WASHINGTON, July 14, 2008
Stocks Mixed In Wake Of Mortgage Bailout
Federal Reserve, Treasury Department Hoped To Boost Investor Confidence In Mortgage Giants
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Fed To Help Mortgage Giants
The U.S. government is stepping in to help ailing mortgage giants Freddie Mac and Fannie Mae. The Fed plans to expand their lines of credit and buy equity, if needed. Randall Pinkston reports.
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Fannie And Freddie Panic
Major housing market lenders Fannie Mae and Freddie Mac are facing severe stock setbacks. As Anthony Mason reports, the American economy might not survive the loss of these two companies.
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Fed Faces U.S. Housing Crisis
High-ranking members of the federal government, including President Bush, are addressing the issue of the nationwide housing crisis amidst public fears over an unstable economy. Jim Axelrod reports.
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Traders work on the floor at the New York Stock Exchange in New York, July 14, 2008. Stocks turned mixed in early trading Monday as investors lost some of their initial enthusiasm over the government's plans to shore up confidence in mortgage financiers Fannie Mae and Freddie Mac. (AP Photo/Seth Wenig)
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Treasury Secretary Henry Paulson testifies on Capitol Hill before the House Financial Services Committee, July 10, 2008. The U.S. Treasury and the Federal Reserve announced steps July 13, 2008 to shore up mortgage giants Fannie Mae and Freddie Mac. (AP Photo/Manuel Balce Ceneta)
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Credit Crunch
Feeling the squeeze? Here's a look at actions and statements from key players in Washington.
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Shares of the government-chartered companies advanced in volatile trading after tumbling last week amid concerns they would succumb to losses in their mortgage portfolios. Statements Sunday from the Treasury and the Federal Reserve that they would aid the companies if needed has eased some worries of further turmoil in the credit markets.
The Fed hopes to bolster eroding investor confidence by making the lending offer to the two companies "should such lending prove necessary." The plan, unveiled Sunday, was intended to signal the government is prepared to take all necessary steps to prevent the credit market troubles that erupted last year with losses from subprime mortgages from engulfing financial markets.
Treasury Secretary Henry Paulson said his department is asking Congress for quick approval of a plan to expand its line of credit to the two companies and to make an equity investment in them if necessary. They would pay 2.25 percent for any borrowed funds - the same rate given to commercial banks and big Wall Street firms.
The Fed said this should help the companies' ability to "promote the availability of home mortgage credit during a period of stress in financial markets."
Wall Street has been on edge about the well-being of the companies because Fannie Mae and Freddie Mac hold or back $5.3 trillion of mortgage debt, about half the outstanding mortgages in the United States. Worries over their future led to a volatile session Friday in which the Dow Jones industrial average dipped below the 11,000 mark for the first time in about two years before paring its losses.
Secretary Henry Paulson said the Treasury is seeking expedited authority from Congress to expand its current line of credit to the two companies and make an equity investment in the companies - if needed.
"Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies," Paulson said Sunday. "Their support for the housing market is particularly important as we work through the current housing correction."
The Treasury's plan also seeks a "consultative role" for the Federal Reserve in any new regulatory framework eventually decided by Congress for Fannie and Freddie. The Fed's role would be to weigh in on setting capital requirements for the companies.
Hoping to bolster confidence, Senate Banking Committee Chairman Chris Dodd, a Connecticut Democrat, told CBS News Early Show anchor Harry Smith that Fannie and Freddie are financially sound.
"What's important is to calm people's fears," Dodd said. "These are very well capitalized at more than adequate levels. They weren't bottom feeders when it came to these subprime mortgages like other banks were. There's a lot more reason to have confidence in what's going on here than to have fear take over."
Last week Fed Chairman Ben Bernanke and Paulson, appearing before the House Financial Services Committee, made a point of saying that the regulator of Fannie and Freddie, the Office of Federal Housing Enterprise Oversight, has found both companies adequately capitalized.
The White House, in a statement, said President Bush directed Paulson to "immediately work with Congress" to get the plan enacted. It also said it believed the steps outlined by Paulson "will help add stability during this period."
Investors may not be as sanguine, however, according to Chris Johnson, an investment manager and president of Johnson Research Group in Cleveland. Stocks of financial institutions "are going to get clobbered," he predicted. "It is a situation where regulators and the government are trying to play catch up, and that means everything is not discounted in the stock prices yet."
The government denied it, but what has been seen by investors as an implicit guarantee of support has allowed Fannie and Freddie over the years to borrow at rates only slightly higher than the Treasury - and lower than what their banking competitors had to pay.
"This really blows away the notion of an implicit guarantee," independent banking consultant Bert Ely said of the Treasury's plan to ask Congress to allow it to make equity investments in Fannie Mae and Freddie Mac. "It suggests a greater concern about how these companies are doing. It says the problems are deeper. It gets to the solvency of the companies, not just the liquidity."
A critical test of confidence will come Monday morning, when Freddie Mac is slated to auction a combined $3 billion in three- and six-month securities.
Under normal circumstances, Freddie Mac - one of the lynchpins of the nation's mortgage financing system - would have little trouble selling $3 billion in securities. But, as CBS News correspondent Randall Pinkston reports, these are not normal times.
On Friday at one point, Freddie Mac and Fannie Mae's stock values dropped more than 40 percent. In the past nine months, the government-sponsored enterprises lost $11 billion. All of this comes in the wake of a national real estate decline, triggered by the subprime mortgage crisis.
And although investors were on edge about the sharply declining stock values on Friday, some economists were confident that the mortgage industry would rebound - with a little help from the government, Pinkston reports.
"I really think at the end of the day the government will step in, the marketplace will step in, the housing market is just not going to stop functioning in America, that's just not going to happen," said Steve Massoca, an economist with Pacific Growth Equities.
Fannie and Freddie were created by the government to provide more Americans the chance to own a home by adding to the available cash banks can loan customers.
A senior Treasury official said any increase in the line of credit - now at $2.25 billion for each company would be at the Treasury secretary's discretion. The same would apply to any equity investment made by the government.
The official, who spoke on condition of anonymity, also sought to send a calming message about Fannie's and Freddie's financial shape, saying: "There's been no deterioration of the situation since Friday."
If one or both of the companies were to fail, it would wreak havoc on the already fragile financial system and the crippled housing market. The problems would spill over in the national economy, too.
Paulson on Friday said the government's focus was to support the pair "in their current form" without a takeover.
The Democrat Senate Majority Leader Harry Reid said: "Senate Democrats stand ready to work with the administration to quickly and effectively address the situation currently facing these institutions."
House Republican leader John Boehner and Republican Whip Roy Blunt said they "stand ready to work with Secretary Paulson and congressional Democrats to take appropriate steps to ensure the soundness of our mortgage markets."
Democratic presidential contender Barack Obama said the government's main concern should be "to make sure that home ownership remains attainable and affordable for American families. Second, any measures should protect taxpayers and not bailout the shareholders and management of Fannie Mae and Freddie Mac."
Republican rival John McCain believes the measures announced Sunday "are consistent with the goal of providing support for a path through the current duress toward steps that include regulatory reform, market discipline and mission focus," said Douglas Holtz-Eakin, senior policy adviser.
© MMVIII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.
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See all 224 CommentsBut please bail out the greedy financial companies that risked everything for a short-term financial gain at the expense of the ENTIRE U.S. ECONOMY!
The priorities of our government is clear:
Corporations over the common American.
America''s days are numbered folks!
bankrupt these crooks and forgive the mortgages...
DISGUSTING!!!!!!!!!!!
Paulson is a comedian. This British agent from Goldman Sachs is engineering the socialization of all of Wall Street and the City of London''s debts.
You Republicans scream at taxes but don''t realize hypr inflation is much worse and Cheney and Company are moving to Dubai.
Posted by whitemale08 at 07:42 PM : Jul 13, 2008
.........
I dream of a day where we see some Americans flying big planes into the big buildings in Dubai!
Wouldn''t that be a hoot!
That would definitely be the definition of irony!
bankrupt these crooks and forgive the mortgages...
Posted by fstop100 at 07:29 PM : Jul 13, 2008
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I''m sure many more banks will follow in the very near future. When the confidence with banks is lost ..history tells us ...a land slide is coming.
Posted by aeasus at 07:52 PM : Jul 13, 2008
.............
Yep.
This is just the beginning.
Invest in Silver and Gold now!
But now, those kinds of people who save their own money in their own dwelling will have two very useful things in the very near future:
Foresight and MONEY!
But now, those kinds of people who save their own money in their own dwelling will have two very useful things in the very near future:
Foresight and MONEY!
Posted by DaysRnumbrd at 07:59 PM
Actually, hate to break it to ya, but if you keep money in your house you''re still a huge moron.
Next!
Wouldn''''t that be a hoot!
That would definitely be the definition of irony!
Posted by DaysRnumbrd at 07:48 PM
Actually it would mean that we had become murderers and terrorists.
That doesn''t sound like a bright future to me.
Posted by DaysRnumbrd at 07:57 PM
Investing small amounts, long term, in gold and silver is always a good idea.
He was also smart enough to stop listening to buck teeth Margaret Thatcher and go all the way to Baghdad. He knew we couldn''t afford a 100 year occupation even if he tried a surge.
What did Republicans do? They punished him by not re-electing him.
Next!
Posted by IRLiberal
Ok, come try to take it from me.
That will release the homeless and prisoners into the streets to to trash and burn down FEMA camps.
Next!
Posted by IRLiberal at 08:01 PM : Jul 13, 2008
..........
Well of course, in the sense of the old "tin can" or "under the mattress" cliche.
But a few hundred to several hundred dollars in a nice and heavy (can''t be moved by a single human) safe inside the home, is cheap insurance when there is a run on the banks. Several hundred dollars will be needed to buy a few days of groceries however, as the value of the dollar will have tanked when the "run" happens.
We''ll be treated just like any other 3rd world country over in black Africa especially with a black President. Go to the IMF and get some help from the U.N.I.C.E.F. or the International Red Cross.
Thx Bush...we owe you one.
Wow.
Posted by liberalameri at 10:24 PM : Jul 13, 2008
+ report abuse
*******
and the ones that has the most welfare case consitutuents does??
Posted by standlee5 at 10:00 PM : Jul 13, 2008
...........
I prefer Smith&Wesson insured. But that''s just me.
Posted by underdogus01 at 10:27 PM : Jul 13, 2008
+ report abuse
***************
cool..that would stop those liberals from buying the biggest suvs on the road..
*******
BUY SOME GOLD
Posted by Smirk5 at 10:07 PM : Jul 13, 2008
WHOAH! Hold on there Sparky!**!& These banks have a right to exist and make a profit!!! They are what makes this nation great!! Not some chump who hammers nails into boards or a some lazy slob who pours concrete for a living. By GOD these banks need to be rescued from the incompetence of depositors and random libz on the street!!! The CEO''s of Fanny and Freddy put up a valiant fight against the whining libz but there negativity was too strong and they buckled under the pressure!!!
God Bless all those Americans willing to shell out their hard earned cash in the fight against the negativity of LIBZ!!
LIBZ!!
Posted by underdogus01 at 10:30 PM : Jul 13, 2008
+ report abuse
**************
thank god you dont have any...
Posted by liberalameri at 10:30 PM : Jul 13, 2008
+ report abuse
***well if you would read the thread of that specific post THEN YOU WOULD REALIZE THAT YOU ARE THE BIGGER ONE..
the DNC''s consitutuents are primarily all welfare cases...that is the the issue
Posted by underdogus01 at 10:32 PM : Jul 13, 2008
+ report abuse
*********
good for you,,just make sure you watch that exchange rate...you paid so much dollars for a little euro..when that things snaps back the other way around ..YOU WOULD LOOSE MONEY..you being a liberal i would not be suprised that you lack confidence on the dollar
+ report abuse
**************
nobody is blaming the liberals...just elaborating on the fact..the liberals share some if not most of the blame...come on spend more than you can afford....
Posted by libsluv2spit at 10:34 PM : Jul 13, 2008
Ok, HANG ON SON!!## It is not unpatriotic to invest in foriegn nations as long as it is not France!!! I have followed Cheney''s lead and invest most of my hard earn cash over sees!!!
Now that I have given you a little taste of my wisdom it is time for the full MEAL!! Come to my website and I will tell you all you need to know about ... EVERYTHING!!
a weak dollar means those europeans and asian nations would be buying a lot of amwerican products because its cheap...but BUT peole whould understand that this is does not turn like a sports car..economics move like tar in cold weather..we would not feel the upsurge in about 2 to 3 years..
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