Fannie, Freddie: Note Sale Off Well, Rogers Deems Plan "Unmitigated Disaster"

As both cynics and boosters anticipated, the Freddie Mac $3 billion sale of short term debt went off well this morning. As of this hours, the stocks of the GSEs have fared less well, as the Wall Street Journal notes:

Shares of Freddie were up about 20% soon after the market opened Monday but reversed course and recently traded down 53 cents to $7.22. Fannie stock jumped around 30% at the open and but turned around to trade slightly lower on the day, down 59 cents to $9.66.

Reservations are even stronger in some quarters. Bloomberg reports that Jim Rogers gives the rescue plan, such as it is, a big thumbs down. Rogers is short the GSEs and admittedly talking his book, but the flip side is that traders are married to profits and can exit a liquid stock quickly. The fact that Rogers remains short confirms that he is not impressed:

The U.S. Treasury Department’s plan to shore up Fannie Mae and Freddie Mac is an “unmitigated disaster” and the largest U.S. mortgage lenders are “basically insolvent,” according to investor Jim Rogers.

Taxpayers will be saddled with debt if Congress approves U.S. Treasury Secretary Henry Paulson’s request for the authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac, Rogers said in a Bloomberg Television interview….

“I don’t know where these guys get the audacity to take our money, taxpayer money, and buy stock in Fannie Mae,” Rogers, 65, said in an interview from Singapore. “So we’re going to bail out everybody else in the world. And it ruins the Federal Reserve’s balance sheet and it makes the dollar more vulnerable and it increases inflation.”….

“These companies were going to go bankrupt if they hadn’t stepped in to do something, and they should’ve gone bankrupt with all of the mistakes they’ve made,” Rogers said. “What’s going to happen when you Band-Aid and put some Band-Aids on it for another year or two or three? What’s going to happen three years from now when the situation’s much, much, much worse?”….

Rogers said he had not covered his so-called short positions in Fannie Mae and would increase his bet if it were to rally….

“They’re ruining what has been one of the greatest economies in the world,” Rogers said. Bernanke and Paulson “are bailing out their friends on Wall Street but there are 300 million Americans that are going to have to pay for this.”

Courtesy Dealbreaker comes another bouquet for the plan, this from banking analyst Dick Bove in a CNBC interview:

Dick Bove: Fannie Mae and Freddie Mac in my view are disasters they were basically companies that were filled with fraud and mismanagement for the last five or six years. They have to be broken up, they have to be gotten rid of. I don’t think there’s any question about that, but it can’t be done now and can’t be done in a period of hysteria…. I think what you’ll see is that Fannie Mae and Freddie Mac will be gone.

Steve Liesman: That’s sort of, I hate to say it at 6:14 in the morning, insane.

Given that two years ago, no one would have predicted we’d have a partially nationalized banking system in 2008, I would hesitate to deem Bove’s scenario as impossible (which is the polite translation of “insane”). Unlikely, yes, Impossible, no.

Print Friendly, PDF & Email


  1. Anonymous

    In a recent post you said that if the PPT exists, and if it chose to intervene in the markets, then this Monday would be a likely day, and that the fingerprints would be readily visible.

    I was curious to know what sort of fingerprints a layman could look for, and whether or not you could see any sign of manipulation as yet today.


  2. russell1200

    I was hanging out in bearish territory a couple of years ago.
    Indy Mac’s Alt-A situation, and FRE and FNM’s imaginary accounting were all common knowledge. The FNM board is generally the site of bearish territory wherever you go, and I first learned of Indy Mac there.

    The exact sequencing of events is different than I had seen predicted, but the suspect players are pretty much there. That the rescue of Bear was sufficient to stop (at least for the moment) the counter-party risk problem has surprised me. That the banks were able to get anyone to invest in them initially when they began to melt down was also a bit surprising. You normally think that people with billions of dollars to invest have at least a little bit of sense.

    It is not that they were not foreseen, it is simply that the general investment community is simply not set up to listen to bad news in almost any form.

  3. Eric Prentis

    Crony capitalism practiced by Treasury Secretary Paulson and Federal Reserve Chairman Bernanke has to end. The US taxpayers should not save Fannie Mae and Freddie Mac’s private equity holders, like the illegal $10 dollars per share bailout paid in the $29 billion dollar Bear Stearns debacle. President Bush’s “ownership society” should start at the top, the rich and the powerful have to stop being such hypocrites.

  4. ScottH

    This may (or may not) be off topic, but the TED spread has blown out to 1.34 as of 15:00 Eastern.

    It looks like we are heading into another credit seize-up. TED spread was in the low 90s a week ago or so.

  5. S

    Dick Bove is a value destroyer with low credibility; who cares what he says. Shill. He told you 30% ago it was a once in a lifetime opportunity and he is sticking to his call. Go figure. I hope for his sake that he at least gets a little piece of any remaining equity deals.

    GS out with a note discussing the bank exposures to FNM/FRE debt and preferred. It was question numero uno on the MTB call.

    Then CNBC trots out the guy who told Einhorn his analysis was “airy.” Only to apologize for making the comment and in the process destroying his own credibility. Only on the sell side and abetted by CNBC could someone be so brash as to get back on TV and offer perspective.

  6. Anonymous

    If the Republicans have any hope of getting voters out in the fall, they have to back away from this … let’s call it what it is … bailout. Most Americans are not losing their homes…the few who are…and it is traumatic for them…are not in a position to be calling the shots at this point. Hank/Ben you’ve gotta let your friends on Wall Street pay the piper…most Americans’ pensions are NOT in CDOs, SIVs, or even in significant proportions in financials! This is crazy.

  7. Yves Smith


    The reason for including Bove was, per his history, he would seem unlikely to make the sort of comment he did. And I clearly said I regarded his forecast as unlikely.

    He has, however, also said, “Feeling sorry for people on Wall Street is like feeling sorry for Attilla the Hun.” And although he has been very wrong of late, he did warn of the crash in financials in early 2007, and that view went against the mainstream then.

  8. Anonymous

    I think it’s interesting that Rogers is still hanging in there. He supposedly got in at $60. Perhaps he has been doubling down to enhance his leverage?

  9. Anonymous

    I keep hearing a comment to the effect that if Fannie and Freddie were nationalized, it would double the national debt. Not so.

    The implicit assumption is that all the GSEs’ assets are worthless, and the taxpayer gets stuck with their entire liabilities of $6 trillion or so.

    In reality, while the GSEs’ assets may be impaired, they aren’t worthless. A heavy 15% haircut on the assets would imply a net loss to the taxpayers of under a trillion. Not pretty, but also not a doubling of net debt which would send the dollar spiraling into worthlessness.

    Are we oversold enough yet?

  10. Doc Holiday

    Just awesome clarity and honesty from Rodgers!!! A true American Patriot — of which we need more ASAP!!! We need a government by the people, of the people, for the people and not a synthetic bastardized neo-corporate lobbiest conduit system that maintains power by rewarding friends of Bush!!! We need leadership that has honesty!! Schumer is a good start!!!

    Seneca the Younger wrote the moral essay De Brevitate Vitae – “On the Shortness of Life” – to his friend Paulinus. The philosopher brings up many Stoic principles on the nature of time, namely that men waste much of it in meaningless pursuits. According to the essay, nature gives man enough time to do what is really important and the individual must allot it properly. In general, time can be best used in the study of philosophy, according to Seneca.

  11. S


    That is the beauty of the sell sdie: alll talk no capital makes for a toxic brew. I liked the idea of forcing analysts to allocate thier own capital into their one in a lifetimers. Bove would be on the failed analyst list

  12. Anonymous

    FNMA & FHLMC guarantee or own ~ $5 tril of “A paper” loans + $250 bil of Alt A/subprime. A 4% write-down in their A paper portfolio value = $200 billion. A 25% write down in their subprime/Alt-A portfolio would be $62 bil (their entire capitalization). The GSE’s are insolvent. It wll be apparent by year’s end as the Option ARM defaults start to hit the fan the way the subprime defaults did 18 mos ago, driving home values down further. FNMA “MY Community Morgages” that were approved two years ago with 581 scores, zero down and a 64 debt ratio on a condo purchase were considered “A paper”. Those loans will be going bad in droves.

  13. Bob_in_MA

    Of all the well-respected, idiot analysts, Bove tops the list. He was recommending buying banks a couple months ago. I saw him on Bloomberg wet his pants when Citi cut their dividend. How the hell could a bank analyst not see that coming?

  14. Anonymous

    I imagine many homeowners behind on their mortgages will now hope that their bank goes under, so that the Fed owns their home.


    FDIC halts foreclosure on IndyMac mortgages: Bair

    Monday July 14, 5:20 pm ET

    WASHINGTON (Reuters) – The Federal Deposit Insurance Corp has temporarily halted any foreclosures on the $15 billion of bank-owned mortgage loans found in IndyMac’s portfolio, FDIC Chairman Sheila Bair said on Monday.

    Bair has scolded mortgage lenders for being too slow to help distressed borrowers restructure their home loans.

    “Modified loans will be worth more than foreclosed loans,” she said in an interview on CNBC television.

  15. Yves Smith

    My assumption re any analyst or investor on CNBC is that they are a cheerleader unless there is good reason to believe otherwise. Until very recently, skeptics or bears were featured rarely and then mainly to create the appearance of fairness or serve as a foil to the bulls. I do not watch CNBC, but catch occasional clips on the Internet. You may recall the attempted hazing of Barry Ritholtz a couple of months ago. It was an ugly piece of work.

  16. Anonymous

    “People should not assume that just because the stock price has been going down, that we’re going to close their bank,” Ms. Bair said in an interview. “In addition to our credit problems, I don’t want to have to start worrying about bank runs.”

    This from the New York Times

    When Sheila Bair, the chairwoman of the F.D.I.C. says “I don’t want to have to start worrying about bank runs”, could somebody remind her that that is precisely her job. And, that if she had been doning her job properly she wouldn’t have to worry.

    When she says “In addition to our credit problems” is she speaking for the FDIC (running out of credit) or the American economy (running out of credit) or the US Govt. (running out of credit).

  17. Anonymous

    @ Anonymous 7:34PM

    “Modified loans will be worth more than foreclosed loans,” she said in an interview on CNBC television.

    Is Bair a member of the Communist Party.

    Perhaps Irving Berlin should come back from the dead (along with IndyMac) and rewrite “God Bless America” as “God Save America”

  18. Anonymous

    This from the Washington Post

    “A closely-watched Freddie Mac bond sale did hold some good news. Government officials had spent the weekend monitoring and preparing for the $3 billion debt auction. The fact that the interest rate was close to that paid for comparable Treasury notes was a sign that investors have faith in the company’s bonds.”

    If “Government Officials” (would that be Goldman Sachs?) spent the weekend “preparing” for the $3Bn debt auction, is this not an admission that the management of Freddie Mac is incapable of managing its own debt auction, or that the market will no longer deal with Freddie Mac directly but will only deal with “Government Officials”?

  19. Michael McKinlay

    Yves said : “Given that two years ago, no one would have predicted we’d have a partially nationalized banking system in 2008 ”

    Actually Roubini predicted it two years ago.

  20. Yves Smith


    I stand corrected, but i view Roubini as the exception that proves the rule. I am sure that forecast got him viewed as a crank, whether Serious Economists and/or the MSM even bothered to say so.

    I started blogging and therefor paying close attention to the financial media at the very end of 2006. It was obvious that things were going to end badly, probably very badly, but I am surprised by the policy response from this Administration. And I would not have foreseen the nationalization being done via the Fed, which takes it out of the realm of public debate and instead made it a fait accompli.

    Long winded way of saying I could see a government sponsored (or funded) recapitalization of the banking system being necessary, a la Japan, but I’m surprised it got as far as it has this fast.

  21. S

    Shiela Bair should be removed ASAP. This has to be a voilation of the law. Then again as Rogers sadi, much of the action heretofore alls in this catagory. Who is she to be arbitrarily deciding to experiment with taxpayer money. She hasn’t a clue about what will or will not work. SHer own Agency missed the Indymac situation in part.

    This is Katrina with a different set of ineptitude and far higher stakes. Reminds me of the Taleb story about the guy who flips a coin 49 times and gets heads each time. Asks the ibankser what will be the probability on the next flip and the banker says of course 50%. Then he ask joe from brooklyn and he says heads of course, the coin is loaded.

    As these poeple try to make themselves relevant the future tax bill rises. Sad, but not at all unexpected

  22. Anonymous

    Americans lets unite and make sure our leaders never do this again to us. First sell all your stocks (401k’s,Ira’s and take your money out of the banks). This way we dont have to listen to CEO’s BS us everyday. Second stop paying for all your debt’s including your mortgage. This way Wall Street will wake up for once and smell reality. Once we put them into check and take control to put fundamentals back into our economy. Last but not least lets bring back our troops to protect the borders. Oh, I forgot lets make sure the Gov’t is Not a subsidiary of the Oil & Pharameucitical companies.

Comments are closed.