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Fed to cut rates again, maybe all the way to zero
More aggressive 'nontraditional' policy means also in store
12/10 12:01 PM
WASHINGTON (MarketWatch) -- The Federal Reserve is expected to cut rates again at the end of a two-day policy meeting next Tuesday and could be on the road to zero.
"Our view is that the Fed will continue pulling out all the stops" to fight the downturn, said Jonathan Basile, an economist at Credit Suisse Holdings Inc.
At the moment, the federal funds rate stands at 1%. Since October, the Fed has slashed target lending rates by 50%. That followed a series of earlier rate cuts that brought the funds rate down from 5.25% in September 2007.
Economic weakness is now feeding on itself, creating a more severe downturn, and hope that the economy will rebound in the second half of 2009 is quickly fading.
In a key speech on Dec. 1, Fed chief Ben Bernanke promised vigorous action to combat the downturn.
For Fed watchers, "vigorous" action translates into policy actions that include cutting the funds rate to the lowest feasible level and more "nontraditional" steps like buying more debt to lower interest rates and unclog markets.
Analysts believe it means a minimum cut on Dec. 16 of a half-a percentage point to 0.5%.
Economists at the top government dealers agree with the half-point call.
"One has to assume [the Federal Open Market Committee] is going to cut rates by 50 basis points. They have been talking about the fact they can do more -- I don't see why they shouldn't," said Bill Cheney, chief economist at John Hancock Financial in Boston. "Anything less will be viewed as inadequate."
There is a lively debate about whether the Fed would stop after a half-point cut.
Right now, just seven economists at the 16 primary dealer firms are on record as believing the Fed will go below 0.5%. Three dealers put the endpoint as zero. So the majority don't believe the Fed wants to go all the way to zero.
'Considerable period'?
During the last cycle, when the Fed brought the funds rate down to 1%, the central bank adopted language to signal that rates were going to stay low. The Fed accomplished this by saying that it intended to keep rates low for a "considerable period."
This wording lasted in Fed statements from 2003 until 2005.
Some economists today expect a reprise, with similar language acting as a signal to the market that rates are going to stay low for some time.
"The Fed may be very close to making a conditional commitment to keep rates low as long as needed to restore financial stability and to bring about economic recovery," wrote the economic team at Citigroup. It would help ward off the risk of deflation, they argued.
But other Fed watchers disagree.
Brian Sack, a former Fed staffer who is now at Macroeconomic Advisors, said the "considerable period" language is controversial. Many have argued that the Fed kept rates too low for too long early this decade and that the language was part of that problem.
Some economists believe the policy statement will have to communicate the Fed's thinking clearly.
"It is important how they describe what they plan to do going forward," said Geoffrey Somes, a senior economist at State Street Global Advisors.
There is a sense in the markets that the government's response to the crisis has been "ad hoc," Somes said. "Markets would be more comfortable and investors would have more confidence if they understood a comprehensive strategy - that is the real challenge for the Fed."
Basile of Credit Suisse agreed: "They are going to have to spell out what they are going to do next and how they are going to do it."
Sideshow?
A further cut in the funds rate is already a bit of a sideshow, economists admit.
Short-term rates have routinely fallen below the Fed's target level since the last Fed cut in October. So rates are already very low. Getting rates to zero doesn't mean the central bank is powerless, analysts said. It simply would need to change tactics.
"It doesn't mean that they will be sitting on the sidelines," said Somes.
A key upcoming action could be the "quantitative easing," via nontraditional approaches, of monetary policy. The Fed has already engaged in a bit of quantitative easing, although the central bank typically shies away from the term itself.
In essence, the Fed is putting massive amounts of reserves into the banking system above and beyond what is normally needed for day-to-day business.
Open-market purchases of Treasurys would lead to lower yields, and the central bank could also buy other debt to raise their prices.
"The goal would be to lower long-term rates and help underpin spending and risk taking," the Citigroup team said.
The Fed has just begun buying mortgage securities sponsored by Fannie Mae (FNM:$0.7094,$-0.0806,-10.20%) and Freddie Mac (FRE:$0.74,00$-0.05,00-6.33%) . The program has been called a success because it led to dropping mortgages rates and a bout of refinancing by homeowners.
Economists widely expect more aggressive quantitative-easing measures. Goldman Sachs and other economists expect the Fed to expand its purchases in size and breadth of asset classes. This includes nonagency mortgage-backed securities, commercial-mortgage-backed securities and even bulk unsecuritized mortgages.
The Fed is getting set to launch a new facility to supporting the issuance of asset-backed securities collateralized by student loans, auto loans, credit card loans and loans guaranteed by the Small Business Administration.
Economists admit that the consequences of the new policy stance are unpredictable. They also say that the Fed may find that it's easy to launch these efforts but difficult to devise an exit strategy.
But the focus now must be on the worsening downturn, economists agree. They hope that Fed policy, when combined with an aggressive stimulus plan by President-elect Barack Obama, will break the back of the recession.
I think the bears haven't given up hope yet, that they(GOVT) will wipe us(shareholders) out.
Actually, now most of the money is coming from the Fed now, so we were all mislead. We still are getting what we were promised, just from a different source.(at least the majority of it. The weekly amount I am talking about, in particular)
They are doing it on a weekly basis. If they buy it all at once, they will create a huge bubble, and end up overpaying for those assets.
US Govt Posted $164.40 Bln Total Budget Deficit In November
12/10 02:00 PM
WASHINGTON (Dow Jones)--The U.S. government spent far more than it collected during November, pushing the deficit above $400 billion only two months into the fiscal year.
The government ran a deficit of $164.4 billion last month, the Treasury Department said Wednesday. It had an unrevised deficit of $237.2 billion in October. Year to date in fiscal 2009, the deficit totaled $401.57 billion.
For all of fiscal 2008, which ended in September, the government had a budget deficit of $454.8 billion, which was a record.
A Dow Jones Newswires survey projected a deficit in November of $171 billion, which was the same estimate of the Congressional Budget Office.
Treasury's monthly budget statement for November showed receipts totaled $ 144.8 billion, down from $151.1 billion a year earlier.
Outlays in the second month of fiscal 2009 totaled $309.2 billion, up from $ 249.3 billion the same month a year earlier. The $309.2 billion is a record for the month of November.
The record outlays partly reflect $76.47 billion in spending under the Troubled Asset Relief Program. Year to date, the disbursement is $191.47 billion.
In its monthly budget statement, Treasury said it bought $23.2 billion in agency mortgage-backed securities in November; year to date, purchases totaled $ 44.7 billion. Treasury became the buyer of last resort for these bonds when it announced the takeover of Fannie Mae (FNM:$0.7167,$-0.0733,-9.28%) and Freddie Mac (FRE:$0.7367,$-0.0533,-6.75%) in early September. The bonds, guaranteed by Fannie and Freddie, play a critical role in the housing finance market. The yields on these bonds determine the mortgage rates that consumers pay on their home loans.
Individual income-tax receipts in November totaled $60.10 billion. Corporate tax receipts totaled $2.0 billion.
Net interest on the federal debt was $22.76 billion.
The Treasury said it plans to release budget data for December on Jan. 13, 2009.
-By Jeff Bater, Dow Jones Newswires; 202 862 9249; jeff.bater@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=CSwu20xok0%2BinROM%2BrVbQA%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
12-10-081400ET
Copyright (c) 2008 Dow Jones & Company, Inc.
US Tsy Buys $23.16 Bln In Fannie, Freddie Mortgage Bonds
12/10 02:00 PM
(MORE TO FOLLOW) Dow Jones Newswires
12-10-081400ET
Copyright (c) 2008 Dow Jones & Company, Inc.
Fannie Mae sells $2 billion bills at lower rates
12/10 10:05 AM
NEW YORK, Dec 10 (Reuters) - Fannie Mae (FNM:$0.7156,$-0.0744,-9.42%) <FNM.P> said on Wednesday it sold $2 billion in bills at sharply lower interest rates compared with sales of the same maturities and size a week ago.
Fannie Mae (FNM:$0.7156,$-0.0744,-9.42%) said it sold $1 billion of three-month benchmark bills due March 11, 2009 at a stop-out rate, or lowest accepted rate, of 0.070 percent and $1 billion of six-month bills due June 10, 2009 at a 0.300 percent stop-out rate.
The three-month bills were priced at 99.982 and have a money market yield of 0.070 percent, and the six-month bills were priced at 99.848 and have a money market yield of 0.300 percent, according to Fannie Mae (FNM:$0.7156,$-0.0744,-9.42%) .
On Dec. 3, Fannie sold $1 billion of three-month bills at a 0.690 percent stop-out rate and $1 billion of six-month bills at a 1.180 percent stop-out rate.
Settlement for the new bills is Dec. 10-11. (Reporting by Pam Niimi; Editing by James Dalgleish)
Some Of The Notable Bears Have Become Notable Bulls
12/09 03:52 PM
NEW YORK (Dow Jones)--Some prominent bears are turning into bulls.
A choice few mutual-fund and hedge-fund managers who correctly predicted torment for financial stocks and mortgage-related securities apparently think we're close to a bottom, and those managers are starting to reverse course.
It's not just talk, either. These managers are putting up money on their bullish bets, and lots of it.
John Paulson, who made more money than any other hedge-fund manager last year by betting against subprime mortgages, launched in October a fund called the Paulson Recovery Fund, which will buy financial company stocks. Not only is he looking at stocks, but he's started to buy for his funds the subprime-backed debt that he bet against in the first place. Paulson runs more than $36 billion.
Ken Heebner now has 40% of his $4.3 billionCGM Focus Fund (CGMFX:$28.18,00$0.99,003.64%) tied up in financial stocks, according to his most recent filings. This is a mutual fund manager who dumped most of his financial stocks in 2007, and even shorted some of the more well-known blowups, including Countrywide Financial Corp. and IndyMac Bancorp Inc. (IDMCQ:$0.0430,$0.0040,10.26%) His fund gained 80% last year, and while he's been just as bad as most other managers this year - down more than 50% - Heebner recently told The Wall Street Journal he thinks deposits and lending will be highly profitable for banks next year.
This year, the only thing that's been highly profitable for money managers has been short selling. The average short-biased hedge fund in the Hennessee Index was up 27.34% this year through November, and up almost 16% from September through October alone. Some short-sellers are acting like the experienced blackjack player on a nine-hand winning streak: Take your chips and go play something else for a while. Chances are, you aren't beating the dealer a tenth time.
Bill Fleckenstein, who writes the Daily Rap blog and runs the short-only hedge fund Fleckenstein Capital, said he's shutting the fund down even though he expects a little more downside. Calling the practice "stressful, nerve-wracking and generally not very much fun," he said one of his reasons for shorting was the "bubble" he thought Alan Greenspan's policies created. His next fund will not be a hedge fund, and will be more balanced, although it will still use short-selling.
If you ran a hedge fund and decided to be bearish for 2008 by shorting the S&P 500, you'd be up almost 40% this year. The likelihood of that happening again in 2009 is, well, not likely. Plus, Treasury Secretary Henry Paulson's Troubled Asset Relief Program has injected new money into ailing financial institutions, and another relief package isn't out of the question. And the managers who have made money betting against the market are the last ones you'd expect to stay in too long.
John Paulson himself was a bit early on his anti-subprime mortgage bets, but he stuck with them. He realized it's nearly impossible to catch every single ounce of downside in a bear market. Now, he's a buyer, even though trouble could still loom.
Paulson, Heebner, Fleckenstein and other market veterans realize that it's just as hard to catch every ounce of upside in a bull market.
-By Joseph Checkler, Dow Jones Newswires; 201-938-4297; joseph.checkler@ dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=%2BMcNpk7BTRKDnX6TXbKO2A%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
12-09-081552ET
Copyright (c) 2008 Dow Jones & Company, Inc.
Boring day...
Agency Debt
Fannie Mae (FNM:$0.8025,$-0.0375,-4.46%) sold $3 billion of benchmark notes to yield 2.906% at a spread of 121 basis points over comparable Treasurys. Its previous debt sale was a $1 billion reopening of its 3.875% five-year note on Nov. 17, which sold to yield 3.590%.
There was "reasonable demand" for the deal, said Rajiv Setia, agency strategist at Barclays Capital in New York. The bulk of it, 54%, was bought by U.S. investors, followed by Asian investors, who purchased 24% of the notes.
US Lawmakers Blast Ex-Fannie, Freddie CEOs For Risk Taking
12/09 11:13 AM
By Michael R. Crittenden and Jessica Holzer
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--U.S. House lawmakers harshly criticized former Fannie Mae (FNM:$0.8225,$-0.0175,-2.08%) and Freddie Mac (FRE:$0.82,00$-0.02,00-2.38%) executives on Tuesday, blaming them for knowingly taking on excessive risks that helped lead to the government takeover of the firms.
"The CEOs of Fannie and Freddie made reckless bets that led to the downfall of their companies," House Oversight and Government Reform Chairman Henry Waxman, D-Calif., said. "Their actions could cost taxpayers hundreds of billions of dollars."
Republicans struck an even harsher tone. Rep. Darrell Issa, R-Calif., said the two government-sponsored enterprises were "a primary cause, if not the primary cause" of the collapse of the housing market.
"Outright fraud and greed wasn't isolated to just Wall Street," Issa said. " Fannie and Freddie shared in this disgrace as it drove much of the poor decision making that have led us to where we are today."
Lawmakers cited thousands of documents collected by the committee that Waxman said "show that the companies made irresponsible investments" that destabilized the firms and forced the government to put the companies in conservatorship in September.
Specifically, the panel released a June 2005 presentation made by former Fannie CEO Daniel Mudd that suggested the firm should move away from the traditional mortgage market in order to take advantage of the growing subprime and non-prime loan businesses.
"If we do not seriously invest in these 'underground' type efforts and the market changes prove to be secular, we risk: becoming a niche player; becoming less of a market leader; becoming less relevant to the secondary market," the presentation slides say.
Fannie, the slides continue, could "meet the market where the market is" by accepting higher risk and more volatile earnings.
Waxman said, "Their own risk managers raised warning after warning about the dangers of investing heavily in the subprime and alternative mortgage market. But these warnings were ignored."
Mudd, along with other former executives from the two firms, defended their decision to expand into non-traditional mortgage businesses. Richard Syron, the former Freddie CEO who was forced out when the government took over the firms in September, cited the legal and regulatory mandates the firms had to meet because they are congressionally chartered.
"We had obligations to Congress and to the public to promote our chartered purposes of increasing affordability, liquidity and stability in housing finance, which included some very specific low-income housing goals," Syron said.
Franklin Raines, the former Clinton-administration official who served as Fannie chief executive before leaving the firm in late 2004 following an accounting scandal, said Wall Street firms caused the housing crisis, not the GSEs. He blamed the crisis on the entrance of many new investors into the mortgage-backed securities market, whom he said were "not natural holders of 30- year obligations."
"When the market began to drop, these players panicked, drove down the prices of MBS, and dried up the liquidity of the market," Raines said.
He noted that in 2004, the firm's share of the secondary mortgage market dropped sharply as the firm was restricted from buying or guaranteeing riskier Alt-A mortgage loans. Raines said Fannie Mae (FNM:$0.8225,$-0.0175,-2.08%) followed "a lot of smart investors" when it decided to take on more risk after 2004, but he argued that Fannie Mae (FNM:$0.8225,$-0.0175,-2.08%) was a late entrant into the market for risky mortgages.
"By the time the GSE began its most significant investments in riskier loans in 2005, the roots of the present crisis had long taken hold," Raines said. "If anything, Fannie Mae (FNM:$0.8225,$-0.0175,-2.08%) played catch-up to the banks and investment banks who drove the securitization of the most toxic subprime mortgages."
Mudd also took the opportunity to suggest that the Treasury Department and the firms' regulator, the Federal Housing Finance Agency, did not have to take the dramatic step of placing the firms in conservatorship. He suggested that a capital injection like those now being enjoyed by the banking industry through Treasury's Troubled Asset Relief Program would have been appropriate.
"I made the argument at the time and proposed that more modest government support could be used to encourage private investment capital - basically something more like the program many banks are now eligible for," Mudd said.
He also said lawmakers and the next administration need to decide on the future role of the GSEs - whether it be as public or private companies.
"Events have shown how difficult it is to balance financial, capital, market, housing, shareholder, bondholder, homeowner, private and public interests in a crisis of these proportions," Mudd said.
The debate over Fannie and Freddie has simmered for months, with Republicans and Democrats exchanging barbs about which party contributed more to the companies' collapse. Issa used the hearing to take aim at Senate Banking Chairman Christopher Dodd, D-Conn., and House Financial Services Chairman Barney Frank, D-Mass.
"These two men are chairman of two of the most important committees dealing with this financial crisis, yet they appear to be wearing blinders in wanting to discuss the full range of issues that underlie this crisis," Issa said.
Waxman, however, said the documents collected by the panel don't support GOP claims that the firms were the main cause of the subprime housing collapse.
"It is a myth to say they were the originators of the subprime crisis," he said. "Fundamentally, they were following the market, not leading it."
-By Michael R. Crittenden and Jessica Holzer, Dow Jones Newswires; 202-862- 9273; michael.crittenden@dowjones.com and jessica.holzer@dowjones.com.
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=%2BMcNpk7BTRKDnX6TXbKO2A%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
12-09-081113ET
Copyright (c) 2008 Dow Jones & Company, Inc.
Ex-GSE Execs: Market Downturn Hurt All Firms
Ex-Fannie CEO Mudd: Conservatorship Not Best Choice
Ex-Fannie Mae, Freddie Mac CEOs Defend Firms' Roles In Mtge Mkt
Ex-Fannie Mae CEO Raines Says Firm Didn't Cause Fincl Crisis
Moody's: Underlying Collateral Is Mostly Adj Residential Lot Loans
Ex-Fannie chief Raines: Company did not spark crisis 12/09 10:02 AM
WASHINGTON, Dec 9 (Reuters) - Mortgage finance giant Fannie Mae (FNM:$0.80,00$-0.04,00-4.76%) did not make the investments that sparked the current housing market crisis, the company's former chief told the U.S. House of Representatives on Tuesday.
"Fannie Mae (FNM:$0.80,00$-0.04,00-4.76%) did not cause the current crisis," Franklin Raines told the House Oversight and Government Reform Committee.
"By the time the (government-sponsored enterprise) began its most significant investments in riskier loans in 2005, the roots of the present crisis had long taken hold," he said in prepared testimony to lawmakers seeking answers to the collapse of Fannie Mae (FNM:$0.80,00$-0.04,00-4.76%) and its sibling company, Freddie Mac (FRE:$0.79,00$-0.05,00-5.95%) . (Reporting by Patrick Rucker; Editing by James Dalgleish)
It went up literally immediately after I said that.
Rep Frank: Foreclosure Relief Condition Of TARP Funds
12/08 02:04 PM
WASHINGTON (Dow Jones)--House Financial Services Chairman Barney Frank, D- Mass., said Congress wouldn't release the last installment of financial rescue funds to the Treasury unless the Bush administration took more aggressive action to prevent foreclosures and pushed banks that received federal capital infusions to relend the money.
"They're not going to get the $350 [billion] unless they get very serious about foreclosure modification and showing us that we're going to get some lending out of the banks," Frank told reporters at a housing conference in Washington Monday.
"At this point, I don't see that happening," he added.
Treasury has burned through $335 billion of its $700 billion financial rescue authority, committing $250 billion for cash injections into banks. The administration needs approval to access the last $350 billion from Congress, where sentiment against the Troubled Asset Relief Program, or TARP, is running high.
In remarks before the housing conference, Franks said administration officials would "need police protection to even ask for the money."
Frank and other Democrats have criticized Treasury for not requiring banks that have received TARP funds to relend the money. They have also pushed for a portion of TARP funds to be used to spur more loan modifications.
Treasury Secretary Henry Paulson has resisted both ideas, saying attaching strings to the bank capital program would discourage firms from applying. He has suggested TARP funds were not intended to help spur loan modifications.
Frank said he would press Treasury Interim Assistant Secretary for Financial Stability Neel Kashkari on both issues at a hearing before his panel Wednesday.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@ dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=TiIH7KXnja6Z6AMTM75w0w%3D%3D. You can use this link on the day this article is published and the following day.
This is the stock market, we are already placing bets.
I would buy right here.
Nope, unless the GOVT kills us, then again if that were to happen, I think we know what would happen then...so it wont matter. I wont sell until we are having multiple dollar moves. This stock is capable. We are one PR away with many possiblities of the content.
I certainly hope we dont, but am prepared for anything at this point...
...average down...
Last entry at .36, no averaging down for me,lol. I am not looking this gifthorse in the mouth...
I am still in...
I think there are some real nervous politicians, as well...
US Lawmakers To Question Former Fannie, Freddie Execs
12/08 09:44 AM
WASHINGTON (Dow Jones)--U.S. House lawmakers plan to press former Fannie Mae (FNM:$0.8748,$0.0048,0.55%) and Freddie Mac (FRE:$0.87,00$0.01,001.16%) executives for answers on the collapse of their firms on Tuesday, as Congress continues to assess blame for the ongoing financial turmoil.
The House Oversight and Government Reform Committee plans to hear from former Fannie Mae (FNM:$0.8748,$0.0048,0.55%) CEO's Daniel Mudd and Franklin Raines, as well as former Freddie heads Richard Syron and Leland Brendsel.
The hearing will give lawmakers a chance to question executives that have been frequently criticized in the wake of the two government-sponsored enterprises being taken over by the government in September. Republicans especially have sought to blame Fannie and Freddie, along with the Community Reinvestment Act, for helping cause the collapse of the housing market and resulting financial market dislocation.
Raines has long been a lightning rod in Washington, where he headed up the Office of Management and Budget during the Clinton administration before taking over at Fannie Mae (FNM:$0.8748,$0.0048,0.55%) . Raines left Fannie Mae (FNM:$0.8748,$0.0048,0.55%) in 2004 in the wake of an accounting scandal that lead to increased efforts to regulate the two GSEs.
Mudd and Syron were forced out of their positions following the government's takeover.
-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; michael.crittenden@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=TiIH7KXnja6Z6AMTM75w0w%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
12-08-080944ET
Copyright (c) 2008 Dow Jones & Company, Inc.
I dont think it is bad, it did go under the radar for the most part. I think we all knew the GOVT was committed. Now maybe a few others know now?
Fed buys $5 billion in agency-backed debt
12/05 03:24 PM
NEW YORK (MarketWatch) -- The Federal Reserve Bank of New York bought $5 billion in debt sold by the big mortgage-finance agencies Friday, the first purchase of what may total $100 billion. Dealers submitted $12.9 billion in debt issued by Fannie Mae (FNM:$0.8499,$-0.0201,-2.31%) , Freddie Mac (FRE:$0.84,00$-0.04,00-4.55%) and the Federal Home Loan Banks maturing in 2009 and 2010. The auctions are expected to be weekly and have the goal of making mortgage loans to individuals more affordable and available. Based on the expected lifetime of the program, the Fed may purchase $2.5 billion a week, Bank of America strategists estimated in a research note Thursday.
Justice Dept Says Tsy Legally Bound To Inject Capital Into GSEs
12/05 02:34 PM
WASHINGTON (Dow Jones)--The U.S. Justice Department believes holders of debt issued by Fannie Mae (FNM:$0.8499,$-0.0201,-2.31%) and Freddie Mac (FRE:$0.8397,$-0.0403,-4.58%) can bring suit against the U.S. if the Treasury reneges on its commitment to inject capital into the mortgage firms.
The legal opinion, issued in a Sep. 26th letter to Treasury Secretary Paulson, should give some assurance to debt investors that Treasury's agreement to inject up to $200 billion in capital into the firms will hold up in court.
"It buttresses the Treasury backstop, although it's still short of a full guarantee," Karen Shaw Petrou of the consultancy Federal Financial Analytics said.
A lack of investor confidence in the agreement helped cause Fannie's and Freddie's borrowing costs to soar earlier this fall amid investor fears about their solvency.
Despite the agreement and the government's seizure of the firms in September, officials say the firms' debt has an "effective" federal guarantee, rather than an explicit guarantee.
The legal opinion was cited in a document released by the Federal Housing Finance Agency Friday. The document was issued by the Justice's Office of Legal Counsel and is posted on its website.
"In the event Treasury fails to perform its obligations to either of the GSEs in respect of any draw on the commitments, those (debt) holders may file claims in the United States Court of Federal Claims for relief requiring Treasury to pay the relevant GSE a specified amount in the form of liquidated damages," Principal Deputy Assistant Attorney General Steven G. Bradbury wrote in the letter.
-Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@ dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=B8Ivi3kcr48MG8t2c5SWHw%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
12-05-081434ET
Copyright (c) 2008 Dow Jones & Company, Inc.
Fed buys $5B in Fannie-FNM and Freddie-FRE FHLB debt-Reuters
12/05 02:56 PM
Reuters is citing the NY Fed website.
UPDATE:US House Tax Adviser:Energy Tax Credit Changes Possible
12/05 02:13 PM
(Adds comment from deputy staff director of the tax-writing Senate Finance Committee)
By Martin Vaughan
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--The top tax staff adviser to U.S. House Ways and Means Committee Democrats said Congress may consider changes to renewable energy and low-income housing tax credits because the financial crisis has put many tax credit-financed projects in peril.
"If this is as serious a problem as it has been portrayed, you could well see Congress taking a look at the issue," said John Buckley, chief tax counsel to Ways and Means Democrats, at a tax reform conference Friday.
Large banks, including some of the biggest names buffeted by the financial crisis including Citigroup (C:$7.6799,$0.2799,3.78%) , and the now-bankrupt Lehman Brothers (LEHMQ:$0.0400,$-0.0020,-4.76%) , have been the biggest investors in the tax credits, the lifeblood of wind and solar power production. Mortgage giants Fannie Mae (FNM:$0.8396,$-0.0304,-3.49%) and Freddie Mac (FRE:$0.83,00$-0.05,00-5.68%) have been the largest investors in the low-income housing tax credits.
Buckley suggested the Republican Bush administration's Treasury Department made the long-term financing picture even worse for such projects through its response to the crisis. Treasury relaxed limits on the extent to which banks can use losses from firms they acquire to offset future tax liability. That delivered a tax windfall to, among others, Wells Fargo & Co. (WFC:$28.190001,$0.640001,2.32%) , a major investor in energy tax credits.
He said the ruling, in effect, will help Wells Fargo (WFC:$28.190001,$0.640001,2.32%) and other banks reduce their tax liability in future years and will have less use for tax credits.
Treasury's ruling "did more damage to renewable energy and low-income housing programs than anything else," Buckley said at the Brookings Institution tax event. "The pool of investors for these credits, to say it has shrunk is an understatement.
Solar and wind energy groups are asking Congress to make the tax credits, which Congress just renewed in October, refundable. They are pressing Congress to include that and other changes in a forthcoming economic stimulus package.
Buckley predicted the stimulus bill will be dominated by spending measures including infrastructure spending, and downplayed the extent to which tax provisions will be included.
"Spending will be a much larger part of the stimulus bill than taxes," he said. "Tax policy becomes increasingly less effective at a time like this."
That is in line with statements from Democratic officials, who have indicated tax rebates aren't likely to be part of the package, expected to reach $500 billion.
But Buckley also said business stimulus provisions like quicker expensing for small businesses and bonus depreciation may not be effective given current economic conditions. That's because firms can't get the credit they need to invest, and won't have tax liability enough for depreciation incentives to be useful, he said.
However, Bill Dauster, deputy staff director of the tax-writing Senate Finance Committee, said he expects both business and individual tax cuts to be a part of the stimulus package.
Dauster said temporary tax cuts for the middle-income individuals will find a place in the recovery bill. But asked what form those tax cuts would take, he said "it's too early to give an idea of how we would accomplish that."
Dauster also predicted that lawmakers would find room in the stimulus bill for renewable energy tax incentives.
-By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@ dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=B8Ivi3kcr48MG8t2c5SWHw%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
12-05-081413ET
Copyright (c) 2008 Dow Jones & Company, Inc.
Agency Debt Markets Priced And Ready For Fed Purchases
12/05 02:04 PM
NEW YORK(Dow Jones)--The Federal Reserve's decision to purchase debt from housing finance companies like Fannie Mae (FNM:$0.84,00$-0.03,00-3.45%) and Freddie Mac (FRE:$0.8397,$-0.0403,-4.58%) last week caused risk premiums on agency notes to plummet.
That will make for few fireworks Friday when the central bank initiates its first round of purchases since the market has already priced in the program.
The goal of these purchases is to reduce the cost and increase the availability of credit for the purchase of houses, according to the Fed.
"There may not be much of a reaction today but over the past two or three weeks, since the announcement was made, spreads on agency debt have come in by 60 to 70 basis points and that's pretty significant," said Ajay Rajadhyaksha, director and head of U.S. fixed-income strategy at Barclays Capital in New York.
Risk premiums on agency debt are tighter by two to four basis points on the short end Friday. Longer term debt is wider by three to eight basis points, however.
At the beginning of the $100 billion program, purchases will be mainly of fixed-rate, non-callable senior benchmark securities issued by Fannie, Freddie and the Federal Home Loan Banks.
For Friday's auction, Credit Suisse (CS:$24.2281,$-0.5319,-2.15%) strategist Carl Lantz estimates around $5 billion of the targeted one- to two-year paper will be sold to the central bank.
The Fed will most likely move to longer maturities in subsequent auctions, but started with this sector because it's the most prevalent on the dealers' books, Lantz said.
According to the Fed's data, dealers are net long $56 billion in agency coupon securities due in less than three years. By contrast, they have only $4.6 billion in paper six to 11 years out.
"We are talking about a market with lower net issuance going forward, so as a result, even a smaller-than-expected number should be enough to tighten the market," Rajadhyaksha said.
Friday's auction is scheduled for 2 p.m. EST, and will close at 2:30 p.m.
-By Anusha Shrivastava, Dow Jones Newswires; 201-938-2371; anusha.shrivastava@dowjones.com
(Emily Barrett contributed to this report)
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=B8Ivi3kcr48MG8t2c5SWHw%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
12-05-081404ET
Copyright (c) 2008 Dow Jones & Company, Inc.
Dang, where were you when I bought at 36? So you say I should sell now because the time isn't right? If we don't listen to you, then we will be bagholders? Wow, you seem to type with honesty, I like your font. Seems reasonable...
Fed to buy agency bonds on Friday
12/04 02:45 PM
NEW YORK (MarketWatch) -- The Federal Reserve Bank of New York will begin buying debt issued by the big mortgage-finance agencies on Friday, it said Thursday. The Fed will purchase debt sold by Fannie Mae Freddie Mac and the Federal Home Loan Banks maturing in 2009 and 2010. The purchases are part of a plan announced on Nov. 25 to buy $100 billion in agency debt to lower the cost of financing for the government-sponsored enterprises, with the intent of making mortgage loans to individuals more affordable and available. The auctions are expected to occur about once a week for the next several quarters, the Fed said.
US mortgage rates post largest drop in 27 years
12/04 01:11 PM
NEW YORK, Dec 4 (Reuters) - Interest rates on U.S. 30-year fixed-rate mortgages plummeted by 0.44 of a percentage point in the latest week, the biggest weekly drop in 27 years, according to a survey released on Thursday by home funding company Freddie Mac (FRE:$0.8649,$0.0449,5.48%) .
This week's decline was the largest since the week of Nov. 27, 1981, when the average 30-year fixed mortgage rate fell by 0.49 of a percentage point, Freddie Mac (FRE:$0.8649,$0.0449,5.48%) said.
Interest rates on the 30-year fixed-rate mortgage averaged 5.53 percent for the week ending Dec. 3, down from the previous week's 5.97 percent, Freddie Mac (FRE:$0.8649,$0.0449,5.48%) said in its weekly Primary Mortgage Market Survey.
The 30-year fixed-rate mortgage has not been lower since Jan. 24, 2008, when it was 5.48 percent, the company said.
The U.S. housing market is suffering the worst downturn since the Great Depression as a huge supply of unsold homes, tighter lending standards, and record foreclosures push down home prices.
But lower interest rates on mortgages could help buoy the hard-hit sector. They have already spurred a surge in applications for home purchase and refinancing loans. For details, double-click on [ID:nN03330085]
FED'S HELPING HAND
Interest rates dropped dramatically after the Federal Reserve unveiled a plan last week to buy up to $500 billion of mortgage securities backed by government-sponsored enterprises, Fannie Mae (FNM:$0.8707,$0.0307,3.65%) <FNM.N>, Freddie Mac (FRE:$0.8649,$0.0449,5.48%) <FRE.N> and Ginnie Mae.
Interest rates on 30-year fixed-rate mortgages fell for a fifth consecutive week, but the decline last week paled in comparison at only 0.07 percentage point.
"After Federal Reserve actions to increase liquidity in the mortgage market, interest rates for fixed-rate mortgages (FRMs) took a dive," Frank Nothaft, Freddie Mac (FRE:$0.8649,$0.0449,5.48%) vice president and chief economist, said in a statement.
Thirty-year fixed mortgage rates are now almost a full percentage point lower than they were in the last week in October, he said.
The Fed also said it will buy up to $100 billion of debt issued by Fannie Mae (FNM:$0.8707,$0.0307,3.65%) , Freddie Mac (FRE:$0.8649,$0.0449,5.48%) and the Federal Home Loan Banks.
The 15-year fixed-rate mortgage averaged 5.33 percent, down from 5.74 percent. The 15-year fixed-rate mortgage has not been lower since March 20, 2008, when it averaged 5.27 percent, the company said.
One-year adjustable rate mortgages, or ARMs, fell in the week to an average of 5.02 percent from 5.18 percent last week.
Freddie Mac (FRE:$0.8649,$0.0449,5.48%) said the "5/1" ARM, set at a fixed rate for five years and adjustable each following year, averaged 5.77 percent, compared with 5.86 percent a week earlier.
A year ago, 30-year mortgage rates averaged 5.96 percent, 15-year mortgages were at 5.65 percent and the one-year ARM was at 5.46 percent. The 5/1 ARM averaged 5.75 percent.
Lenders charged an average of 0.7 percent in fees and points on 30-year mortgages, unchanged from the previous week.
Fees and points averaged 0.7 percent on 15-year mortgages, unchanged from the previous week. The 5/1 ARM and one-year ARM fees and points were 0.6 percent and 0.5 percent, respectively, unchanged from the previous week.
Freddie Mac (FRE:$0.8649,$0.0449,5.48%) is a mortgage finance company chartered by Congress that buys mortgages from lenders and packages them into securities to sell to investors or to hold in its own portfolio.
Hourly chart in pre-full freak mode what ya gonna do fencesitters?
WSJ: Treasury considering plan to halt slide in home prices-Dow Jones 12/03 03:51 PM
WSJ: Treasury plan would lower mortgage rates using Fannie Mae, Freddie Mac-DJ 12/03 03:52 PM
WSJ: Plan could reduce rates for newly issued loans to as low as 4.5%-DJ 12/03 03:53 PM
lovin' the bursts of bullishness...
nice volume
I would like us to close with a cushion, I don't think they will be kind to us today after the bell...
Just glad to have green hours at this point. We will start there and turn those hours into days...
someone breakin' ranks maybe...
gettin' jiggy