Mind Over Market

A Treasury announcement Christmas Eve raises a lot of questions about the future of Fannie Mae and Freddie Mac. Is the Administration planning a future where the two companies become permanent government agencies? Is the Administration laying the groundwork to expand the capacity of the two agencies to retain more mortgages and buy more mortgage-backed securities? Is the Administration planning to ramp up loan modifications involving principal reductions, which would mean more near-term losses for Fan and Fred? Those are some of the questions posed by mortgage industry consultant Ed Pinto. By Robert Stowe England MindOverMarket.blogspot.com December 26, 2009 Treasury released a statement on changes affecting the role of Fannie Mae and Freddie Mac on Christmas Eve, a time when they might be expected to escape more intense press scrutiny. "The timing of this executive order giving Fannie and Freddie a blank check is no coincidence," Rep. Spencer Bachus (R-Ala.), ranking minorit...

When the New York Fed renegotiated its original $85 billion deal to bail out AIG last year, it "effectively" transferred tens of billions dollars of cash from the federal government directly into the coffers of the AIG’s counterparties, according to an audit by TARP Inspector General Neil M. Barofsky. The New York Fed pursued a negotiating strategy that failed to get the counterparties to accept anything approaching market value for the toxic assets taken off their books by the deal. This raises the question of whether or not this was a “backdoor bailout” of the counterparties, the audit suggests. By Robert Stowe England November 17, 2009 By November 2008 the emergency rescue of the giant insurance company AIG, engineered by the New York Fed two months earlier, was in trouble. Timothy Geithner, President of the New York Federal Reserve Bank, had played a leading role in that rescue, authorized by the Federal Reserve’s Ben Bernanke and then Treasury Secretary Hank Paulson, a f...

The director of the independent and nonpartisan Committee on Capital Markets Regulation, Hal S. Scott of Harvard University, says that the Obama Administration’s proposal on the resolution of systemically-important financial institutions, if adopted, would lead to the creation of ‘a zombie financial system’ where financial institutions can neither die nor restructure sufficiently to be viable and where the burden of sustaining them falls on the taxpayer. The Committee recommends instead that financial institutions determined by Treasury to be systemically important should be resolved by the Federal Deposit Insurance Act and not under either bankruptcy law or the open bank assistance provided under a too-big-to-fail policy (or under a too-systemically-important-to-fail policy). Derivatives contracts could be sold rather than liquidated to limit systemic issues. Scott made his comments at a forum sponsored by the American Enterprise Institute where a panel of experts commented on his pre...