Its Government Time

By: TraderMark Monday, July 14, 2008 2:33 AM

Symbols: BSC, FNM, FRE, NYT

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Alarmed about the sharply eroding confidence in the nation’s two largest mortgage finance companies, the Bush administration will ask Congress to approve a rescue package that would give the government the authority to buy billions of dollars in stock in Fannie Mae and Freddie Mac and also lend to the companies to meet their short-term funding needs, people briefed about the plan said on Sunday. (now that's a "free market" solution if I ever heard of one. Remember, we are all about free markets on the way down but they are not enough on the way down - that's intervention time!)
As part of the plan, the administration will also call on Congress to raise the national debt limit, people briefed on the plan said. (more debt for your grandchildren!)
The credit line provided by the Treasury to the companies has always been seen by the market place as evidence that the two companies would be rescued by the government if they ever encountered severe financial problems. Now, in the face of market turmoil in recent days, a quiet yet dramatic policy shift has occurred. Government officials no longer deny the existence of a guarantee. Instead, senior officials at both the Fed and the Treasury have been talking in recent days of possibly taking steps to “harden the guarantee.”
A default by either one of the companies could be catastrophic for the financial system.

As I type this entry, 6 PM news here there or everywhere

The White House and the Federal Reserve moved Sunday to prevent Fannie Mae and Freddie Mac from failing. In a statement, Treasury Secretary Henry Paulson said the global reach of Fannie (FNM) and Freddie (FRE) necessitated unprecedented action. The Treasury has moved to increase its existing line of credit to Fannie and Freddie. In addition, Treasury have been given the power to buy the two companies stock. In a separate vote, the Fed board of governors voted to open its discount window lending facility to Fannie and Freddie. In return, Paulson asked Congress to rework a measure in the housing bill moving through Congress to give the Fed a formal role to work with the new GSE regulator that the legislation would create.
Treasury gets authority to buy Fannie, Freddie stock
Paulson says Fannie Freddie must be saved
Fed to extend discount window to Fannie, Freddie
Treasury to increase credit line to Fannie, Freddie

Well thanks for getting that out of the way early so I don't have to wait until 10 PM to find out what the "free market" solutions were going to be. Hold on while I feint surprise. Ok, done.

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