Fannie Plan a `Disaster’ to Rogers; Goldman Says Sell

Carol Massar and Eric Martin
Bloomberg
Monday, July 14, 2008

The U.S. Treasury Department’s plan to shore up Fannie Mae and Freddie Mac is an “unmitigated disaster” and the largest U.S. mortgage lenders are “basically insolvent,” according to investor Jim Rogers.

Taxpayers will be saddled with debt if Congress approves U.S. Treasury Secretary Henry Paulson’s request for the authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac, Rogers said in a Bloomberg Television interview. Rogers is betting that Fannie Mae shares will keep tumbling.

Goldman Sachs Group Inc. analyst Daniel Zimmerman said the mortgage finance companies’ shares may fall another 35 percent and lowered his share-price estimate for Fannie Mae to $7 from $18 and for Freddie Mac to $5 from $17. Freddie Mac fell 18 cents, or 2.3 percent, to $7.57 at 11:16 a.m. in New York Stock Exchange trading, while Fannie Mae rose 13 cents, or 1.3 percent, to $10.38.

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“I don’t know where these guys get the audacity to take our money, taxpayer money, and buy stock in Fannie Mae,” Rogers, 65, said in an interview from Singapore. “So we’re going to bail out everybody else in the world. And it ruins the Federal Reserve’s balance sheet and it makes the dollar more vulnerable and it increases inflation.”

The chairman of Rogers Holdings, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, also said the commodities bull market has a “long way to go” and advised buying agricultural commodities.

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Home » Money Watch » Fannie Plan a `Disaster’ to Rogers; Goldman Says Sell

3 Responses to “Fannie Plan a `Disaster’ to Rogers; Goldman Says Sell”

GaryCol Says:
July 15th, 2008 at 3:43 am
For about 15 years now I have maintained that the worlds stock markets are 30% to 40% over priced, when you look at what you get per share as a return on your investment. Thus I see the current downturn in market values of all shares simply a reflection of this. The markets still have a way to fall, in my humble opinion.
Most shares are traded today using automated computer programs that track trends which is part of the reason that if one sector falls (or climbs) all companies in that sector fall or climb. The trading has very little to do with what is actually happening to that company. An example of this is when the market generally is falling a company may post a record profit but still its share value falls.
Shares in any company only have what value you can get when you sell them. The market value is only a paper value. This naturally goes for any asset be it shares or pieces of art or even the family dog.
What I have not been able to understand is how when shares are traded this can directly effect the company that the shares are linked to. If I was to buy a parcel of shares in a company, I pay to the previous holder of those shares the price they were offered at. Not to the company unless it is the initial share offering then, as I understand it, the company does receive the money. The only effect that the market value has on the company is what the overall shares are worth on paper. So using that reasoning unless the company holds a substantial number of its own shares the market value is meaningless.
In the case of Fannie Mae and Freddie Mac, both these companies have bought parcels of mortgages without doing an honest “Due Diligence” check and relied on the word of credit assessment companies that it was a good purchase. I would have though that they would have at the very least done spot checks on some of those parcels. Now nearly a year after it was discovered that these parcels were in fact virtually worthless nobody seems to know what is the true value of them.
As most of economies of the world seem to operate on credit eventually this will run out and still has to be repaid at some time in the future. Now it seems that these two companies do not have enough assets to cover all their liabilities which to my way of think means they are insolvent.
I have heard and read from several commentators that this would have an effect on thousands of mortgages which is something I cannot understand. If a mortgage agreement has been signed and the money paid out. Apart from the regular repayment and administration of the mortgage what other expenses are there for the mortgagor?
I do think there has been an unseemly haste on the part of the financial institutions to start foreclosure procedures and too little by way of attempting to renegotiate at agreements. Added to this the variable interest rate appears to go from a low interest rate to a much higher one in a very short period of time. It is as if the banks issued the mortgage at a discounted rate then factored in that discount so that it would redeem it and more over the term of the mortgage.
It now appears that some of the sub-prime mortgages were sold using less than ethical methods of selling. This has been demonstrated with the number of arrests associated with Countrywide.
TimberWolf Says:
July 17th, 2008 at 7:04 pm
Buy food stores,gold,silver and a whole bunch of ammo. What do you think is going to happen when hyperinflation meets the entitlement crowd and their gas tanks and cupboards go bare? There aint enough cops or troops in America to stop that kind of stealing and violence!

Starving folks are not reasonable yet alone civil folks. And that is where we are headed right now and anyone with brains is scared.
FREDDIE & FANNIE UNCONSTITUTIONAL BAIL OUT USING WHAT? | Infinite Unknown Says:
July 18th, 2008 at 10:20 am
[...] cannot happen with the same incumbents who have approved this fleecing of we the people as well as all the other unconstitutional legislation coming out of CON-gress for decades. Unless [...]

Fannie Plan a `Disaster’ to Rogers; Goldman Says Sell

3 Responses to “Fannie Plan a `Disaster’ to Rogers; Goldman Says Sell”

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