Gross: $40 billion needed for Fannie/Freddie bailout

A special all-Fannie & Freddie roundup:

A good wake-up call from CNBC.com: "As investors dumped shares of Fannie Mae and Freddie Mac for the third straight day, CNBC's Jim Cramer urged that trading in both stocks be stopped altogether because they were being manipulated by people with insider information."

Now that you're awake, read Tom Petruno's post this morning at Money & Co. arguing that the stock prices of Fannie Mae and Freddie Mac are largely irrelevant at this point. The bond market, not the stock market, will determine Treasury Secretary Henry Paulson's next move in this bailout drama, Petruno reasons.

The Washington Post, meantime, dug up some memos from 2007 in which Fannie Mae talked about the importance of expanding its market share in subprime lending. Here's the best part: The geniuses at Fannie Mae recognized that subprime loans were not performing well in 2006, but they predicted subprime products would perform better in 2007.

What's next for F&F? Something very expensive involving your money, no doubt. Bond guru Bill Gross tells CNBC it's going to take $40 billion of your money -- spent by Paulson -- to recapitalize Fannie and Freddie.

--Peter Viles
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo: Associated Press

Comments

[sheila]

i just posted this elsewhere, but maybe this thread is more appropriate - i am curious what other "bailouts" people are seeing, in the form of reduced services and increased fees?

last night i was hit with a $10 fee to use the automated robot phone payment system for a major credit card. no human, no cost, no additional service and no notice. paying by paper check, which requires humans, is still free. overdraft fees at my bank (different bank) also went up 10% this month.

these are the same as "bailouts" because they socialize the costs of the bank's poor decisions across a bunch of unrelated people to whom there is no benefit.

we have not seen any major reimbursement programs from execs who designed, implemented, then profited unconscionably from these incredibly poor decisions, which would be a genuine cause-and-effect solution. they are insulated from consequences.

it would appear that, once again, the "invisible hand" is attached to a wrist that only allows it to reach downward...

[mike]

do we have anything better to do with our tax dollars????they need to be bailed out or the whole housing market is going to collapse...

[Fourth Generation]

40 Billion dollars is about a week of Iraq's war of destiny by Bushie and Company.

[jag]

First, Bear Stearns bailout then Fannie & Freddie bailout and the question is when does it all end. Privatize profits and socialize bailouts is what happening here and we can't do anything about it. Why can't we stop this nonsense?

[Buy Houses Now!]

Bill Gross wants you to give Fannie and Freddie $40B to support PIMCO's huge exposure to their debts. He doesn't pitch it as "bail me out", but wraps himself in the flag, "for the good of the country".

[Drew]

Wondering if it's a good time to buy some stock in the Glimmer Twins (Freddie & Fannie)? If the bailout comes through and the stock prices rise, then people who bought at a couple bucks a share might double their money in short time.

[The original RZ]

I'd prefer to keep my share of the $40 billion in taxes to put towards a down payment. These bailouts are add insult to injury. They keep home prices artificially high rather than allowing them to correct, and then they force us to put up taxpayer money that we could be using for other things (downpayment) for it.

[puckhead]

Drew,

Save your money, Fannie and Freddie as stocks are dead. Any recapitalization plan will be highly dilutive to existing shareholders. A complete takeover of Freddie and Fannie by the govt will also wipe out existing shareholders. Basically, existing shareholders are hosed either way and it's best you stay away.

[Jonathan]

I bet the cost to taxpayers closer to 100 billion than 40. Add another zero on there if you are a true pessimist.