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September 5, 2008

Updates: Fannie/Freddie Plans Nearly Finalized

Word all over after the market close is that Treasury is finalizing its Fannie/Freddie bailout/backstop plans. The plans allegedly include changing senior management -- you think? maybe? gosh -- as well as putting taxpayers on the hook for a few deci-billion more dollars.

More broadly, this isn't a big surprise, but the timing of this coming after Bill Gross's missive yesterday really rankles. Does everyone have to hop every time Gross complains? Is he the bond market incarnate, or just channeling its animal spirits?

[Update] The WSJ now has out a story on it. Not much more detail, other than the reminder that Treasury had a series of high-level meetings today, something may come this weekend, and that Morgan Stanley remains one architect of the plan. We all know nothing would ever leak from a classy shop like Morgan Stanley back into the market. No-ooooo.

[Update^2] When asked on CNBC after the close whether he had been approached about buying preferred stock or debt in any bailout deal, Pimco's Bill Gross declined to comment. Take that as a "yes", which makes yesterday's note from Gross even more Treasury bludgeoning. To spend the first half of the interview spitting watermelon seeds and pretending not to know much, only to demur on answering that crucial question at the end is ... well, remarkable TV.

[Update^3] Bloomberg says Hank Paulson, Ben Bernanke, Fannie Mae CEO Daniel Mudd, Freddie Mac CEO Richard Syron and Federal Housing Finance Agency director James Lockhart met today in Washington. More importantly, perhaps, it says Morgan Stanley and Mudd et al., are continue to meet at the FHFA, with catered food scheduled for delivery all weekend. And as we all know, bailout plans run on their stomachs.

[Update^4] The Washington Post has more detail, with a conservatorship -- essentially, a government takeover -- in Fannie/Freddie's future, as well as complete management team and board wipeouts in both companies. The preceding was mostly as expected, but it is disconcerting to read that while common shares will be diluted, and preferred shares and debt will be protected, the common will not be wiped out Granted, people who hung on through a near doubling since August 23rd are now in for a pounding, but they should be zapped entirely. The government has no business using my money to bail out lottery ticket holders with my money, which is what FRE/FNM shareholders are at this point.

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