http://news.moneycentral.msn.com/…

Fannie Mae and Freddie Mac shares reached their lowest levels in almost two decades Monday after a Barron’s report said it is increasingly likely the government will have to bail out the mortgage giants.

“It may be curtains soon for the management and shareholders of beleaguered housing giants Fannie Mae and Freddie Mac,” wrote Barron’s Jonathan Laing, saying the Treasury Department is likely to recapitalize them in the months ahead.

“Such a move would almost certainly wipe out existing holders of the agencies’ common stock,” Laing wrote.

He also predicted a bailout would also mean losses for holders of the companies’ preferred shares and holders of their combined $19 billion in subordinated debt.

Fannie Mae stock fell as much as 17 percent Monday. Freddie Mac shares fell as much as 14 percent. Both stocks have lost more than 80 percent of their value this year.

Neither company issued public comments Monday on the Barron’s report. Both companies have previously said they are able to raise sufficient capital on their own. Treasury Secretary Henry Paulson earlier this month indicated a bailout would not be necessary.

The housing bill passed by Congress in July gave the Treasury authority to pump money into Fannie Mae and Freddie Mac by buying their stock, debt or mortgage-backed securities.

Fannie Mae (NYSE: FRE) and Freddie Mac (NYSE: FNM) reported a combined second quarter loss of $3.1 billion. Both companies also slashed their shareholder dividends this month.

I’d say they are their lowest levels ever. It’s difficult to say really because the stocks have both split twice in the past two decades but accounting for inflation alone today’s $4.05 for Freddie would have been $2.34 in 1989. That’s only accounting for inflation up to 2007. In January of 1989 Freddie was trading around $4.25.

http://www.economist.com/…

A LIFELONG libertarian, Alan Greenspan does not ordinarily advocate giving the government more power. But he does so in a new epilogue to the paperback edition of his memoir, parts of which were made available to The Economist. The crisis of the past year has convinced him it is the lesser evil. Better someone else be in charge of bail-outs, he argues, than the Federal Reserve, which he led for 18 years.

Mr Greenspan says a high-level panel of American financial officials should be given broad power to seize any financial institution whose failure threatens the entire economy, bail out its creditors and close it down. “We need laws that specify and limit the conditions for bail-outs” and do so transparently with taxpayers’ money, “rather than circuitously through the central bank, as was done during the blow-up of Bear Stearns,” he writes in “The Age of Turbulence”. (Penguin is to release the paperback on September 9th.)

If that means the government has to wade in, so be it. “Our country has long since abandoned the notion that we should leave crises to be resolved solely by the marketplace,” he says. “The critical need…is to formalise…the procedures improvised in the case of Bear Stearns. This should ensure that in the future, government financial assistance to lending institutions does not impact the Federal Reserve’s balance-sheet and monetary policy.”

He says a standby panel, empowered by Congress, should determine if an institution’s failure is dangerous enough to require taxpayer support. It would then form a vehicle to take the firm into “conservatorship”, wipe out the equity, preferably impose a “haircut” on its debts before guaranteeing them, and then sell its assets. Mr Greenspan’s model is the Resolution Trust Corporation (on whose board he served), created in 1989 to take over failing thrifts, sell their assets, then close itself down. He pours cold water on a proposal by Hank Paulson, America’s treasury secretary, to give the Fed broad responsibility over market stability.

Mr Greenspan’s proposal may be politically difficult. For years Fannie Mae and Freddie Mac, America’s mortgage giants, resisted the creation of a regulator that could close them down. With other large institutions—be they investment banks, hedge funds or insurance companies—there might be even more of a fuss. And the Fed is not yet ready to bow out. “Unless I hear from Congress that I should not be responding to a crisis situation, I think that it’s a long-standing role of the central bank to use its lender-of-last-resort facilities,” Ben Bernanke, Mr Greenspan’s successor at the Fed, said last month.

Just because the man used to hang out with Ayn Rand and was apparently a libertarian Objectivist doesn’t mean he continues to be one. Anyone who advocates aggression is not by definition a libertarian. But what better way to destroy a movement then by redefining the words? Eric Arthur Blair would be proud. It was done at around the turn of the 20th century with ‘liberal.’ In economics ‘inflation’ has been redefined. Now a concerted effort appears to be being made to change the meaning of ‘libertarian.’ People like Glenn Beck and Neil Bortz nationally claim to be libertarians. Advocating government manipulation of the market and money bailouts, immigration control and war with people who pose no threat is NOT libertarian.

http://www.nytimes.com/…

The Federal Reserve said Wednesday that it was extending its emergency borrowing program to Wall Street firms and was taking other steps to ease a tight credit market that has hobbled the national economy.  

The Fed said the program, where investment houses can tap the central bank for a quick source of cash, will be available through Jan 30. Originally the program, started on March 17, was supposed to last until mid-September.

Another program, where investment firms can temporarily swap more risky investments for super-safe Treasury securities also will continue through Jan. 30, the Fed said. And, it also will let commercial banks, in a separate program, be able to bid on cash loans that last longer — for 84 days, besides the 28-day loans now available.

The Fed said it was taking these steps “in light of continued fragile circumstances in financial markets.” The Fed said that the emergency borrowing program for investment houses and the program that lets investment firms temporarily borrow Treasury securities would be withdrawn should the Fed determine that conditions in financial markets are “no longer unusual and exigent.”

Starting Aug. 11, the Fed will give banks the option of bidding on 84-day cash loans from the Fed, besides the 28-day loans now available. Specifically, the Fed will conduct biweekly auctions. They will alternate between making available $75 billion in 28-day loans and $25 billion in 84-day loans. The steps expand a program started in December aimed at helping banks overcome their credit problems so that they can keep lending to customers.

The European Central Bank and the Swiss National Bank have informed the Fed that they also will make available to their banks similar 84-day cash loans. The Fed also increased its credit line with the European bank to $55 billion from $50 billion.

And the market rallies to the beat of their own destruction.

And in other news to rally against: Bush signs law to ‘help’ homeowners, Freddie and Fannie

President George W. Bush signed into law legislation that helps 400,000 homeowners facing foreclosure and extends a lifeline to Fannie Mae and Freddie Mac.

Bush signed the measure at the White House shortly after 7 a.m., spokesman Tony Fratto said. Treasury Secretary Henry Paulson, Housing and Urban Development Secretary Steve Preston and Federal Housing Administration Director Brian Montgomery were among those present.

“We look forward to putting in place new authorities to improve confidence and stability in markets, and to provide better oversight for Fannie Mae and Freddie Mac,” Fratto said.

The law is aimed at stemming foreclosures and halting a free-fall in housing prices by providing federal insurance for refinanced 30-year mortgages for homeowners struggling to make their monthly payments.

The measure also is designed to restore confidence in Fannie Mae and Freddie Mac by tightening regulations and authorizing the Treasury secretary to inject capital into the two biggest U.S. providers of mortgage money.

The Treasury chief, who was the lead lobbyist for the White House, persuaded Bush to back off a threatened veto over a section of the legislation that provides $3.9 billion in grants to states to buy and repair foreclosed properties. Bush said he regarded it as a bailout of lenders. Democrats said it would stabilize neighborhoods.

I think if they want to raise the prices of homes they should scrap this grants for buying and repairing properties and just blow up the homes on them. It’d be cheaper to the tax payers and the increase in scarcity will push up prices. Just like they’ve been doing with farmed products since the Great Depression.

Economist Joe Stiglitz comments in the Financial Times, criticizing Fannie’s and Freddie’s free lunch, but ultimately takes a middle of the road approach.

The NYTimes claims that the Housing Bill Has Something for Nearly Everyone. (What, the check to pay for this thing? How about renters? If we miss a rent payment, we are liable to be EVICTED. Where is our bailout?)

Bloomberg reports that mortgage writedowns will total $1 trillion. (Article quotes a hair brained scheme where the gov’t buys millions of houses and then blows them up to help brace housing prices. At this point, I’m not sure who’s being sarcastic and who’s not. But seriously, if you wanna to see something really blowup, watch that gross national debt ticker, over on the right, after this bill passes.)

Former Republican House Majority Leader, Dick Armey blasts the Republican party in the Wall Street Journal. He advocates a five year phase out of either GSE should they access credit lines from the Federal Reserve or Treasury.

More to come…

Not given nearly enough time… not that it would have made a difference unfortunately.