The plan to bolster Fannie Mae and Freddie Mac by talking up the Treasury’s ability to bailout their debt while talking down the possibility that the two government sponsored mortgage companies could nationalized seems to be working.
Reuters reported early this morning that the Treasury Department believes that the two companies should remain “shareholder-owned,” something that Merrill was reportedly telling clients on Friday. We reported earlier that regulators have recently become concerned that wiping out the shareholders of the companies could damage the balance sheets of regional banks and insurers, who hold vast amounts of the preferred shares of these companies.
This morning Freddie Mac easily placed $2 billion of debt with investors, which will also be taken as a sign that the companies can continue to fund their ongoing operations without a government takeover or bailout. Of course, the ease of debt sale already reflects the “bazooka bailout” that occurred when the Treasury was granted powers last month to extend credit lines to Fannie and Freddie and buy their debt and equity.
The term bazooka bailout, of course, comes from Treasury Secretary Hank Paulson’s description of his unlimited power to bailout Fannie and Freddie. “If you have a bazooka in your pocket and people know it, you probably won’t have to take it out,” Paulson told lawmakers when asking for the bailout powers.
Comments (11)
Leave a comment
You can log in with your account or comment as a guest below.
stopped reading after 1st graf – proofread
“If you have a bazooka in your pocket and people know it, you probably won’t have to take it out,” Paulson told lawmakers when asking for the bailout powers.
which is about the same thing as using it.
I used to tell the ladies I met at Nobu that it was a banana in my pocket but I am leaning toward the bazooka simile now.
And to the surly waitress at another club I just have this response to your cutting remak: No, it is not a half roll of Tums.
What happens if it turns out that Paulson is really just glad to see someone?
Working well, or maybe some of this going on (from The Economist last week)? -
“The banks that manage the agencies’ debt issues are pulling out all the stops to ensure their success—even to the point of artificially boosting demand through deals known as “switches”. In such an arrangement, an investor
agrees to buy into a new issue in return for being able to sell back to the banks an equal amount of an old one, thus ensuring its net exposure does not rise. If enough of these deals are struck, large amounts of debt can be shifted even when demand is thin. A recent $3.5 billion issue by Fannie was helped along by
“very significant” amounts of switching, says one banker involved in it. With a quarter of the agencies’ debt due to mature in less than a year, those charged with peddling it will have their work cut out— especially if the Asian investors continue to be put off by unkind headlines.”
@3 – totally. But if it wasn’t a half roll of Tums, what was it?
@ #3 – Your clever response made me laugh. It reminded me of the “Mad Mad Marge” episode of the Simpsons, where Marge thinks of the perfect rebuttal, waaay after the fact.
http://simpsons.wikia.com/wiki/It‘s_a_Mad,_Mad,_Mad,_Mad,_Marge
even better: http://simpsons.wikia.com/wiki/It‘s_a_Mad,_Mad,_Mad,_Mad,_Marge
ff to about 11:35, for Marge’s response.
I have too much time on my hands.
Dammit! Wrong link. Second one should be:
http://www.watchthesimpsonsonline.com/movie/42-The_Simpsons_1121_Its_a_Mad_Mad_Mad_Mad_Marge.html
Did anyone read the complimentary write-up on H. Paulson on Bloomberg last week?
Thumbnail bio: Christian Scientist, doesn’t drink or smoke. All-Ivy offensive lineman at Dartmouth. HBS. Stint at Nixon White House as John Erlichman* aide. Goldman Sachs. Helped arrange a coup against Jon Corzine. CEO at GS. U.S. Treasury Secretary. Plans to devote life to environment when gig at Treasury ends.
*John Erlichman. Notorious top aide to Nixon. Deeply involved in Watergate. Publicly fired by Nixon when trying to save own skin. Imprisoned in federal penitentiary for obstruction of justice. Released from prison, became a mystery novelist and environmentalist in Santa Fe. Died young.
I don’t care what Paulson has in his pocket. Although it may be an accessory for a BSD to fantasize about, a bazooka doesn’t fit into a pocket.
I simply hope Paulson has a reasonable plan, and not something he works out over the course of a week-end, because he’s going to need one soon.
A bazooka, as developed for American troops in WWII, had a tube 55 inches long and weighed over 14 pounds. It was carried over a shoulder.
Obviously, not even a Bush cabinet secretary could carry it in a pocket to intimidate an opponent.