US: THE MOST DRAMATIC STATE INTERVENTION IN FINANCIAL MARKETS IN DECADES
As expected, the US authorities have been obliged to A HISTORICAL POLICY CHANGE, i.e. to nationalise the two semi-public agencies (so called Fannie and Freddie) that are behind most of the federal housing policies, including the subcrime disaster. It is Financial Socialism at work: since from the March bailout of Bear Stearns, the weakest of the 5 US financial banks, the Fed and the Bush administration have lead the world tide toward the socialisation of subcriminal financial losses, abandoning forever Reaganism and the Chicago ideology. As Lex suggests, this sharp move of Bernanke – Paulsson (the initiative to the latter, this time) towards State Socialism in the US
has in essence converted the Treasury into the US hedge fund of last resort (with the Federal Reserve as its prime broker).
IT IS IN FACT A MOVE TOWARDS STATE SOCIALISM A’ LA SCHUMPETER, much more neat than Bear Stearns: because the private initiative was missing (read Lex just below), and the credit crunch was melting down the US (and world) financial system, the US Federal State and its Federal Reserve intervene as a last resort.
A full fledged NATIONALISATION at the service of Financial Capital: THEIR SOCIALISM.
Misery (and a lesson) to the left parties, that have abandoned since long the ideals of True Socialism, accepting 100% the Chicago – Reagan – Thatcher ideology of self-healing and supermen markets !!!
OUR 13 JULY BLOG POST: https://enzofabioarcangeli.wordpress.com/2008/07/13/indy-fannie-and-freddie/
1. BRAD SETSER’s analysis on Sept. 2:
2. LEX (financial times)
Fannie & Freddie: coping with crunches
Published: September 8 2008 09:32 | Last updated: September 8 2008 19:55
The sight of a finance minister caught in reporters’ lights is more usually associated with an emerging market crisis. But Hank Paulson has a lot in common with emerging markets of late. It was Yale-educated former Mexican President Ernesto Zedillo who once commented that markets overreact, so policymakers need to do so as well. Mr Paulson has taken a leaf out of that book.
He has taken no chances with the bail-out of Fannie Mae and Freddie Mac. Other investors were not prepared to recapitalise them or buy sufficient amounts of their debt to bring mortgage rates down. So the government will instead. The former investment banker has in essence converted the Treasury into the US hedge fund of last resort (with the Federal Reserve as its prime broker). Oddly, Mr Paulson’s package has proved uncontroversial and been supported by both presidential candidates (although President George W. Bush has kept relatively quiet). And, paradoxically for the self-proclaimed home of democracy, it was enacted by unelected officials.
OUR COMMENT: Look at Moody’s graph. When the clouds will be over, we will know how much the US 2008-9 is approaching the 8% of GDP Guinness of Japan around year 2000, and Norway 1990-93.
3. NOURIEL ROUBINI http://www.rgemonitor.com/roubini-monitor/253501/fannie_and_freddies_bust_and_deeply_flawed_government_bailout
the bust and now bailout of Fannie and Freddie is no news for this author and the readers of this blog: it is one of the severe toxic collateral damages of the biggest housing and mortgage bubble and bust in US history.
The recent New York Times Magazine long profile article of yours truly (as “Dr Doom”) reminded readers that this bust of housing, of the mortgage market and of Fannie and Freddie was predicted here exactly two years ago today’s date (September 7th, 2006)
4. RGE MONITOR’s analysis and doc – with links:
Analysis U.S. Treasury Sep 07, 2008
5 FURTHER READINGS
The best analysis of Fre&Fan in the frame of US housing and income-debt-wealth policies is:
Paul Jorion (2007), Vers la crise du capitalisme américain? Paris: La Découverte – MAUSS.
For updates see: http://www.ft.com/indepth/freddieandfannie
The table here may be a little difficult to read, but probably worth pasting all the same – the exposure of 40 US regional banks to GSE preferred stock.
According to Goldman Sachs, the key names at risk are Westamerica and Sovereign, More…
So Bill Gross’s Pimco has got what he wanted – a bailout of Fannie/Freddie, all in the name of saving the world from financial meltdown.
Pimco is of course, loaded to the gills with GSE mortgage-backed securities and has been screaming for Treasury intervention, More…
by Paul Murphy
The latest on that bailout:
– Is this the beginning of the end of capitalism? (NOTE- our answer: a sort of; but not Marx style, better Schumpeter-style: capitalism evolves naturally toward autocratic and bureaucratic socialism)
– The exit packages… – Syron gets an extra $8.8m for forfeiting “certain equity grants.”
– Cramer: “There is, for the first time, More…
The US government on Sunday seized control of the troubled Fannie Mae and Freddie Mac mortgage groups in what could become the world’s biggest financial bail-out, reports the FT. While the Bush administration stopped short of using the word “nationalisation”, More…
World equities markets rallied and Treasury prices tumbled after the US government seized control of Freddie Mac and Fannie Mae, which between them have outstanding liabilities of $5,400bn – 11:40
Fannie & Freddie: market reaction
Published: September 8 2008 09:29 | Last updated: September 8 2008 13:38
Investors had half the weekend to ponder the resuscitation of the toxic twins – Fannie Mae and Freddie Mac. It is fair to say, however, that nobody really knows what the implications for financial markets or the global economy will be. In baffling times, the wisdom of crowds – where the average response of many people can prove remarkably accurate – may prove a useful guide. So what are Monday’s markets telling us so far?
The conclusion seems to be that the bail-out is not a quick-fix for the credit crunch. If it were, bank stocks across the planet should have at least tripled. That share prices from Credit Suisse in Switzerland to Mizuho in Japan rose between 10 and 15 per cent was, in fact, a muted response – prices are only back to where they were mid-August. Ditto for currencies: the dollar’s rally versus the euro was short-lived while gains were surprisingly modest in the “carry-trade” currencies. If risk appetites had genuinely returned, the Aussie dollar would have bounded like a kangaroo.
THIS IS 1\4 TODAY’S COMMENTS BY LEX (another one was quoted above), they are all quite nice and they give the sense of an epochal move toward a FINANCIAL STATE “SOCIALISM”, while sticking to facts:
In baffling times, the wisdom of crowds may prove a useful guide. So what are Monday’s markets telling us so far? – Sep-08
Hank Paulson is following the theory of financial crises that markets over-react, so policymakers need to as well – Sep-08
Europe’s banks will take all the good news they can get these days. The Fannie Mae and Freddie Mac rescue does a couple of helpful things – Sep-08
The US’s decision to place Fannie Mae and Freddie Mac into “conservatorship” came without a specific cause but a sense they were failing to provide affordable mortgage debt – Sep-08
Stocks in Asia and Europe rallied, even as the rescue of Fannie Mae and Freddie Mac reinforced concerns about the U.S. economy.
Over the years, Fannie Mae and Freddie Mac showered riches on many winners: their executives, Wall Street bankers and Washington lobbyists. Now the foundering mortgage giants are leaving some losers in their wake, notably their shareholders, rank-and-file employees and, in the worst case, American taxpayers.
wsj: THE GOVERNMENT SEIZED Fannie Mae and Freddie Mac in its most dramatic market intervention in decades. Treasury plans to replace the companies’ CEOs and provide up to $200 billion as part of the rescue. (Complete coverage)
Morgan Stanley assigned two veterans to the prestigious task of advising the Treasury in orchestrating the takeover of Fannie Mae and Freddie Mac.