Vinny’s Blog

Fannie Mae and Freddie Mac you’ve heard about the problems they are having so, I am not going to bore you with some old news. But, what I could do is to tell you the extent of their problem and how the problem is being managed which is another fine example of cutting edge banking practice in some of the world’s finest and best managed companies…anyway back to subject -Extent of the problem , well, the extent of the problem is $75 billion and as you know these could be conservative estimates and by the time $75 billion are declared there may be yet another few billions in losses waiting to be declared it’s all too common these days.

analysts said in a report today that an accounting change may force them to raise a combined $75 billion. Speculation that the companies may take further writedowns also weighed on the stock, said John Tierney, a credit strategist at Deutsche Bank AG in New York.

Fannie Mae would need to add $46 billion of capital and Freddie Mac would need about $29 billion, the Lehman analysts wrote.

The new FAS 140 rule that seeks to stop companies keeping assets in off-balance sheet entities may force Fannie Mae and Freddie Mac to bring mortgages back onto their books, requiring them to put up capital, Lehman analysts led by Bruce Harting wrote in a note to clients today.

Now..how the problem is being managed. You see it’s only a problem if if the accounting rule is followed only then $75 billion losses will have to be declared, that is very bad for any company right so why would we want to do that. Instead….

The companies will probably get an exemption from the rule because it would be “very difficult” for them to raise that amount of capital, the analysts said.

[as always you can read full article here.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a7h8YGimqxaQ&refer=home]

Get it…this is another fine example of how to manage a banking problem, you already read before how 2+2 = 4 and also how -2+-2 is also equal to 4 , instead of being equal to -4 [http://www.diwakars.com/wordpress/?p=149]

.Now you have seen yet another example because the companies will have to raise 75 billion and that is very difficult it’s easier to bend the rules and pretend that all is well. Rather than to fix the problem.

…However, by changing rules can this problem be really fixed ? someone does not think that way..and this happens to be a very important person.

Former Fed President: Freddie, Fannie Insolvent

NEW YORK (Dow Jones) — Fannie Mae (FNM) and Freddie Mac (FRE), the two U.S. government-sponsored mortgage giants, are involvent and Congress is allowing them to “exist as bastions of privilege,” former Federal Reserve president William Poole told Bloomberg Wednesday.

http://www.smartmoney.com/breaking-news/smw/index.cfm?story=20080710085412

You remember Bear Stearns and saw how fast all strings were pulled to fix the problem, that company was nearly NOT as big as these 2 companies are. The mess that these companies are into amounts to $5 TRILLION yes ! TRILLION.

The $5 trillion mess

Fannie Mae and Freddie Mac were created by Congress to help more Americans buy homes.

Now their shaky condition threatens the entire housing market

http://money.cnn.com/2008/07/11/news/economy/fannie_freddie.fortune/index.htm?postversion=2008071110

Earlier in history losses in millions were considered big, billions became new millions, and now billions are being replace with Trillions.

It’s unclear what the government might do to either forestall or mitigate any potential problems. Treasury Secretary Henry Paulson has said in the past the government will not back the debt of Fannie and Freddie.

Options mentioned by analysts include a credit line from the Federal Reserve, an equity investment by the government or an explicit federal guarantee of the mortgage companies’ $1.5 trillion in debt.

One thing is for sure going forward we are going to see lot of action and lot of fireworks..simply because…these companies…

“They can’t be allowed to fail,” said Peter Wallison, a former Treasury Department general counsel. “The losses would extend through so much of our economy, and so much of the world economy. There is simply no way that the United States government can let it happen.”

…and so one thing is for sure whether you’re in US or in India or else where…you will be impacted if these companies failed. In US you’re in the blast zone so it’s probably easy to guess what will happen, else where it depends upon how much of this toxic waste they have accumulated.

In yet another fine banking example this weekend Yes sir ! it just happened on July 12^th , yesterday when you were enjoying your nice weekend. yes ! this weekend it’s not even over yet ! another bank (2^nd largest bank in US ) has failed.

The federal government took control of Pasadena-based IndyMac Bank on Friday in what regulators called the second-largest bank failure in U.S. history.

Citing a massive run on deposits, regulators shut its main branch three hours early, leaving customers stunned and upset. One woman leaned on the locked doors, pleading with an employee inside: “Please, please, I want to take out a portion.” All she could do was read a two-page notice taped to the door.

Federal authorities estimated that the takeover of IndyMac, which had $32 billion in assets, would cost the FDIC $4 billion to $8 billion. Regulators said deposits of up to $100,000 were safe and insured by the FDIC. The agency’s insurance fund has assets of about $52 billion.

Click here to read full article.

http://www.latimes.com/business/la-fi-indymac12-2008jul12,0,6071779.story

And do click and read there is an interesting picture there and hope you won’t be in that picture some day.

You still think that your house is safe and you’re untouchable ? This far many things have gone wrong but nothing has happened to your investment. I just wanted to check if you still think same way.

And do you really think your money is safe with the bank you’re banking with ?

History is not old once and once only that is when it’s being made. What you’re witnessing today is history in making. …in the past every time I talked about it, people thought I was from Mars….

[Once again these are my views about the economy and current financial situation you need not agree with them]