naked capitalism

Dean says:

Yves,

Yves,

The seizure appears to have been triggered by a hedge fund attack on the shares of the GSE’s which began to collapse broadly in after hours trading on Friday night; Fannie Mae plunging over 25% and Freddie Mac down in excess of 15%. In both cases, ‘the bottom’ simply dropped out, and rather then have both shares prices collapse in very public fashion (likely even further) on Monday, the government simply moved in and seized the companies.

Here is how an analyst put it:

In reality, this signals that the credit crisis of the last 12 months has now entered a new and likely even more negative phase, with the government balance sheet now ‘on the line’ to make the formerly implicit GSE guarantees, now explicit government guarantees. The demise of Fannie and Freddie over time has the potential to add as much as 2 Trillion dollars of bad debt onto the backs of U.S. tax-payers. This is a potentially staggering sum when you consider that US GDP is on the order of 13 Trillion dollars. Of course, we know that some of the initial estimates for bad debts are far lower, ranging in the order of $200 to $300 billion dollars.

However, what is not being generally discussed is the fact that both GSE’s are loaded with major derivative exposure and there is a good chance that the crisis in GSE Mortgage land could start a chain reaction derivative melt-down over time. Over the years, the GSE’s have been THE liquidity back-stop for the mortgage arena with SWAP transactions of all kinds networked throughout the financial system and massive quantities of complex mortgage backed securities. While the government take-over of Fannie and Freddie may forestall some near term liquidity issues, the take-over will

not solve the larger problem of falling real estate collateral values, which will continue to wreak havoc on the balance sheets of corporations throughout the financial sector.

Anonymous says:

>> "The seizure appears to have been triggered by a hedge fund attack on the shares of the GSE’s which began to collapse broadly in after hours trading on Friday night; Fannie Mae plunging over 25% and Freddie Mac down in excess of 15%. In both cases, ‘the bottom’ simply dropped out"

What about Friday afternoon, what was that all about???

John says:

This is like transferring a patient from the regular floor to the intensive care unit: never a good sign.

We’re nationizing (in the most half-assed way we can) the housing industry, because China holds a lot of mortgage debt. China also manufactures most of what is consumed in the US. What’s wrong with this picture?

This is what happens when creditors run a country…without any oversite at all. Who made Paulson President of the US?

“Financial Industry” is an oxymoron.

Anonymous says:

I apologise for not linking the acutal headlines and dates of occurrences but time prohibits that right now (am dashing out for an appointment and Im late already..).

Have you noticed how schizophrenic the (share) markets have been? One day its “markets down on oil price fall” followed a few days later by “markets up on oil price fall” followed by “markets down on oil price rise” and then to make sure all possibilities have been covered “markets up on oil price rise”.

Seriously, I have lost all faith in crediting markets with any intelligence whatsoever at this point….

There is no rhyme or reason or logic. Any news appears to be alternately acknowledged by a market movement.