So far, all we know is that there were some meetings, and a change made to Freddie’s bylaws. Everybody in Washington “knows” that there will be a deal, but nobody knows, or is revealing, any actual details, including Barney Frank.
Here are some reasons why the deal may be dragged out:
1) It has to be pulled-off without giving the Democrats too much “bailing out the rich fat-cats” ammo.
2) So, the CEO’s can’t stay and keep their massive salaries.
3) But Mudd showed up to the meeting with his lawyer, so he doesn’t appear to be going without a fight.
4) The government can’t just club Fan-Fred over the head. The shareholders, bondholders, boards of directors, and CEO’s still have legal rights and powers controlling what happens.
5) Obama and McCain are being consulted, which might mean too many cooks in the kitchen.
6) If an army of reporters working around the clock can’t turn up any “details of the plan” then there probably are no details yet.
Another scenario is that there is a weak deal. That is, the administration does the absolute minimum amount necessary to keep the house of cards from collapsing. Maybe Paulson will pledge to show up at the Fan-Fred bond auctions and buy whatever new paper is left over by other bidders.
See how that works? The administration would be attempting to dodge criticism from the Democrats, while trying to keep bond investors feeding the monster until the election is over. Then the real deal could be done when there are no political consequences. Could they keep the balls in the air for another two months?
Maybe. Fan-Fred hasn’t actually defaulted on anything yet. Perhaps Paulson could fend off Bill Gross’s threatened bond-buyers strike until November.
Another strategy would be to distract attention from the problem by sending Dick Cheney to Asia to threaten the Russians, which is exactly what just happened. And…
“The USS Mount Whitney, the flagship of the Sixth Fleet, anchored off the Black Sea port of Poti yesterday, about 10 kilometers (6.2 miles) from a post manned by Russian troops.”
So, as the cold war rhetoric heats up, only 10 kilometers separates American and Russian forces.
Could be lots of things blowing up this weekend…
The Russians are not happy with the NATO naval invasion of the Black Sea. A couple of weeks ago, a Russian admiral bragged that the Moskva missile cruiser could sink the entire NATO fleet with one volley, though he did pledge not to shoot first.
Reuters
Treasury plan won’t help Fannie, Freddie shareholders: Frank
Saturday September 6, 5:49 pm ET
WASHINGTON (Reuters) – Fannie Mae (NYSE:FNM – News) and Freddie Mac (NYSE:FRE – News) shareholders, including preferred stockholders, will not fair well under a proposed U.S. Treasury takeover of the two housing finance companies, House Financial Services Committee Chairman Barney Frank told Reuters on Saturday.
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“I think all shareholders will be disadvantaged,” Frank said in a Reuters interview when asked if holders of preferred stock of the government sponsored enterprises could also be wiped out along with common stockholders under the Treasury plan.
Frank, a Massachusetts Democrat, said he spoke with Treasury Secretary Henry Paulson late Friday about a conservatorship plan. Frank said he still did not know the full details of the Treasury plan.
“The government will act as new management” of the two companies under such a conservatorship plan, Frank said in a Reuters interview, adding that the companies will still carry out their housing missions.
http://biz.yahoo.com/ap/080906/mortgage_giants_what_went_wrong.html?.v=4
Market went up AH on rumor of bailout.If preferred and common are lost as the reporting is now cannot believe there will not be carnage Monday
Holders of the common and preferred stock are “very unlikely to come out of this at all happy,” and the chief executive officers will be forced out, Frank said. Investors in the senior and subordinated debt will be protected, according to three people briefed on the discussions.
Will this affect SKF monday? =D
too bad for those that stuck with the sinking ship
It looks like my theory that there could be a half-assed plan may prove out. Here is what Bloomberg said came out of the Barney Frank interview:
“The government would make periodic injections of funds by buying convertible preferred shares or warrants in the companies as needed, avoiding large up- front taxpayer costs, according to a person briefed on the plan.”
Hardly the fuel for a giant rally on Monday, and a very far cry from Jim Cramer’s idiotic idea that all of this crappy mortgage paper would essentially be magically converted into treasuries.
So Matt,
Unfortunately, I’m still holding some SKF as well as some SDS calls. What’s your outlook for monday? I guess I should be prepared for an ugly day for me?
Any advice on risk mitigation at this point?
Charlie,
don’t worry too much over the weekend. It can be a terrible day for you or the mother of all days. As long as we don’t know the deal we can’t tell. Just wait till Monday. If it’s ugly sell your SKFs and buy them back later for less money. Easy as that. There are so many people waiting for the next shorting opportunity. That will help stabilizing the markets.
i’m on the same boat charlie.
we either gotta average out or sell and buy lower.
Well, I am certainly looking forward to Matt and others commenting on the potential impact of Fan/Fred, but I’m wondering – if the impact is positive, maybe it will be as temporary and as quick as they come – i.e. instead of impacting the banking sector / xlf for weeks or even days, maybe the impact is hours or even MINUTES ?
good to go into the week with a plan though…I’m thinking of standing pat on Monday and adding to QID on Tuesday if we are up both Monday and start off up early Tuesday…i’d be tempted to reacquire a smidge of SKF back if I could get it under 100…just a smidge though…still holding 9 % allo to QID…
anyone looking at gold/gold stocks here ?
“As part of the takeover, Lockhart said the dividends on Fannie and Freddie’s common and preferred stock will be eliminated, but that the common and preferred shares will remain outstanding.”
http://online.wsj.com/article/SB122079276849707821.html?mod=hpp_us_whats_news
Interesting. The tone is positive, the outlook negative. What will the stock market do tomorrow? My guess, it will rally after the big sell-off last week.