Word: paulsons
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...what is getting to be something of a habit, Treasury Secretary Hank Paulson ruined his own and a lot of other people's weekend by choosing the morning of Sunday, Sept. 7, to announce the seizure of money-losing mortgage giants Fannie Mae and Freddie...
Fannie and Freddie are--childish names and all--by far the biggest financial institutions ever taken over by the U.S. government. Their bailout amounts to a stunning return to government control over the U.S. financial system, incongruously led by a former Wall Street boss (Paulson) working in what is purportedly a conservative Republican Administration...
...also yet another episode in a now year-old financial crisis that shows no signs of abating. Paulson's announcement briefly rallied stock markets around the world. But jittery investors kept running for the exits at Seattle-based thrift Washington Mutual and the investment bank Lehman Bros.--although Lehman's earnings announcement on Sept. 10 sent the stock up slightly, despite the revelation of a $3.9 billion quarterly loss...
...worst housing slump since the Great Depression--prices are down 18% since mid-2006, according to the S&P/Case-Shiller national index--has made once safe mortgages look perilous and Frannie's capital cushion look alarmingly skimpy. In July, in another of his Sunday bombshells, Paulson asked Congress for the authority to do (and spend) whatever it took to keep the companies from going under. He soon got what he wanted, and he said he hoped that alone would be enough to see them through. But after taking a closer look at the exact state of their capital reserves and watching...
...faith and credit of the government. Fannie's and Freddie's paper, on the other hand, have long included the disclaimer that they are "not guaranteed by the United States." But both firms were creations of Congress and had access to a Treasury line of credit. As a result, Paulson said when he announced the takeover, "central banks and investors throughout the United States and around the world ... believe them to be virtually risk-free." And because the U.S. government created this perception, Paulson felt he had little choice but to make perception a reality...