Comments on Saving to Inve$t: Fannie Mae and Freddie Mac takeover and conservato...

Great...senior employees at these companies are go...

2008-09-10T14:53:00.000-04:00

Great...senior employees at these companies are going to get compensated for all their stock losses. What about other shareholders. From the WSJ:

"The federal regulator now running Fannie Mae and Freddie Mac is rushing to put in place a retention program to encourage key employees to stay put, despite the huge losses some have suffered on their shares in the companies.

Some employees saw large parts of their savings disappear over the past year as the stock prices crashed. In 4 p.m. composite trading Tuesday on the New York Stock Exchange, Fannie's shares were quoted at 99 cents, down from about $63 a year ago. Freddie closed at 88 cents, compared with about $59 a year ago.

"The employees of the two firms are extremely important to their ongoing ability to fulfill their mission," said James Lockhart, director of the Federal Housing Finance Agency, or FHFA, which seized control of management of the companies over the weekend. "Even before the actions this weekend, we had hired a consultant to develop a retention program. We are working quickly to finalize it." A spokeswoman for the agency said the new plan would include retention bonuses.

Known as "pay-to-stay" bonuses, these awards typically are given to about a fourth of a company's work force. Some staffers have a chance to make twice as much if they "stick around, the company does well and you do particularly well in your role," said Timothy J. Sparks, president of Compensia Inc., a pay consultancy in San Jose, Calif. The idea is "to keep them in the saddle for 18 months."

Fannie and Freddie probably will have to rely mostly on cash in their retention bonuses because it is unclear how long they will remain under the regulator's control and whether the stock prices will ever recover. Most of the employees "are going to be more interested in cash" than stock grants, said Jim Stoeckmann, compensation-practice leader for WorldatWork, a human-resources professional association."

I am commenting on the first post made by anonymou...

2008-09-09T20:47:00.000-04:00

I am commenting on the first post made by anonymous. You started out great but then you starting talking about "B's". Typical anti-capitalistic lingo. Ugh. I agree with Kyleaaa that you seem to have the solutions but what is the full picture? You are essentially suggesting that we should adopt socialist reforms are you not? What about the taxes that will be used to pay for the social reformation you are suggesting that our nation needs? You point out that this bailout by our government is just another 'scheme of the rich' instead of calling it what it is, a socialist move. The bailout is just an example of the blur between the lines of capitalism and socialism in our country. This blur between governmental forms, is what it is. However, the issue that perplexes me the most from this blog posting is the danger of the crash of the world financial markets. Without this bailout, what would have happened in the world financial markets and why???

Thanks to everyone for their insightful comments. ...

2008-09-09T09:17:00.000-04:00

Thanks to everyone for their insightful comments. Definetly generated some healthy discussion and I think the GSE takeover still has a long way to play out. This is only the first chapter of the much needed GSE reform. How congress shapes the future of the companies and when we get out the housing depression will be key factors going forward.

In my opinion, government guarantees of these comp...

2008-09-08T10:35:00.000-04:00

In my opinion, government guarantees of these companies' debt must stop. Is anybody surprised the government has stepped in to save these two firms? Of course not, the government has promised to do so since their inception and therein lies the problem. There has to be consequences for failure in order for capitalism to work.

I highly disagree with the anonymous commenter above that a "living income" proposal will do anything but make matters worse. Far worse, in fact.

As an employee and stock holder in one of these co...

2008-09-07T18:27:00.000-04:00

As an employee and stock holder in one of these companies it is a very tough time for. I believe that atleast one or both of these companies could have made it through as they had sufficient capital (espically if the government injected the addition amount that had set aside). Now with a full takeover, or essentially placing the companies in bankruptcy, the two GSE essentially closed today. As government agencies they will grown more ineffficent and beuracratic, and things will get worse.

Paulson and Lockhart just wanted to flex their political muscle. Paulson can come across as the saviour of all home owners (if things fail he will just blame congress) and preprare for his run at the presidency in 2012. Lockhart goes from being a crony regulator to CEO of 2 fortune 500 companies...talk about a power trip.

With unlimited funds any company can recover...though we are creating a bigger tsunami for ourselves in the future. I agree regulatory change was needed, but such drastic action is too much. These companies employ 10000+ people in the DC region with many of them stock holders (250 million of stock is held by employees). What motivation do they have to make things better when all their all their past hard work was for naught. It is a sad day indeed today, yet the market will celebrate this on Monday!

The federal government just nationalized an indust...

2008-09-07T17:29:00.000-04:00

The federal government just nationalized an industry, introducing massive new political risk into the US stock market. I can't see how anything good could possibly come of this.

Except for China. China should be very happy that it now holds what are in effect high-yield U.S. Treasury notes that it can now dump for well above what it paid for them, solving its own recent cash crunch. China owes the US Treasury a great, big Thank You.

I wonder what Monday will bring?According to this ...

2008-09-07T14:55:00.000-04:00

I wonder what Monday will bring?

According to this article, Fannie and Freddie stock remains untouched by conservatorship, and will trade as they always have. This comes directly from Treasury, so I'm quite confident the stocks will trade as normal:

http://www.ehow.com/how_4503604_mac-fre-stock-during-conservatorship.html
How to Trade Fannie Mae (FNM) and Freddie Mac (FRE) Stock During Conservatorship

Whether they trade higher or lower remains to be seen!

Long live king paulson. The financial ruler and sa...

2008-09-07T13:56:00.000-04:00

Long live king paulson. The financial ruler and saviour of america. Spending tax payer money like it his own. Who voted that he could do this? That's right - no one expect that loony bush.

This is going to have a major affect on a lot of t...

2008-09-07T13:31:00.000-04:00

This is going to have a major affect on a lot of things, including new tax reform for the new presidential administration. Great article Andy. I think it will top my passing the week post on the 14th.

For a World economy based in credit, the actions o...

2008-09-07T13:20:00.000-04:00

For a World economy based in credit, the actions of the Federal Government regarding Fannie Mae and Freddy Mac are necessary. The sad fact is that without the extention of huge amounts of credit, the World economy would quickly fail. But while the greedy 'B's benefit, the rest of the tax paying public, their children and grandchildren, end up holding the bag as they pay for the bailout through taxation, fewer social services, higher energy prices and a generally lowering standard of living.

It's time in this country to start addressing the idea that certain people make too much money on the backs of the majority of the population, a scenario that is reminicient of the days of the industrial revolution 100 years ago. And any new administration in this country must take steps to level the income field.

Steps that must be taken include an implementation of a concept of a living income. The Obama campaign has suggested that around $250,000.00 for a family should cap the living income standard. Such an income level is more than sufficient for quality living no matter where one lives in the United States. Income, from whatever source, beyond that level must be taxed heavily with no loopholes or exceptions.

By heavily taxing the Greedy 'Bs', resources become available for improving the quality and standard of living for all citizens.

Banks and other lenders must be further constrained in terms of the interest rates thay can charge. Credit card companies must be limited to 10% interest on unpaid balances. Banks must be required to limit loan amounts to, at most, 90% of asset value.

Adequate health care is critical for a quality standard of living. Doctors, hospitals and clinics make too much money. Health care insurance company profits eat into available resources. To help remedy this, medical care providers, whether doctors, hospitals or insurance providers must be taxed to pay for a yearly indemnified health benefit of $50,000.00 for every American citizen. Percentage increases in health care costs in this country would translate into equal percentage tax increases to these providers. Reductions in health care costs would result in a lowering of this tax rate. There is no better incentive available to contain skyrocketing health care expenditures in this country, costs that are destroying the fabric of the society.