILLION invested in the US and that is not counting the various steel plants and other assets owned by Russian companies. Why not just throw away all that money, surely it could never be the fact that the US, government and people and corporations, are debt drunk and indentured fools who can not live within their means and spend and continue to spend like maniacs. It is almost like an alcoholic in his final stages of death, knowing its all over, why the hell not just drink like crazy, the liver is done anyways? Or a man dieing from lung cancer who just keeps chain smoking, not going to make any difference at this point anyways.
But Henry Paulson is an egotist and a former top official who obviously 1. does not want to be seen as the fool and boob that he is and 2. go to jail or worse get lynched by angry mobs. So, he does what any failed US government or business hack does, who can try and get away with it: he blames it on Russia. Russia, the evil tyrant, the ones who have a spy under every bed, an assassin with a uranium filled syringe, in every closet and a banker with a nuclear money bomb at every stock market.
This is no different from the usual: blame Russia for Georgia’s aggression, committed by a maniac US puppet. Blame Russia for a hyper armed Middle East, while the US hands out $12 billion in weapons to the Middle East, most of it to Islamics, each and every year. Blame Russia for Syria, while the US pays Syria to run black ops prisons and torture captives the US delivers. Blame Russia for Hamas and the PLO while the US saves the PLO from Israeli-Lebanese Christian extermination and then legitimizes them and arms them. Blame Russia for Serbia, while the US arms Islamic fanatics and wages a terror war of genocide on Orthodox Christian Serbs. Why not?
So now, while US banks and their lap dog English fellow sociopaths, were conning and robbing the world blind, till it all collapsed, lets now blame Russia for this to.
Of course, the US media is more than happy to join in and head lines are a buzz. Just to do a google search for the English versions. “Russia’s risky roulette” declares the New York Post.
“Russia tried to talk China into waging financial war on the US in 2008, as the country was mired in a mortgage crisis. According to a forthcoming book by former Treasury Secretary Hank Paulson, Russian leaders wanted the Chinese government to dump billions of dollars worth of bonds tied to ailing mortgage giants Fannie Mae and Freddie Mac.” They state this as a fact. Why not, its not like they will ever be called out on the lies.
“Paulson Says Russia Urged China to Dump Fannie, Freddie Bonds” declares Bloomberg via BusinessWeek. “The Russians made a “top-level approach” to the Chinese “that together they might sell big chunks of their GSE holdings to force the U.S. to use its emergency authorities to prop up these companies,” Paulson said, referring to the acronym for government sponsored entities. The Chinese declined, he said.”
Of course, what Paulson and everyone else avoids answering is the simple question of: Why? What would Russia gain from loosing its invested funds? Secondly, at this point, the US would have done just what it did anyways, which is nationalize the two companies, which it was propping up anyways. Conspiracy is much easier to deal with than to answer for three decades of failed American social engineering financed with the savings and futures of much of the world.
The only proof they have is that Russia sold off its $65 billion in Fannie and Freddie in 2008. Oh my, you mean that our government had the brains not to ride the crashing plane to the bottom but decided to jump out with a parachute. Why not blame every other investor, who sold, for this also. My bet is, if Mr. Paulson owned any of that stock, he was out of it long before mid 2008. Furthermore, $65 billion is a drop in the trillions of debt that those two organizations hold.
Sure! That is called ‘his-story’ (Henry Paulson’s fairy tale).
– Paulson Says He Was Prepared to Guarantee Lehman (BusinessWeek):
Jan. 29 (Bloomberg) — Former U.S. Treasury Secretary Henry Paulson says in his memoir that he was prepared to support a government backstop to prevent the bankruptcy of Lehman Brothers Holdings Inc. until he learned the firm’s assets were so mis- marked it would have guaranteed a loss to taxpayers.‘
As of ‘now’ the US taxpayer has already lost everything, because of bailouts, stimulus packages, quantitative easing etc., which only benefited the banksters and the elite. It is just that the people don’t know it yet.
The US government and the Fed are bankrupting America!
As a side note:
If you are an investor and your investment starts to look really bad and is about to lose a lot of money, then you better sell it straightaway.
China is also about to lose a lot of money from holding US Treasuries, and it has now become very difficult to sell them without tremendous consequences, but the bailout/stimulus bubble will finally blow up. This will be the end of the dollar and the US as we know it.
Just think about the big dilemma the Chinese are in now, because of the irresponsible economic policies of the US.
I am not saying that China ‘always’ acted responsible. This is a created crisis. This is the Greatest Depression and it has only just begun.
Henry Paulson, former U.S. treasury secretary, testifies at a House Oversight and Government Reform Committee hearing in Washington, D.C., on Jan. 27, 2010. (Bloomberg)
Jan. 29 (Bloomberg) — Russia urged China to dump its Fannie Mae and Freddie Mac bonds in 2008 in a bid to force a bailout of the largest U.S. mortgage-finance companies, former Treasury Secretary Henry Paulson said.
Paulson learned of the “disruptive scheme” while attending the Beijing Summer Olympics, according to his memoir, “On The Brink.”
The Russians made a “top-level approach” to the Chinese “that together they might sell big chunks of their GSE holdings to force the U.S. to use its emergency authorities to prop up these companies,” Paulson said, referring to the acronym for government sponsored entities. The Chinese declined, he said.
Russia’s five-day war with U.S. ally Georgia started on Aug. 8, the same day as the opening ceremonies of the Beijing Games. Prime Minister Vladimir Putin told U.S. President George W. Bush during those ceremonies that “war has started,” according to Dmitry Peskov, Putin’s spokesman.
“The report was deeply troubling — heavy selling could create a sudden loss of confidence in the GSEs and shake the capital markets,” Paulson wrote. “I waited till I was back home and in a secure environment to inform the president.”
Russia never approached China about dumping U.S. bonds, Peskov said today. “This is not the case,” he said by phone.
Russia sold all of its Fannie and Freddie debt in 2008, after holding $65.6 billion of the notes at the start of that year, according to central bank data. Fannie and Freddie were seized by regulators on Sept. 6, 2008, amid the worst U.S. housing slump since the Great Depression.
Dec. 31 (Bloomberg) — Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to Peter Wallison, a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.
“The situation is they are losing gobs of money, up to $400 billion in mortgages,” Wallison said in a Bloomberg Television interview. The Treasury Department recognized last week that losses will be more than $400 billion when it raised its limit on federal support for the two government-sponsored enterprises, he said.
Added: 25th Dec 09
Yes we can … loot the taxpayers all of the time.
WASHINGTON (Reuters) – The Obama administration pledged on Thursday to back beleaguered mortgage finance giants Fannie Mae and Freddie Mac no matter how big their losses may be in the next three years.
It also jettisoned a demand that the two companies cut the size of their mortgage-related investment portfolios next year, allowing them to provide even more support in the near term for a housing market recovering from its worst slump in decades.
The Treasury Department said it made the changes to assure financial markets it stood firmly behind both companies and to buy more time for the two government-sponsored enterprises to whittle down their mortgage-related holdings.
The two agencies each had a Treasury credit line of $200 billion. Combined, they have so far tapped about $111 billion.
The Treasury’s announcement came just hours after the companies said their chief executives would be paid up to $6 million on an annualized basis for 2009.
Few analysts had expected Freddie Mac to tap full the $200 billion, but Fannie Mae’s poor underwriting standards left it with losses many thought could grow past $200 billion.
The administration waited until financial markets had closed on Christmas eve to make the announcement, thwarting chances for critics to have their voices heard.
“This news today won’t ruin anyone’s Christmas. That is, except for those who are worried about the size of the nation’s debt,” said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
Under a law put in place before the government seized the two mortgage agencies in September 2008, Treasury Secretary Timothy Geithner had until the end of this year to increase the limit without asking Congress for approval.
Nov. 16 (Bloomberg) — Meredith Whitney, the analyst who cut her rating on Goldman Sachs Group Inc. last month, said bank stocks are overvalued after rallying faster than the U.S. economy and share prices will fall to tangible book value.
“I haven’t been this bearish in a year,” Whitney, founder of Meredith Whitney Advisory Group LLC, said today in a CNBC television interview. “I think you can sit on cash for a little bit, because you have to wait for a leg down in valuations. The S&P is expensive across the board.”
These four stocks represented thirty seven percent of all shares traded today.
Today 3,162 different stocks traded on the NYSE. These four represent 0.13% of the total, yet they comprised 37% of the volume. That’s an over-representation of nearly 300 times the average.
Now folks, let’s be straight here. Do you believe for one second that this is “great liquidity” added by the “high-frequency trading” computers that are almost certainly behind the vast majority of this volume?
This isn’t the first day with this sort of abnormal trading and volume pattern either. In fact it has been going on for the last week, with AIG making a frequent appearance on the list as well.
If there was ever an argument to be made for the NYSE having turned into a gigantic “hot potato” parlor game, this is it – in your face in an impossible-to-explain-away fashion.
– Stocks led by four wounded horsemen (of the coming apocalypse):
In fact, these four wounded horsemen of the financial sector comprised 40% of the overall trading volume on the NYSE on Tuesday. These stocks haven’t just been active, they’ve been surging.
This is kind of scary. It suggests that the late-summer portion of the almost six-month long market rally is being fueled more by speculation and momentum, not real optimism about a potential recovery in the financial sector and the overall economy.
If the economy were truly in “recovery” mode, and if consumer demand were truly picking up, the Baltic Dry Index should be moving consistently higher.
It’s not. And that fact should be a major warning sign for anyone buying stocks and betting the economy’s current blip higher is sustainable.
From 1936 into the late 1980s, the PE ratio tended to peak in the low 20s (red line) and trough somewhere around seven (green line). The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s) and the dot-com bust (early 2000s). As a result of the recent plunge in earnings and recent stock market rally, the PE ratio spiked and just peaked at 144 – a record high. Currently, with 97% of US corporations having reported for Q2 2009, the PE ratio now stands at a lofty 129.
Three-month slide could hit record lows, Royal Bank of Scotland chief credit strategist Bob Janjuah predicts.
He expects the S&P 500 index of US equities to reach the “mid 500s”.
Yes, you may not like the messenger (Glenn Beck). Listen to the message.
Change you can believe in!
Added: 13. August 2009
More from Catherine Austin Fitts:
– Former Assistant Secretary of Housing: The U.S. is the Global Leader in Illegal Money Laundering
– Rethinking Diversification
This is a MUST-READ.
To: The Wall Street Journal
Re: “The Fed Didn’t Cause the Housing Bubble”
By: Alan Greenspan, former Chairman of the Federal Reserve
Dated: Wednesday, March 11, 2009
Ladies and Gentlemen:
In his article on your opinion page, “The Fed Didn’t Cause the Housing Bubble,” Alan Greenspan attributes the housing bubble to lower interest rates between 2002 and 2005. That’s amazing to me.
My company served as lead financial advisor to the Federal Housing Administration between 1994 and 1997. I watched both the Administration and the Federal Reserve aggressively implement the policies that engineered the housing bubble. These are described at my website and in my on-line book,Dillon Read & the Aristocracy of Stock Profits (http://www.dunwalke.com).
One story, for example, is the following:
“In 1995, a senior Clinton Administration official shared with me the Administration’s targets for Fannie Mae and Freddie Mac mortgage volumes in low- and moderate-income communities. We had recently reviewed the Administration’s plans to increase government mortgage guarantees – most of these mortgages would also be pooled and sold as securities to investors. Even in 1995, I could see that these plans would create unserviceable debt loads in communities struggling with the falling incomes expected from globalization. Homeowners would default on mortgages while losses on mortgage-backed securities would drain retirement savings from 401(k)s and pension plans. Taxpayers would ultimately be hit with a large bill . . . but insiders would make a bundle. I looked at the official and said that the Administration was planning on issuing more mortgages than there were houses or residents. “Shut up, this is none of your business,” the official snapped back.”
Freddie Mac reported yesterday that its liabilities now exceed its assets, in part because the fair value of its loan portfolio declined by a massive $120 billion. It has said it will need to draw another $30.8 on the loan facility established to keep it afloat. All told it lost just a smidge under $24 billion in the fourth quarter.
Those a mind-boggling numbers. Regular readers know we have a special way of breaking these down to more comprehensible numbers.
Freddie Mac Losses By The Calendar
Full Quarter: $24 billion
Each Day: $265 million
Each Hour: $11 million
Each Minute: $184,000
Each Second: $3000
Each and every day in the last quarter of 2008–including weekends Thanksgiving and Christmas–Freddie Mac lost $265 million. That beats out General Motors, which lost just $85 million a day. It means that every second, Freddie Mac lost more than two weeks worth of the average American’s income. Every 90 seconds, Freddie Mac lost as much as the average home price in the most expensive region in the country.
The main skill required to run Freddie Mac seems to be the ability to light three one thousand dollar bills on fire every second of every day. If these guys keep it up, they may even be able to get a job at AIG one day.
Mar. 12, 2009
Source: The Business Insider
NEW YORK (Reuters) – Fannie Mae and Freddie Mac could tap the government for up to $51 billion in coming weeks, exceeding some Wall Street estimates, so they can continue to operate as the largest providers of funding for U.S. residential mortgages.
The storm of rising delinquencies and falling securities values that led to the government’s seizure of the companies in September accelerated in the last quarter, requiring Fannie Mae and Freddie Mac to seek more of the stop-gap measures organized by the U.S. Treasury and their regulator. Analysts predicted more capital needs from Treasury through 2009.
Fresh losses in the most recent quarter will probably be the harshest on Freddie Mac, which holds a larger portfolio of risky mortgage securities, including subprime bonds. The McLean, Virginia-based company said on Friday it may have to seek $30 billion to $35 billion in capital from the Treasury in the form of senior preferred stock.
Washington-based Fannie Mae said late on Monday that the Federal Housing Finance Agency, the regulator, may request $11 billion to $16 billion, based on estimates for fourth-quarter results.
Jan. 23 (Bloomberg) — Freddie Mac, the mortgage-finance company under federal control, said it will ask the U.S. Treasury Department for as much as $35 billion more in aid.
Freddie, which took $13.8 billion from Treasury in November, said in a securities filing today that its fourth- quarter operating losses will again drive its net worth below zero. The company also said it settled a dispute over Washington Mutual loans with JPMorgan Chase & Co.
Treasury officials pledged up to $100 billion apiece to keep Freddie and Fannie Mae, the other government-sponsored enterprise, solvent. Aid is needed if the value of their assets drops below the amount they owe on their obligations. Fannie, which hasn’t drawn on that financing yet, said in November that it may have to after reporting results for the fourth quarter of 2008.
A future out of control, bankrupt financial institutions trying to hold on, limitation on credit severely limits ability of the economy to start up again, debt totally embraces our lives, handouts a state secret, soon cash infusions wont work for banks anymore, banks hold too much toxic garbage to even know if they are solvent. We are now 17 months into a credit crisis that continues to expose the corruption and incompetence of government, banking, Wall Street and transnational corporations. The situation has not stabilized and it won’t anytime soon. All we see are sweetheart deals for elitist corporations for which American taxpayers will pay for years to come. The future of our nation is totally out of control. For the last eight years our economy has been running on something for nothing, lies and deceit. The result will be hyperinflation and then the Second Great Depression.
Waxman argues that Fannie and Freddie ignored dangerous Alt-A loans
WASHINGTON (MarketWatch) – Mortgage giants Fannie Mae and Freddie Mac made irresponsible investments in recent years that cost taxpayers billions of dollars, said House Oversight Committee chairman Henry Waxman on Tuesday citing internal documents.
“Their own risk managers raised warning after warning about the dangers of investing heavily in the sub-prime and alternative mortgage market,” Waxman said at an oversight hearing on the two mortgage giants.
Waxman and other lawmakers expressed concerns about how Fannie Mae and Freddie Mac continued to buy high risk sub-prime Alt-A loans even as concerns about the sector grew. A group of GOP lawmakers raised their own concerns about the compensation, bonuses and pension received by the executives.
“Given that you lost so much money on these Alt-A risky loans. Do you regret buying these risky loans?” asked Rep. Carolyn Maloney, D-NY., to ex- Freddie Mac CEO Richard Syron.
Rep. Elijah Cummings argued that Fannie Mae and Freddie Mac moved heavily into sub-prime loans because executives sought to make a profit on risky mortgages. “People in my district have been left holding a bag,” said Rep. Elijah Cummings. “I speculate it was about profit. I speculate it was about greed.”
“Tens of millions of people unemployed, inflation spiraling out of control, the government instituting price controls that result in shortages and blackouts and long lines for things. I think things are going to get very bad.”
“From an investment point of view, investors need to stay clear, because they need to realize that it’s not just U.S. stocks and real estate that are going to lose value, but U.S. bonds. This is the last bubble yet to burst. I think we’re going to see a collapse of the bond market sometime during Obama’s first term, and interest rates are going to spiral out of control, and the dollar is going to just be destroyed.”
People aren’t laughing any more at the way-out-there predictions of Peter Schiff, whose long-standing pessimism about the economy and stock market has been largely borne out.
Schiff heads Euro Pacific Capital, a brokerage in Darien, Conn. with more than $1 billion in assets under management. He has silenced critics because he predicted the collapse of the housing market, the subprime crisis and the soaring of oil prices in his market commentaries before they came to pass.
A YouTube video called “Peter Schiff Was Right” shows him being repeatedly mocked when he went on TV stock shows to make those ultimately correct calls in 2006 and 2007, including forecasting a recession 2 1/2 years ago.
Now, in the midst of what’s already the biggest financial crisis in decades, the prominent purveyor of gloom and doom still sees far tougher times ahead – including a depression and a bear market he thinks will last another five years or more.
Related article: Fed Pledges Top $7.4 Trillion to Ease Frozen Credit
The federal government unveiled $800 billion in new loans and debt purchases on Tuesday, hoping another infusion of cash can help unfreeze troubled credit markets and make borrowing easier for homebuyers, small businesses and students.
The Federal Reserve said that it would buy up to $600 billion in mortgage-backed assets from the government-sponsored mortgage finance giants Fannie Mae and Freddie Mac. The agency would also buy up to $100 billion in debt directly from the companies and up to $500 billion in mortgage-backed securities.
“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Federal Reserve said in a statement.
Separately, the Fed and Treasury Department announced a $200 billion program to ease commercial lending on debts like student loans, car loans or business loans. The Fed would lend up to $200 billion to holders of asset-backed securities supported by car loans, credit card loans, student loans, and business loans guaranteed by the Small Business Administration.
This Is Not A Normal Recession
Moving on to Plan B
“The Winter of 2008-2009 will prove to be the winter of global economic discontent that marks the rejection of the flawed ideology that unregulated global financial markets promote financial innovation, market efficiency, unhampered growth and endless prosperity while mitigating risk by spreading it system wide.” Economists Paul Davidson and Henry C.K. Liu “Open Letter to World Leaders attending the November 15 White House Summit on Financial Markets and the World Economy”
The global economy is being sucked into a black hole and most Americans have no idea why. The whole problem can be narrowed down to two words; “structured finance”.
Freddie Mac, the US mortgage giant, yesterday admitted that it is so overwhelmed by its liabilities that without government backing, it would no longer be a viable business. The company said that it had lost $13.7 billion (£9.2 billion) in the third quarter of the year and begged for $13.8 billion from the US Treasury in rescue funds.
The plea for the multibillion-dollar cash injection came just days after Fannie Mae reported a record $29 billion loss for the period and gave warning that it was haemorrhaging cash so rapidly, it might need federal funds by the end of the year to survive.
The US Treasury has been overwhelmed by requests for federal aid in the past few weeks. In addition to setting up a $700 billion bailout fund to take equity stakes in troubled banks, the Treasury is being pressed by the car industry for a cash bailout. Yesterday, Neel Kashkari, the Assistant Treasury Secretary, said that he was under pressure to consider ways of using the $700 billion bailout to stem a surge in foreclosures across the US.
The Freddie Mac request for funds would see the drawing down of part of the $100 billion in emergency reserves that were committed by the Treasury in September.
Nov. 10 (Bloomberg) — Fannie Mae posted a record quarterly loss as new Chief Executive Officer Herbert Allison slashed the value of the mortgage-finance provider’s assets by at least $21.4 billion and said it may need to tap federal funds next year.
In its first report since being seized by the U.S. government in September, Washington-based Fannie Mae said its third-quarter net loss was $29 billion, or $13 a share, the largest for any company in the Standard & Poor’s 500 this year.