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Stock Ideas Investors Daily Edge Save Fannie and Freddie, Save the World?
Stock Ideas Investors Daily Edge Save Fannie and Freddie, Save the World? 
Market Watch
| The markets are undergoing a major correction right now, which is why we think it’s a great time to be considering moving in. Yes, hard to believe, but with the doom and gloom of the housing crunch, credit issues, oil going crazy, the dollar declining, and woe’s about a coming recession, the gloomy picture is now approaching fear, which of course means buy. | |
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| Save Fannie and Freddie, Save the World? |
| Tuesday, 26 August 2008 | ||||||||
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It’s an old Hollywood trope. You’ve seen it a million times at your local multiplex. To save the family ... the house ... the marriage ... the screw-up (deep in debt) from bodily harm – you have to get your hands on a gazillion bucks. Somebody gets an inspired idea. Somebody else says it’s too late ... too hard ... too dangerous ... but they do it anyway. Think Ocean’s 11, 12 and 13. It was too hard ... too dangerous ... and pretty much too late. But, by golly, they get it done anyway. Fighting insurmountable odds, they end up with the gazillion bucks. Who knew that this would play out for real, not in the movie pages but in the financial pages. It would make a great movie, don’t you think? Steven Soderbergh could cast George Clooney as Daniel Mudd -- CEO of Fannie and Brad Pitt as Richard Syron – CEO of Freddie. Elliott Gould could play Hank Paulson – Secretary of the Treasury. I can just picture it now... Gould calls Clooney and Pitt into his ornate office. “You boys created a real cluster-muck,” Gould says with a smirk on his face (does Gould say anything without a smirk on his face?). “You’re right, boss.” says Pitt. “What can we do to make it right?” asks Clooney. “Earn some of those billions back, by god!” says Gould. “Charge extra fees, pass on higher borrowing costs to the banks. And stop lending to people who desperately need your loans. They’re too risky.” “We can do that, chief.” says Pitt (with a slight quiver in this voice).
“How much do you want us to make?” asks Clooney. “Six months from now, I want you both back in my office. And I want your damn pockets stuffed with $5 billion each.” “No problemo,” says Pitt. “But, just out of curiosity, what happens if we can’t do it?” “Chaos, fellas. The collapse of the financial system as we know it. Hundreds of banks out of business. A couple of them will be big, too. You know what I mean?” “And that’s not all. Your bonds have been real popular overseas, especially in Asia. Banks the world over, central banks too, fellas, are going to lose billions. The good name of the U.S. of A. is going to be mud. Our credit ranking will be lower than Zimbabwe’s.” “No, boss, I didn’t mean what’s going to happen to the imperiled state of the global financial system. I mean, what’s going to happen to us? To Mudd and me?” Gould just stares back at Pitt – while of course smirking up a storm. So let’s now jump six months ahead. Syron’s Freddie has stopped financing no-money-down mortgages. It has also stopped buying or guaranteeing no-doc mortgages. Mudd’s Fannie has stopped giving out Alt-A loans – which are risky because they can come with proof-of-income waivers or delayed principal repayment terms and other lame concessions. And the 30-year fixed-rate mortgage is at 6.36 percent – the highest level in six years. Clooney (Daniel Mudd) and Pitt (Richard Syron) strut into Gould’s (Paulson) office – grinning from ear to ear. “We did it, boss. Credit is tighter than the government’s budget for our troops in Afghanistan. But we did it.” says Pitt. “The money, boys.” Gould says in his gravest voice (you can barely notice his smirk). Clooney pulls out wads of cash from all of his pockets. He puts the pile on Paulson’s desk. “It’s all there. $5 billion in all.” Pitt does the same. “$5 billion, chief. You can count it if you want.” Gould starts tearing up. “I didn’t think you boys had it in you. By golly, you did it.” Pitt shuffles his feet. “You don’t have to cry, boss.” “I’m crying, you jerk-off, because it’s too late. Not almost too late. REALLY ACTUALLY TOO LATE. The clock has struck midnight. The hour glass is empty.” “Have you looked at your stock recently?” asks Gould. “Uh, not recently, chief.” Says Pitt. “Both of your stocks are down over 80 percent since the last time I saw you.” “But that’s not our fault,” says Clooney. “It’s yours.” “What the heck are you talking about?” asks Gould incredulously. “We did everything you asked us to,” Clooney replies. “You messed up, Hank.” “Why did you have to make yourself into the big shining white knight? Pledging to save us?” asks Pitt. Clooney grows indignant. “You gave everybody the impression it was a done deal. That no way we were going to survive on our own.” “I did not. I said we have no plans to use our new powers to save you. But they weren’t listening.” “Body language, Hank.” Clooney says. “They could see the Treasury’s hands already beginning to reach into the government’s trough.” “What do you mean?” asks Gould. “Everybody now expects you to wipe out our shareholders. Even our preferred shareholders are feeling uneasy. Are you going to wipe them out, too?” Clooney is VERY ANGRY. “You made it impossible for us to raise equity capital, Henry.” Clooney says. “How can I raise $5 billion when my shares are going for $3.16, boss?”. Pitt is stomping his feet. Gould is taken aback. “So what happens now?” Clooney gets up from his chair. Walks over to Gould’s desk. Straightens up and squares his shoulders. Looks Gould in the eyes. “You take us over. Give us the severance pay we deserve. Knock out the shareholders. Do it before they raise a ruckus. But you save the preferreds. The funds and banks will put out a contract on you if you don’t. Besides, this is about saving the world, Hank.” Pitt puts in his two cents. “Save the financials, save the world, boss.” “Isn’t that from that stupid TV show, “Heroes?” Gould asks (his smirk is once again in full blossom). ‘It sure is, chief. We’re going Hollywood.” Invest well, Andrew Gordon P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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