Feds try jawboning to ease crisis over Fannie and Freddie; SEC warns Wall Street against rumor-mongering on stocks

The federal government is doing a lot of jawboning this weekend to try to keep the crisis surrounding mortgage giants Fannie Mae and Freddie Mac from worsening. Still unclear is whether the feds will take specific action to bolster the companies’ finances.

The clock is ticking: Asian financial markets will open later this afternoon, U.S. time, and a massive sell-off in Asian stocks, or in the dollar, could set the scene for another harrowing day in Europe on Monday and then on Wall Street.

Here’s what’s going on so far:

--U.S. cash infusion for Fannie and Freddie? The Times of London reported that the Treasury is working on a plan to inject up to $15 billion of capital into Fannie Mae and Freddie Mac. The government would make the infusion in return for a new class of shares in the companies, the newspaper said.

But the Times is alone on this report, at least among major news organizations. The Wall Street Journal, in a short dispatch on its website, says the Treasury today is expected to make a statement "supportive" of the companies, but that it is merely expected to be "a statement of facts designed to reassure markets."

The problem is that "facts" about the companies, including their regulators’ assertion that they are adequately capitalized, did nothing to halt the collapse of their stocks last week.

--Please buy this debt: Treasury officials on Saturday were calling major financial institutions to try to assure there would be plenty of buyers for Freddie Mac’s offering of $3 billion of short-term debt Monday, the Washington Post reported.

The debt sale is a routine offering by Freddie Mac, but given the heightened fears about the company’s solvency the sale looms as a crucial test of the markets' faith in the company.

Sen. Jon Kyl (R-Ariz.) told CNN today that the government had "a  lot of different options" to ensure that the companies could meet their obligations. Many on Wall Street expect the Federal Reserve to invoke emergency powers to allow Fannie and Freddie to borrow directly from the central bank if investors balk at providing the short-term funding the companies need in their day-to-day operations.

--Rumor-mongers put on notice: The Securities and Exchange Commission today signaled a fresh crackdown on the spreading of "false information" aimed at driving down stock prices. The clear target: "short" sellers, traders who borrow stock and sell it, hoping the price plunges.

Shares of financial firms, including Fannie and Freddie, have become favorite targets of short sellers this year.

The SEC, in a rare weekend announcement, said it and other regulators would "immediately conduct examinations aimed at the prevention of the intentional spread of false information intended to manipulate securities prices."

The timing of the SEC’s announcement also seemed to be aimed at bolstering confidence in U.S. markets ahead of Asian markets’ opening today.

Comments

[Ben]

The rich people will take over.

[Jeff]

Trying to stop short sellers is quite anti-capitalist and will only delay natural market forces. Trying to stop rumors is like a teacher trying to tell her students to stop passing notes, it's futile because notes will get passed after class.

[A.B. Dada]

This is great! Government agencies that try to prevent information flow end up creating a self-fulling prophecy just by trying to restrict that flow of information.

Government agency says don't talk bad about Fannie Mae or Freddie Mac: investors think there MUST be something bad going on, they sell the stocks short in higher volume, stock price crashes.

Government agency says ignore the man behind the curtain (Bernanke), investors fear the dollar plunging, sell dollars to buy commodities and foreign currencies, the dollar crashes.

It's great. We don't have to say anything as the actions of the accursed ring true just by their motions.

[Tombstone Realty]

I'm smelling panic in Washington. Doesn't matter how stable/unstable the market or it's sectors are - the crisis of confidence stretches right to the doors of the Federal Reserve.

Monday is going to be *ugly*

[MattJ]

Think they'll be going after whoever spread the rumor about the Fed opening the discount window for Freddy Mac Friday afternoon? I wouldn't hold my breath on that one.

[wilson]

Capitalism? I don't think so. The US business community is too greedy for Capitalism to succeed long term. Suck on that.

[JOSE PERE]

selling-short and buying-long are equivalent, according to Einstein's relativity theory where time-inversion is legal. Will somebody illuminate those idiots in washington that buy-to-sell is the same as sell-to-buy quantummechanically and relatively speaking . Those retards are acting against the laws of nature and will wreak financial havoc!! . But They will fail. I have the right to make filthy lucre forwards and bakwards and upside down.

[Crow]

"Rumor-mongers put on notice"

I guess John McCain isn't the only threat to freedom of speech these days.

[Mike M. (CPA)]

I believe we are going to witness a historic financial system change. There is a quantum adjustment in our monetary system is facing. Congress and other world leaders will be challenged and faced with issues that could devastate hundreds of millions of people. Adversity is not even close to what families are facing. Is is likely the world will see riots and disorderly conduct like never witnessed before.

[Darel]

More regulation = more problems down the road.

Leave the markets alone don't try to fix the market for the market will provide the proper correction. Also, we need to worry more about Main Street and less about Wall Street.

Have you noticed that the feds are putting one fire out after another. Wasn't it's the fed charter to stop such issues in the market? The reserve bank must be abolished and JFK wrote an order to do this very task just before he was killed.

[Richard]

The only threat to capitalism is not greed, but the government interventions that favor one corp over the others and the people. Once intervention has taken place, this state is then called fascism, not capitalism.

In the free market without intervention, no one would have the power the government offers. The problem is not too much capitalism, its too much government.

[Ernest Payne]

The government is busy sticking its fingers back into the broken dikes of regulation in an attempt to save the situation. Too little, too late.

[Inibo]

It's a shame we don't have anyone running for President who actually understands economics and monetary policy. Or should I say still running?

Oh, well. A prophet is not without honor, except in his own country.

[Chris]

I don't understand.

Can someone please explain? I keep hearing all these talking heads saying fannie and freddie are well capitalized and will be ok.

I mean, isn't that what some regulator keeps saying?

If that is true, then why is the gov rushing in to buy shares and give them money? Sorry for my ignorance.

[Snap out of it tards]

Look no further than George W. Bush if you want to know why the economy is crashing. You Americans are idiots.

[Michael Price]

Of course any politician or beaurcrat who assists "intentional spread of false information intended to manipulate securities prices." will of course also go to jail. I mean to do otherwise would be hypocritical.

[hgj adfgaf]

>Can someone please explain? I keep hearing all these talking heads saying fannie and freddie are well capitalized and will be ok.

>I mean, isn't that what some regulator keeps saying?

>If that is true, then why is the gov rushing in to buy shares and give them money? Sorry for my ignorance.

No sweat: it's actually a fairly straightforward matter.

Fannie and Freddie have assets on their books that are listed as being worth a certain amount of money ("book value"). However, the *actual* value ("market value") of those assets is quite different (dramatically lower than the book value).

Imagine a company that held a lot of IOUs from people who couldn't afford to honor them and you'll get the general idea. Sure, I can *claim* that an IOU for $400 is worth $400, but it's not worth that amount if the person who wrote it isn't good for $400. Likewise, fannie and freddie have a lot of worthless debt that they have no hope of making good. I can't claim that a mortgage for $500,000 is still worth that if the true market price of the house is $300,000 and person who had the mortgage has long since blown town, knowing that they owe more on the house than the house is worth.

And exposing this sort of bad decision-making is what markets do. I can keep bogus accounts on the books, but eventually they will be uncovered, which is exactly what is happening right now.

The reason why you see all those talking heads claiming that fannie and freddie are well capitalized is because a great many people stand to lose money if fannie and freddie are in trouble. So they're trying to assure (con, really) people that everything is A-OK and that they needn't sell their shares in these companies before the share price drops through the basement.

The government is rushing in to give these people money because they have a vested interest in propping up the economy, even though it was the wide availability of money from the Federal Reserve that made a lot of this bad decision making possible in the first place.

Basically, the Feds are trying to control the laws of economics which are entirely immutable. People who make bad decisions deserve to lose money and fannie and freddie fall into that category.

And when the Feds step in to bail out a company like that, you'd better believe that you and I will end up paying for that bailout. And while I feel strongly that folks should be able to *make* as much money as possible, I also believe that they should also lose their shirts if they decide to act stupidly.

Which is exactly what has happened here. Only the Feds are incapable of telling the truth.

[Republicae]

Ah yes, the wonders of a highly regulated economy with a managed monetary system! Today, we are seeing the glory of corporatism, private corporations reaping huge private profits while the people of the country bear the risks. "Private Profits" with "Socialized Risks"! Fannie/Freddie have enjoyed the comfy bed they made in the Halls of Congress, slipped into the sheets of the political prostitutes that have the gall to call themselves "public servants".