Stocks Mixed In Wake Of Mortgage Bailout

Federal Reserve, Treasury Department Hoped To Boost Investor Confidence In Mortgage Giants

(CBS/AP)  Stocks turned mixed in morning 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.

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.

[bnnielsen]

why is it the government will bail out big bisness and never the little people that try to buy the big bisnesses products. the little people need help too and we are not getting it. just look at KATRINIA AND THE PEOPLE THAT ARE GETTING SICK FROM THE GOVERNMENT TRAILORS.!!!!!!!!

[whitemale08]

8. Expect brown outs, black outs from your power company because of the "bond market" allways remember the bond market. Now that pensions are wiped out and the currency has been declared wothless, power companies have to save money and energy because there''s not enough in the pension funds to buy spare parts, oil, coal, or natural gas.



9. Start to boil your water too. Again the "bond market".

[whitemale08]

5. Expect to keep your jobs but do not expect your wages to keep up with the hyper inflation. This is different then a recession or even a depression, this is the transformation into a 3rd world country where there is no problem with employment like that in China because your wages in dollars are worthless. You are now cheap labor.



6. After a while if you followed steps 2 & 3 then you should be able to trade in your gold coins at a later date and pay off some of your bills even your mortgage with just a handfull of coins.



7. One last thing. All this could change if the Federal Reserve gets smart and Ben Bernanke starts to raise interest rates. That would collapse the price of oil and prices would come back under control. The problem with that however is that the bond market (remember Star Bucks) would collapse for even grocer''s like WalMart or Kroger''s and you would still be out of food and even out of a job.

[whitemale08]

Here''s some things to think about in preperation for what''s coming.



1. Use your SAMS Club to stock up on toothepaste, soap, canned goods, rice, flour anything that can be stored in a cubbard before the hyper inflation takes off really fast. A year''s worth is prefferrable.



2. If you can, buy some collector''s gold coins and silver that cannot be confiscated by the governement my personal broker is Jim @ www.MidasResources.com and his phone # [phone]



3. Only keep in your bank account what you need to pay bills, anything else you should spend it on staples that can be stored for another day.



4. Expect a run on all of the banks including your own personal bank, but do not panic because the FDIC will print the money but that will take 30 to 90 days and besides if you follow steps 1-3 you shouldn''t have that much left in the bank.

[kellyzy123]

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[kellyzy123]

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[whitemale08]

To all you Republicans who attend the church of talk radio and listen to these stupid idiotic patriotism pastors talk about the "founding fathers".

They seem to miss one of the most famous quotes from Thomas Jefferson: Paper is poverty.

Folks, It''s not conspiracy of me to talk about the British East Company because our founding fathers referred to them as such.

As a matter of fact, the whole reason for coming to America was to get away from this British oligarchy / monarchy nonsense that ran it''s tentacle empire through worthless paper money.

This British empire has allways been the enemy and it might be too late to get rid of these people once and for all.

Both parties have been sucked into this warped idea that they can be one of the "nobles" or one of the "royals".

It''s a stupid idea. Everyone was created equal to live under his own fig tree and live in a house he himself built with no bill collecter to take it away from him.

[kawosa]

Is this not fraud? Every Default Mort. Corp. head or CEO should have their assets seized immediately and a full investigation put forth. No tax shelters should ever be allowed in situations like these. This is total fraud and should be handled as such. Those who cannot afford their mortgage should begin bankruptcy proceedings. Thats how we do it in America.

[whiskyrocker]

Another bail out for the rich on the backs of the middle class.

[lovegetpeace]

I am sure the CEOs of Fannie Mae and Freddie Mac have very prestigious degrees but they decide just like any high school dropout. Well, their education is worthless to make sound decisions. I guess they buy these degrees. Where can I guy a Ph.D. degree?

[lovegetpeace]

Posted by getoffmine at 01:44 PM : Jul 14, 2008

After USA Enter the 4th Great Depression, Mexico will buy USA for a penny on the dollar.

[wardoglrs]

%u201CCompetition [i.e. capitalism] is a sin.%u201D
%u201CI want to own nothing and control everything.%u201D
%u201CThe ability to deal with people is as purchasable a commodity as sugar or coffee and I will pay more for that ability than for any other under the sun.%u201D
John D. Rockefeller (Fascist cartel robber baron and promoter of the U.S. %u201CFederal Reserve%u201D Act in alliance with the Rothschild bloc. 1839-1937)

%u201CI don%u2019t care who the government is. Let me control the money and I will control the country.%u201D
Mayer Amschel Rothschild (attributed to the German godfather of the Rothschild bank cartel and grandfather to heir Lord Baron Nathaniel Mayer de Rothschild: owner of the Bank of England and a key promoter of the U.S. %u201CFederal Reserve%u201D Act. 1744-1812)
"Every citizen should be a soldier. This was the case with the Greeks and Romans, and must be that of every free state."
Thomas Jefferson

"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."
Thomas Jefferson

[wardoglrs]

President FDR (on Fascist rule in a letter to corporate con man %u201CColonel%u201D Edward M. House, a founder of the Council on Foreign Relations and political fixer for the ruling class. House also handled President Wilson for the foisting of the privately rigged %u201CFederal Reserve%u201D Corp bank monopoly. 11/21/ 1933)

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." - Thomas Jefferson, Letter to Treasury Secretary Albert Gallatin (1802)


"Paper is poverty,... it is only the ghost of money, and not money itself." Thomas Jefferson to Edward Carrington, 1788

Knowledge will forever govern ignorance; and a people who mean to be their own governors must arm themselves with the power which knowledge gives. -James Madison

%u201CThe end of democracy and the defeat of the American Revolution will occur when government falls into the hands of [private cartel] lending institutions and moneyed incorporations.%u201D
President Thomas Jefferson (a founder of America in condemnation of present and future monopoly money power. 1743-1826)

[david1737]

McCain''s econ. Guru and co-chair of his campaign Phil Gramm was quoted as saying:

"We are a nation of whiners."

Google Gramm Leach Act and find out how Gramm caused the Subprime meltdown.

[marshall_nee]

Bloomberg Breaking News: Washington Mutual may be in trouble!

Posted by whitemale08 at 02:41 PM


Lehman are looking a bit shaky as well to say the least, they should be be alright however, cus they have a stake in the FED.

[david1737]

Deregulation. The legislation which paved the way for the Subprime meltdown was called the Gramm Leach Act.

McCain''''s economic Guru and co-chair of his campaign is Phil Gramm one of the those who drafted this legislation.

Gramm is key to McCain''''s econ. philosophy.




Quote from AP article:

"The general co-chairman of John McCain %u2019s presidential campaign, former Sen. Phil Gramm (R-Texas), led the charge in 1999 to repeal a Depression-era banking regulation law (see Gramm-Leach Act) which contributed significantly to today%u2019s Sub Prime meltdown and economic turmoil."

Google Phil Gramm and find out more!

See you at the voting booth.

[david1737]

jtdev1

At an estimated 5.4 trillion at stake we can''t afford not to bail them out.

The other choice would most likely make the Great depression look like a Bull Market.

[whitemale08]

No more sermons on patriotism from junkyard dogs like Glenn Beck and Sean Hannity.

Enough with the patriotism pastors!!! We don''t need lectures on what it is to be an American! We need solutions for this failed economy!

[david1737]

If there''s one thing McCain''s promised it''s continued policy of deregulation.

McCain was on of the Keating 5.

This stems from the S&L scandal of the late 1980s which was the result of the deregulation of the savings and loan industry.

Combine this with the McCain campaign''s close ties to Phil Gramm and you''ve got cause for real trouble.

Google gramm leach act and find out more.

[jtdev1]

Bail me out Scottie...

Ooops, I mean Beam me up Scottie...


This whole thing is a joke. Can wait to see the effects of this bail out... Can we really afford it? Where will they stop?