Announcement for Fannie, Freddie in the Works (Updated)

Various sightings of motion, but none yet of resolution on the Freddie and Fannie fronts, although there are now indications that an announcement of some sort will come soon.

Note that the updated story from the Wall Street Journal suggest a rescue is not in the offing, merely a willingness to rescue. If the powers that be pull a lot of strings to make sure Fannies’s $3 billion sale of short-term debt goes off successfully Monday, the finesse might work in shoring up confidence for now. But I wouldn’t bet on it.

From the Financial Times:

US policymakers held crisis talks on Sunday over possible moves to bolster Fannie Mae and Freddie Mac, amid mounting fears that failure to shore up the troubled mortgage groups could send markets plummeting on Monday morning.

Officials said Treasury secretary Hank Paulson, Federal Reserve chairman Ben Bernanke and Tim Geithner, president of the New York Fed, were leading the talks.

A statement on Fannie and Freddie, which are sponsored by the government but owned by shareholders, could come before the opening of Asian markets, they added.

From Bloomberg:

Treasury Secretary Henry Paulson is likely to make an announcement today that reiterates his comments from last week pledging support for the companies, the people said….

“There should be a public policy discussion before the Treasury Department turns an explicitly non-government obligation into an explicit government obligation,” said Joshua Rosner, an analyst with Graham Fisher & Co. in New York. “This is not being done with Congress’ involvement and many in Congress would not approve of the decision to burden the taxpayer.”

Officials are debating several options for future funding should Freddie Mac be unable to sell the securities or the companies are unable to raise capital.

The options include recapitalizing the companies, though Fannie Mae and Freddie Mac want to limit government involvement, the people said.

The Wall Street Journal is least specific as to details, which gives the impression that a concrete plan may not be forthcoming:

The Treasury is expected later today to make a statement supportive of beleaguered mortgage giants Fannie Mae and Freddie Mac, according to people familiar with the matter.

The exact language couldn’t be learned but is expected to be a statement of facts designed to reassure markets, people familiar with the matter said.

Update 4:55 PM: The Wall Street Journal just got a hair more specific:

The Treasury announcement is likely to discuss the availability of a line of credit for the companies if needed and an indication that the government might buy equity capital in the companies in a pinch, these people said.

The statement may also announce a consultative role for the Federal Reserve in setting capital requirements for the company, they said.

The announcement is expected to reaffirm that the government doesn’t plan to nationalize the companies and wants to help sustain them in their current form, these people said.

The Fed is expected to make a separate statement regarding the near panic that has slashed the value of Fannie and Freddie shares by nearly half over the past week.

All told, the announcements, crafted during a series of weekend discussions, represent a broad attempt by the federal government to do everything it can short of an actual intervention to prop up the two stockholder-owned, government-sponsored companies, whose operations are vital to the functioning of the U.S. housing market.

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  1. Anonymous

    If the answer on Monday is that the Treasury provide an equity “cushion” (at some cost to existing equity holders) will not the market interpret this as an implied reluctance on behalf of the US Govt to explicitly honour that which the market had assumed (even if there is no legal obligation)?

    Will this not lead to an increase in the cost of borrowing not only for Fannie & Freddie but also for the US Govt?

    How else can the holders of Fannie & Freddie debt understand such an action other than that the US Govt will drip feed equity until the going gets too tough and then fail to honour its obligations.

    The legal/regulatory niceties of this are irrelevant. This is a question of FAITH.

  2. JP

    The exact language couldn’t be learned but is expected to be a statement of facts designed to reassure markets…

    Fact: Fannie and Freddie are in deep doo-doo.

    Fact: No one believes a word out of ole Hank’s mouth anymore.

    Fact: If we don’t bail them out, they’re going to fail.

    Fact: The only way to bail them out is to crush the rest of the economy.

    And have a nice Sunday.

  3. Anonymous

    This is not about “confidence building”. This is put up or shut up. Did the Fed and/or Treasury influence the timing of the FDIC intervention on IndyMac? Why would any rational person wait for the outcome of a “confidence building” exercise. In any event, is it not more correct to describe this as “confidence re-building”. Confidence has been lost, and for good reason.

    This is a question of FATIH.

    FAITH in the ability US Govt to pay its debts and manage its affairs in a sustainable manner.

  4. Anonymous

    Taxpayers will be left holding the bag as usual. The rich folks skate. I’m moving offshore.

  5. Anonymous

    I wouldn’t bet on it on it either. $3 billion is not the question. $5Tn is the question. And the question is this. Will the US Govt on behalf of AMERICA pay its debts?

    “Willingness” is entirely insufficient. Can confidence be more undermined than by strings having to be pulled? Finesse is for the Catwalk. This is not a fashion parade of competing views of AMERICA. This is the future of AMERICA.

    AMERICA has a Govt. The Govt must ACT or it is not a Govt.

    The Govt must either guarantee Freddie & Fannie or say that it will not. AMERICA must know where its Govt will lead it.

  6. Richard Kline

    Faith, hope, and charity. : )

    Oh wait: Republicrats fo faith, Demoblicans do hope, and nobody does charity. . . . We are sooo busted.

Comments are closed.