Mortgage Takeover Boosts Wall Street

Investors Bet On Broad Economic Recovery Following Government Bailout Of Fannie Mae, Freddie Mac

(CBS/ AP)  Stocks mostly advanced Monday as investors rushed to lay bets on a recovery in the financial and housing sectors following the weekend announcement that the U.S. government plans to bail out mortgage lenders Fannie Mae and Freddie Mac. The Dow Jones industrials gained more than 100 points but the technology-heavy Nasdaq composite index declined.

The announcement Sunday that the Treasury Department was seizing control of the companies, which own or back about half the nation's mortgage debt, brushed aside investors' long-simmering worries that the pair would be felled by a spike in bad mortgage debt.

The plan to inject up to $100 billion in each of the government-chartered mortgage financiers could not only help lower mortgage rates but, some investors are hoping, buoy the overall economy.

The plan could help banks feel more open to write new mortgages and to refinance existing mortgages at lower rates, offering a possible lifeline to consumers struggling with increasing payments.

But the government's steadying hand for two institutions that many Wall Street observers had said were simply too big to let fail still might not alleviate troubles of some homeowners who have fallen behind on their mortgages.

On CBS' The Early Show Treasury Secretary Henry Paulson told anchor Harry Smith that the government had no choice but to act.

"A failure by either one of these companies would cause great havoc in the economic system," Paulson said. "It would be a big blow to the average American, affect their budget, their ability to get a consumer loan, a car loan."

Peter Wallison, a Treasury Department general counsel during the Reagan Administration, told CBS Radio he sees it as a stabilizing step but thinks it's far from the end of the story:

"I think inevitably these companies have to be dealt with in some ways. They can’t be continued as government-sponsored enterprise," he said.

CBS News correspondent Peter Maer said financial experts are approving of the government's bailout and say it's good news for home buyers and those seeking a second mortgage.

Greg McBride, a senior financial analyst with Bankrate.com, told CBS Radio, "The Government's takeover of Fannie Mae and Freddie Mac assures the continued availability of mortgage credit, and potentially at better terms than borrowers have been quoted recently."

But, Maer adds, the takeover offers no hope for homeowners already behind in their payments.

The weekend decision by the U.S. to bail out Fannie Mae and Freddie Mac delivered ripples of relief throughout Asia on Monday, lifting stocks of several major banks in the region.

The gains in big Japanese, Chinese and Australian banks that hold debt in the two U.S. companies was driven by optimism that Washington is acting aggressively to keep the mortgage giants from failing - and the U.S. housing crisis from spiraling out of control.

Japan and China are among the top foreign holders of U.S. securities, including Treasuries and U.S. agency debt, according to the U.S. Treasury.


Preventing "Armaggedon"

Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams in New York, said while the plan boosts confidence in sectors like financials and home builders, it doesn't immediately alleviate worries about other areas of the economy. Still, he said the move was far more welcome than a collapse of Fannie Mae or Freddie Mac.

"It saves Armageddon from happening," he said. "If you think about it this helps the financials, this helps the housing market. Tech took a huge hit last week. Does this really affect tech? I don't think so."

In midday trading, the Dow Jones industrial average rose 112.85, or 1.01 percent, to 11,333.81 after being up nearly 350 points in the early going.

Broader stock indicators were mixed. The Standard & Poor's 500 index jumped 6.80, or 0.55 percent, to 1,249.11, and the Nasdaq composite index fell 7.61, or 0.34 percent, to 2,248.27.

Bond prices pulled back Monday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.71 percent from 3.69 percent late Friday. The dollar was higher against other major currencies, while gold prices rose.

Common shareholders of the stock of Fannie Mae and Freddie Mac will be virtually wiped out by the plan, which would balloon the shares of companies to give a nearly 80 percent stake to the government. But the companies' shares had already suffered huge declines in the last year so many shareholders have already endured the majority of their losses.

Fannie Mae shares plunged $6.02, or 86 percent, to $1.02, while Freddie Mac fell $4.15, or 81 percent, to 95 cents.

Other financial names rallied, particularly those seen as having big exposure to mortgages. Bank of America Corp. jumped $1.33, or 4.1 percent, to $33.56, while Wachovia Corp. rose 84 cents, or 5 percent, to $17.59. Citigroup Inc. rose 76 cents, or 4 percent, to $19.83.

Among financials, Lehman Brothers Holdings Inc. was one of the few decliners, falling $2.86, or 18 percent, to $13.39 as investors worried that the No. 4 U.S. investment bank was having trouble finding an investor to help shore up its balance sheet.

Home builders also jumped alongside most financials. Lennar Corp. rose 52 cents, or 3.8 percent, to $14.08, and KB Home advanced $1.55, or 7.5 percent, to $22.16.

The U.S. government's plan also touched off a global stock rally Monday. Foreign investors holding debt of the companies were relieved as were investors simply looking for stronger growth from the U.S. economy, particularly as many economies abroad give off signs they are slowing. Japan's Nikkei stock average jumped 3.4 percent and Hong Kong's Hang Seng index surged 4.3 percent. Britain's FTSE 100 jumped 3.81 percent, Germany's DAX index rose 3.06 percent, and France's CAC-40 surged 3.42 percent.

Oil fell again after logging steep declines last week as investors worried that a slowing global economy would hurt demand. Light, sweet crude declined $1.18 to $105.05 on the New York Mercantile Exchange. Oil rose early Monday as Hurricane Ike fanned unease about the well-being of Gulf of Mexico oil infrastructure that could be in its path.

In corporate news, Washington Mutual Inc. fell 73 cents, or 17 percent, to $3.54 after removing Kerry Killinger from the chief executive spot. The savings and loan is working to overhaul its business, which has been hurt by bad mortgage debt. Alan H. Fishman is replacing Killinger.

Altria Group Inc. announced it will buy UST, the maker of Skoal and Copenhagen smokeless tobacco, for about $10.3 billion. The maker of Marlboro cigarettes said it will pay $69.50 per share. UST shares jumped Friday to finish at $67.55 following a report of the deal and gained 98 cents to $68.53 Monday. Altria rose 28 cents to $21.23.

[pensacola98]

All Free-Market Economies respire or breathe. No two countries or economic entities are expected to synchronize and perform the same. There are events that trigger economic synchronization, which eventually works its way out.

Deregulation has its ups and downs.

The most unfortunate economic force for the real estate industry is the cost of money, itself, because most homes are financed, and sellers know that more profit is possible when lenders can borrow more money at cheaper repayment rates.

Using a capital gains tax especially designed for real estate can regulate the market fluctuations and take the greed out the industry. The incentive to overcharge for the real estate and the money to pay for it, has to be removed from the equation to stablize the industry.

Greed caused the industry to falter and nearly fail. Only taxes can curb greed. Most consumers prefer market stablizing tax codes over free-falling failures.

Greed itself is the prime force that creates the greatest demand for government. The more greed, the more government is required.

[noloyalisti]

So here we are again, the taxpayers bailing out banks for their incompetence. Welcome to America where it is socialism for the rich and capitalism for the poor. Oh, and don''t forget to wave your flag and be patriotic.

[vechibless]

'' .. if you wanted peace and prosperity forever, you should have instead of giveing a dollar to each of the first 33 poor hungry big men you saw each day, you should have given a dollar to each of the first 33 little armord girls of nuclear biological chemical stealth ray war you saw each day .. ''

'' .. if journalists and musicians were less dressed and diligent and more garden cut and paste, then they would be more easy to mimic .. if soldiers and congresses were more dressed and diligent and less garden cut and paste, then they would be less easy to mimic .. ''

'' .. in the time it takes to educate one class of build - its, the armys educate hundreds and thousands of classes of destroy - its .. ''

[missingamerica]

Paulson said. "It would be a big blow to the average American, affect their budget, their ability to get a consumer loan, a car loan."


Read: The economy would lose what little false debt-based consumer spending that it has, thus revealing the lie of "trickle down" economics and inequitable free trade in on great big CRASH.

[culturechang]

I guess your November decision comes down to who deserves the govt welfare....the people or the corporations. You can help answer that question for yourself by considering who provides most of the federal govt revenue. It ain''t the corporations. They have all the loopholes, deductions, and tax breaks.

[lovegetpeace]

BREAKING NEWS!

Yesterday, President Bush ordered the complete Take Over of the 2 largest Free Market Private Mortgage Lending Enterprises in America.

The Republican Party just doubled the size of our U.S. Government again.

VIVA LA SOCIALISM VICTORY OVER CAPITALISM IN THE DIVIDED STATES OF AMERICA!

[lovegetpeace]

Folks,

This is easy smoking-gun proof again that the FREE MARKET ENTERPRISE WORKS IMPERFECT. In 1988, government bailed the Savings and Loans industry.

China has taught us all that CAPITALISM works best under COMMUNISM where workers have almost no rights and under the FIRM control of a CENTRAL GOVERNMENT.

VIVA LA SOCIALISM VICTORY OVER CAPITALISM IN THE DIVIDED STATES OF AMERICA!

[lovegetpeace]

Posted by noloyalisti at 11:16 AM : Sep 08, 2008

"o here we are again, the taxpayers bailing out banks for their incompetence. Welcome to America where it is socialism for the rich and capitalism for the poor. Oh, and don''''t forget to wave your flag and be patriotic."

Oh, and don''''t forget to get offended when someone blast Capitalism and say nice things about Socialism and Communism. Viva China and Europe and Latin America.

[lovegetpeace]

Definition of the Free Market Enterprise = Profit for Capitalism and Loses for Socialism.

[andylance1]

What the federal government needs to do now is to take over the auto industry with a government-managed conservatorship. Giving GM and Ford government loans is like giving an alcoholic a case of whiskey.

GM and Ford are the worst managed companies in the world. Make the conservatorship last for 10 years and then sell the entities on the open market.
That is the only way to guarantee they will make fuel efficient cars that are affordable.

[apostasyusa]

Another government bailout becasue the GOP fought tooth and nail to keep Congress from regulating the mogage industry.

What do we Americans get?

Another bailout.

What do our kids get?

Higher taxes for the next couple of decades.

Thanks Republicans, you prefered a government that governs the least and by those standards thats exactly what you gave America.

Thanks Phil Gram!!

It''s time to print some more money!!

[marshall_nee]

We are all communists now. Any ideas when we get to move into these govmint owned homes comrades?

[apostasyusa]

So if the mogage industry gets bailed out by NON existing money....

....can the home owners use that newly printed money to stay in their houses?

hmmm....

[noloyalisti]

This corporate fascist bailout is another nail in the Government of Pigs privatization fiasco. Time to annul all of the "free trade" agreements. At least with Obama as President we might have some chance of getting fair trade for the American workers.

[sistatee-2009]

Thank goodness the rich have been saved! All the foreign investors who bought up the worthless, "sub-par, below-ground-sub-standard" mortgages, are now off the hook. The hook has been transferred to the anal sphincters of every tax-paying American. Whew! For a minute there it looked like David Rockefeller''s banks were going to get their clocks cleaned. But not now! Way to rescue yourself, David. Thanks for sticking it to ALL OF US AGAIN! And thank you, AMERICAN GOVERNMENT! THANKS FOR ANOTHER S&L BAILOUT! THANKS FOR TAKING BRIBE-MONEY FROM THE CRIMINAL CEO''S WHO RAN FANNIE AND FREDDIE INTO THE GROUND! THANKS FOR LETTING THEM SKATE OFF WITH MILLIONS. WHEN THE REVOLUTION COMES YOU BETTER BE ON YOUR JETS TO EUROPE! BETTER GET YOUR ASSESS OUT OF DODGE!

[vastr-wcon]

.
Nothing like a good, taxpayer bailout of incompetently managed companies to make investors happy. They know that, with such irresponsible government actions, they CAN NOT LOSE!

Giving the shaft to taxpayers (i.e. the middle class - not them) always brings joy to Wall Street.


/

[noloyalisti]

The government had NO business running these businesses on a for profit basis (provatization). This was banks for We the People that were set up for the common good. Not another scheme for greedy CEO''s. Next they will try to privatize the military so they can screw them up. Or public schools so corporations can screw them up. Oh ***, too late.

[jmurrieta11]

Nothing those Right Wing "small government" people like better than a fat taxpayer bailout for their buddies.

Welfare is OK if it flows from the poor to the rich.

Let them eat cake!

[greeneyes222]

What''s good for Wall Street isn''t always good for the average American. Looks like the high rollers continue to roll on, while working folks continue to pay.

[mytoosense]

America, Socialism for the wealthy, Capitalism for the Masses.

[lochlan-2009]

"Wall Street Buoyed By Mortgage Takeover"


You think. Investors around the world were just promised by our government that the United States tax payer will be paying for their profits.

This government is a SCAM!!!!!!!

[apostasyusa]

Sen. Phil Gramm. Eight years ago, as part of a decades-long anti-regulatory crusade, Gramm pulled a sly legislative maneuver that greased the way to the multibillion-dollar subprime meltdown.

Yet has Gramm been banished from the corridors of power? Reviled as the villain who bankrupted Middle America?

Hardly. Now a well-paid executive at a Swiss bank, GRAMM COCHAIRS SEN.JOHN MCCAIN''S PRESIDENTIAL CAMPAIGN AND ADVISES THE REPUBLCIAN CANDIDATE ON ECONOMIC MATTERS. He''s been mentioned as a possible TREASURY SECRETARY should McCain win.

That''s right: A guy who helped screw up the global financial system could end up in charge of US economic policy.

http://www.motherjones.com/news/feature/2008/07/foreclosure-phil.html?ref=patrick.net

[apostasyusa]

bigwhtpony

If you read the link i posted you''d see that it was Phil Gram and friends.

Guess you can''t read....??

Since when were Republican "pro-regulation"? eh?

Please tool.....

[antoniof123]

I''''m confused. Seriously. Fannie and Freddie''''s shareholders will lose **EVERYTHING**. Why are the markets rallying?

The message from the U.S. government is clear--"We will protect bond holders. We will protect mortgage holders. We will screw shareholders."

Posted by anon00 at 02:09 PM : Sep 08, 2008

The reason for the ralley is because this will give strengt to the Financial Markets plus possibly lowering interest rates and a bunch of other positives. Thank you Alan Greenspan for making those clowns in the administration listen to you. We must be in real trouble thanks to the Republicans and their let business do what ever they want way.

Once again though we the tax payers have to bail out big business. Why America do you listen to them?

[whitemale08]

He couldn''''t do any worse than Barney Frank and Chucky Schumer.....the two loser dems responsible for the current failure.


--------------------------------------------------------------------------------

Posted by bigwhtpony at 02:58 PM : Sep 08, 2008--

while I agree with you that Barney and Schumer didn''t respond to this crisis the right way, you have to agree that they did it out of the instinct of saving the system.

However it''s impossible to "save the system" because it''s gone, thanks in large part to the phylosophy of "deregulation" and "defecits don''t matter".

When we so stupidly decided to go to war in Iraq, we ask the illegal Federal Reserve to print up trillions in "off-the-books" defecit spending in the 100 year conflict of failure.

Without the War in Iraq and the "tax cuts for the rich" the government might have been in a better position to do what Schumer and Barney want to do. But it''s too late, and besides there is no new "credit bubble" to replace the "housing bubble" to fund this economy.

the only option is WWIII or go to larouchepac.com and do what he proposes there which is a replacement of the entire financial system.

[lochlan-2009]

"On July 23, 2007, the BBC Radio 4 series Document reported on the alleged Business Plot and the archives from the McCormack-Dickstein Committee hearings. The program mentioned Prescott Bush''s directorship of the Hamburg-America Line, a company that the committee investigated for Nazi propaganda activities, and the alleged 1933 attempt, supposedly led by Gerald MacGuire, to stage a military coup against President Franklin D. Roosevelt aimed at forcing Roosevelt to resign (or, failing that, to assassinate him) and at installing a fascist dictatorship in the United States." -Wikipedia

That''s the Bush Family. Tied to banks, nazis, and war. The family was part in a oup attempt against our country!!!! And people are wondering why the country is in the state we''re in.

Gramm, Rubin; players in a game against us, the cattle.

[apostasyusa]

The economy has made great progress. Obama supporters are welfare sponges. Democrats are traitors. Republicans are patriots. America is admired around the world. The constitution is for weaklings. Everyone to the left of *** Cheney is a socialist. We now own Mexico and China. The Saudis beg us for more oil. The millions facing foreclosure are whiners. The largest income inequality since the Great Depression is meaningless. Al-Qaeda has been destroyed. Iran has been weakened. Federal spending over the last 8 years has reduced by a trillion dollars. Scientific facts are a liberal conspiracy. 82% who think the country is on the wrong track drink kool-aid. 66% who disapprove of Bush are communists. Upper-income tax cuts during war make sense. The dollar has never been stronger. NAFTA creates jobs. Only greedy poor people and the media bellyache about skyrocketing gas prices. After 8 years of the greatest president of all time, Obama will destroy America.

[r9119111]

ApostasyUSA:

For your sake, get some help quick. I''ll pray for you!

[dkhorse1]

Americans need to quit buying what they can%u2019t afford!!!! Duh, on a credit card it%u2019s the same as actually having the money. I make 15$/hr with no money in the bank but I can buy a $300,000 house duhhhhhh! It%u2019s the government%u2019s fault.

[apostasyusa]

Thank You Senator Gramm: you have finally publicly confirmed what I have always known about the Republican Party all of my adult life...

That Republicans are completely out-of-touch (clueless in extremes) with the average American household.

Ironically, middle-class America allowed itself to be sucked into all that Republican nonsense about family values (as if the GOP invented love of family), jingoistic patriotism, and stifling, phony religiosity.

Now, however, those Sam''s Club Republicans are waking up to the sad truth about their own and this nation''s security: no person or country can be secure with a ruined economy, runaway foreclosures, joblessness, a crumbling infrastructure (hello Mississippi Levee System), and lack of comprehensive universal health care, not to mention the collective responsibility for an immoral and illegal war and the condemnation of most of the free world.

I have always said I vote Democratic because I''m not rich enough or uncaring enough to be a Republican. Now I''m voting Democratic because I believe the very survival of my country is at stake.

Four more years of the likes of Bush, Cheney and Gramm will be our undoing, which is what will happen if this nation elects McCain because he is made of their same cloth.

[sistatee-2009]

If you want to succeed in business, first you have to fail, and FAIL BIG! Scam as much as you can from a company, pay-off all the regulators and then throw the rotting, stinking carcass of a bankrupt company on the taxpayers. Works EVERY time.

[dkhorse1]

When people can''t get the credit they want, they *** "the government needs to help me out." Then when financial institutions give them money they can''t afford to pay back (they don''t lend money for free), they *** "it''s the governments fault for making me buy stuff I didn%u2019t need and couldn%u2019t afford."

*** to Steve Jobs for making you buy that iPhone and AT&T for the monthly service fee. *** to GM for making you buy that SUV. *** to your friends for making you so jealous that you had to go into debt to keep up with them (hopefully they are in just as bad a financial state as you).

I learned years ago not to spend money I don''t have, does that make me look bad in the eyes of some because I don''t have the latest bling? Yes, but F**k ''em, their life is not mine. I don%u2019t need their financial aggravation.

[sistatee-2009]

The U.S. Government will now begin taking ownership of homes through foreclosures.
Posted by whatwhy001 at 05:55 PM : Sep 08, 2008

This should be interesting. Is the United States government going to pay property tax to the cities, townships and counties on all this property that they will now own? If so, that means I have to pay property tax on my own property and also on that of someone who defaulted on his or her mortgage. How about maintenance on the properties? Who pays that. Who pays for bringing the properties up to code before they can be resold? Are they deeded to the United States or is the deed still held by the mortgage lender after the loan is paid off?

[jmurrieta11]

"It''s the biggest government bailout since the savings-and-loan crisis. What''s really behind the mortgage mess? "--CBS


And, "surprise"! Another ripoff on the Republican''s watch.

Welfare for the wealthy--that''s the Repugs plan for our future.

So bend over, Mr. and Mrs. America.

The Repugs have something for YOU!

[credibility2]

The investors of these two failed giants should lose everything. Taxpayers shouldn''t bail them out for their contributory malfeasance. I''m sure they''re all dancing a happy dance since they knew the Feds would do this and let them off without forcing to have any accountability and pay for their egregious behavior..

[gce65]

Of course stocks rose; this was a signal to investors that the Federal Govt (US taxpayers) will let any large bank keep any profits made, but bail it out if it has losses.

It''s the "heads I win, tails you lose" proposition.

With those as the operating rules of neocapitalism, I and many Americans would love to see another Great Depression!

[lorinkundert]

Socialism 101

Abolish private ownership of property....This is just the beginning.

[whitemale08]

Here you have loud mouth junkyard dogs like Sean Hannity and Rush Limbaugh who say that Michigan is a "one state recession" and yet they fail to recognize the WHOLE FINANCIAL SYSTEM IS DISENTIGRATING!!!

Unprecedented bad news befalls the economy and hill-billy Fred Thompson mocks the "depression" our economy is sufferng.

Let me ask you stupid Republicans something: "Since when has Fannie and Freddie ever ever went under during a so-called "business cycle" huh? WHEN?

And let me ask you this: "Since when has the auto-industry, all of the big 3, ever ever been on the verge of bankruptcy during a typical "business cycle"? tell me WHEN?

And since when has the whole Airline industry been on the verge of collapse during an expected "business downturn cycle? WHEN?

You can''t tell me, because then you would have to admit the truth that OUR ECONOMY HAS FAILED; WENT UNDER; BLOWN OUT; MELTED DOWN; WHATEVER YOU WANNA CALL IT UNDER REPUBLICAN WATCH NAMELY GEORGE W. BUSH!!!

[rudy654-2009]

Can you say "corporate welfare"? Yahooooo! The houses still aren''t worth what they sold for, but by George Bush, those who made money of this scam will not have to do without!!!

[rudy654-2009]

Tell that to the shareholders of Silver State Bancorp (symbol: SSBX), Integrity Bancshares (symbol: ITYC), IndyMac Bancorp (symbol: IDMC).


--------------------------------------------------------------------------------

Posted by anon00 at 02:50 AM

So we the taxpayers have to bail them out even though they chose to take the risks?

Thanks a lot for nothing.

[rjsparling]

The bail out is not to protect the stockholders, rather to protect holders of debt instuments (Bonds) issued by the two. This is supposed to keep the world willing to invest in America. I guess it has, but at a terrible price to everyone. Of course just about everyone has contributed to the problem by spending money they dont have, and borrowing it, in effect, from foreigners.

[oneworldusa]

Based on oil over 140/per barrel now 105/per barrel, we should be seeing gas at around 25% off its highs. However, it''s only about 10% off. Gouging, anyone? They get you coming and going, don''t they?

[nextgenman]

Wall St. celebrates over Tax Payer Welfare Plan to allow them to keep playing Monopoly! Republicans remain silent over this social welfare program.

[emperorlotku]

The reason the CEO''s will get their multi-million dollar severance packages is because they know which politicians got bought off over the years. Freddie Mac and Fannie Mae spent hundreds of millions on lobbying Congress. Each one of those dollars should be traced down and the recipients publicly exposed. This goes way beyond bad business decisions, this goes to our elected officials padding their pockets.

[whitemale08]

The problem is that the "tax cuts for the rich" guarantee that the "bail-out" happens "tax-free" for the very rich who risked lending the money to the housing market.

That''s outright "treason" folks and Republicans like Treasury Secretary Hank the Snake Paulson loves to be a treasonous bas***d. He''s an idiot who couldn''t find his head even if it was lodged in between his own bowels.

The guy is a crook, a thief, and an agent of Goldman smacks and Wall Street. I would rather have a member of Al Quaida run the Treasury Dept., at least the Quran teaches against "usury".

That''s right folks, Hank the Snake Paulson was given the task to make sure the "lenders" got away with their ill-gotten fortune scott-free and move to Dubai, leaving us with a collapsed currency and higher taxes to pay for the mess.

It''s a sham and Republicans should be ashamed of this clown Hank the Snake Paulson.

[harp1963]

What a crock of c r a p! We''re (the taxpayers) going to start bailing out banks who offer these 25% interest rates to poor people who can''t afford to pay the interest let alone the principle! This country is run by a bunch of crooks.