Tuesday, August 19, 2008

“Hey Ref. Al Saud 'Faud' Me!”

“Brace yourself Bridget,” is more than the punch line to an old joke about Irish lovemaking preliminaries.

It also could be the only alert Fannie and Freddie get when the Treasury department pays them some new unwelcome and unwanted attention.

If reading Jonathan Laing’s article in Barron’s about an imminent Treasury takeover of the two GSEs didn’t shake you, then Monday’s stock market action should have, since it stripped each company of more than one fifth of their market value.

It feels like the walls are closing in around the GSEs and nothing can stop the inevitable.

Why did some Administration official blab all of that policy design to Laing, assuming the Barron’s writer was being honest about his sources?

Was the White House insider just being a nice guy and educating the media? Not in Mr. Z’s “Tonkin Gulf” view!!

The curmudgeonly Z suggests one obvious answer is that it is easier to take over, wipe out, nationalize--employ your favorite verb or verb phrase here--a company which takes a 20% plus hit in their market value and has their share price driven toward the “penny stock” zone.

With the two stocks trading where they are now (Fannie at $6.15 and Freddie at $4.38 at Monday’s close), it doesn’t take too many hits to make that a 33% or 50% loss. I never can remember which is the numerator and which is the denominator, but in this case, those numbers all spell trouble for these two “Bridget’s,” trying to avoid Paulson’s machinations.

Federal Financial Analytics, owned by Basil Petrou and Karen Shaw Petrou, two very capable financial services analysts, put out a recent report on the new GSE reform law, pointing out that the bill’s “details,” as in “the Devil is in the…,” make a Treasury takeover not the easy task that some of us think.

The report suggests that a GSE nationalization-inclined Secretary Paulson still would have to go through some hoops before he could “come to the rescue” of two companies which don’t really want to be rescued. (As I wrote before, I hope the lawyers at both companies and their outside counterparts are hard at work figuring out ways to stop such an assault, IF it is being planned.)

If you are not a FFA client, contact the firm and become one or say positive things to Karen and Basil and see if FFA will send you their report or even its précis, since it is quite thought provoking and well done. (FFA, 202-589-0422.)

All of this takeover talk forced my old mind to wander.

“Back in the old days,” when I was employed at Fannie, we used to encounter a periodic rumor--which never materialized--about “Middle Eastern interests” trying to buy the company or even acquire the “Williamsburg” motif red brick headquarters building at 3900 Wisconsin Avenue.

While we used to concern ourselves somewhat with such things (not mightily as it turned out), we felt certain that Congress never would allow something as “American” as Fannie Mae or even Freddie Mac (being in Virginia, we didn’t see them as “American” as we were) to be acquired by overseas investors or any other investors.

Well, flash forward to the present and that picture might be different.

Today, some oil country potentate—and the Bushies would know most of them quite well-- could probably have either GSE right down to the flag poles for about $15 billion, give or take a few barrels.

I am sure that any such cash buyer would be greeted with great warmth by the Bush Administration, which then could avoid having to front any GSE capital infusions, since if that became necessary--after a sale--it likely would fall on an Obama or McCain administration. I also suspect that a potential buyer could get some months of regulatory slack from Secretary Paulson and that “son of OFHEO,” which might be all the time a new owner would need to start their investment on the road to a five or ten bagger, over time.

Policy makers shouldn’t care who owns Fannie or Freddie, as long as the new owners sign up for all of the housing mission goals and limitations. There’s a Bush family aphorism that fits this possibility. “If they are good enough to guard our ports and buy the General Motors and Chrysler buildings, they’re good enough to oversee our secondary mortgage market.”

One super positive in this scenario, considering what the Saudis do with their petty criminals—lopping off a hand or parts thereof—is if the Al Saud family bought Fannie or Freddie, we probably wouldn’t have to worry about national mortgage fraud anymore, or faulty appraisals, MI overcharges, and red lining!!

Speaking of the President and his friends, a former colleague shared this story with me, swearing that it is true. Personally, I believe it, but you know how Washington gossip is.

The man claims that President Bush was rehearsing his Bejing Olympic greeting speech. On the first try, the President approached the podium and stared into the teleprompter and said, “Ooh, ooh, ooh...ooh, ooh,” whereupon his speech coach ran up and whispered in his ear, “Mr. President those are the Olympic symbols, your speech text appears beneath that!”

Maloni 8-19-2008


John M said...

"... trying to avoid Paulson’s machinations ..."

I seriously doubt that Paulson wants to deal with the GSEs in the last five months of his term. And he certainly doesn't need an agency debt crisis in the last five days of the Games.

Bill Maloni said...

John. I hope you're right, but talk to Johnathan Laing.

Inherent in your comment is an interesting issue. Can Paulson or anyone else in the Admin "decide" when a "GSE debt crisis" exists?

If you're right--and I hope you are--then Treasury ignores the whole deal until they leave in January and lets some new D or R Admin worry about everything.

That is inconsistent with Laing and others who predict a quick "nationalization" or whatever it might be called.

Also, what happens if the stocks trade at $1 or $2, not much below where they are now? I realize that stock price isn't a proxy for capital but what would non-ideological regulators do?

Thanks for your comment.