Sounds bad, but isn't, because IMO it means they are basically buying real estate which they can forclose, while they have the Fed as their banker (Fed injected 200mil in FNM/FRE already).
The net effect of this seems to be it will take a while for this stock to have a firm valuation, as the conservatorship will last until the subprime mess is over, and we'll need a few months of history to measure the value of the subprime Real Estate FNM has and is adding.
It also means FNM will be around for a good while, and at these levels, are a good LT investment... they're a key part of the Fed's subprime fix.
To buy NOW - semi toxic? - who the hell knows the price - not FNM not Paulson --
So FNM buys - at some price - and IMO the FEDS will back that price on those transactions
Hell -- FEDS may not just be trying to jump start the money for paper === liquidity chain
FED may be using FNM and FRE to test pricing models and methods and bank demands etc for x cents on the dollar
I dislike some things Paulson did = but he is moving fast and hard - trying to do a lot - fast - hoping much will work - no one is perfect
I agree no problem
I look at it differently
I see it as Paulson using the 200 billion for FNM an FRE -- as a way to jump start the 700 billion --- so
FNM buys NOW NOW NOW - liquidity already started - and when the 700 billion kicks in - FNM can sell it at what it paid or maybe even a penny more to FEDS under that to start later program --- meanwhile I assume earning something for transactions
It for sure will not hurt FNM IMO
That is one way they can claim they are operating within the realms of what a conservator is doing. If the Treasury made a guarantee to them that they'll buy at the price or price + 1% or something, then that just means they're never in risk of losing money and maybe make a little extra. I can see a promise like that never making it out of the back room dealing that goes on in washington too; therefore it is possible. I guess only time will tell. I hope you're right and i'm wrong. I welcome being wrong on this one.
i'm really starting to think that paulson and friends are planning to make fnm and fre the dumping grounds for all losses... they made it clear that this order to buy subprime was seperate from the 700 billion dollar bail out. they also made it clear that they're ordering fannie and freddie to draw down the 100 billion credit line when they don't need it. Why you really gotta wonder. Throughout the congressional vote for the 700 billion bail out, they keep saying that there's a good likelihood that the government will make money rather than lose money. They're trying to make it so that the assets that the 700 billino will buy are more likely to make money and then turn fannie and freddie into the lost pool. If this is seperate that means fannie and freddie can absorb the losses while the governmnet makes money on the 700 billion. There's no political damage if fannie and freddie loses money because its not the government's money they lose first, its the stock holder's money. But if the 700 billion loses money, thats the government's money that goes first. I think this is in very bad faith of what a conservatorship is. They're suppose to run the organizations to conserve the value of fannie and freddie, not make it a dumping ground so that they can lose money without any political consequences. As share holders I think we really need to start some legal action to suit the government to either let it out of conservatorship, make them prove that what they're doing is in the best interest of the share holders (which they can't) or to make them buy out the share holders so that they can do whatever it is they want. I think Fannie and Freddie is here to stay, but I just don't like that we're now pawns in this big game and we're being sacraficed because we don't have any political consequences.
Not that I disagree with you, some company and obviously a government controlled entity must ultimately be in control of the subprime mortages. They can't just disappear. As bad as the loans might be, they are backed by REAL property, so they are not without value.
As these are pulled off the books of other companies, and the credit freeze unthaws, and the economy stabalizes and the stock market begins it's slow crawl out of this hole, then these properties will have more value. If foreclosed they can be resold. If payments have been made then the loan was good and they can be kept till maturity.
Ultimately it's a winning situation and somewhere down the line, the absolute value of FNM and FRE will be tremendous. What that means to stock value down the road, can only be upside, but where it ends I have no idea.
I think Paulson is banking on these as his go to guys. If they fail, then the rest of the market will take the rest of my life to recover and we will see a depression, worldwide the likes of which has never been seen.
It's either the death knell of the world as we know it, or the opening to a better tommorrow
john you could be right
I think it is not an evil two pool plot - but a desire or need by Paulson to move fast and faster on liquidity and pricing models
and if that is what it is - its good
but you could be right