On Friday Treasury Secretary Paulson Said Keep Fannie and Freddie in Current Form.



U.S. Treasury Secretary Henry Paulson signaled that a government takeover of Fannie Mae and Freddie Mac won't be necessary, saying they should continue as shareholder-owned companies with federal charters.



"Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission," Paulson said in a statement in Washington.



Paulson's remarks indicate he wants to reassure shareholders they won't be wiped out by any government efforts to ensure the stability of the firms that own or guarantee almost half the $12 trillion in U.S. mortgages.

Yes, No, Yes, Maybe

Early Friday it was rumored Bernanke Expands Swap-O-Rama To Include Fannie, Freddie.

Late Friday Fed Says No Talks With Fannie, Freddie About Loans. The Federal Reserve has not had any discussions with Fannie Mae and Freddie Mac about access to direct loans from the central bank, Fed spokeswoman Michelle Smith said.

On Sunday Reuters is repeating Bernanke tells Freddie discount window open. Fannie and Freddie declined to comment.

Hedge Fund Model At Fannie, Freddie

Former U.S. Treasury Secretary John Snow said that Fannie Mae and Freddie Mac have relied on leverage to fund their businesses in the same fashion as a hedge fund, and that the government should avoid taking them over.



"Congress ought to be embarrassed" for years of delays in passing legislation aimed at strengthening regulation of the two companies, Snow, now chairman of New York-based buyout fund Cerberus Capital Management LP, said in a telephone interview. He said he suggested when in office that "the business model they were using was really the model of a hedge fund."



The government-chartered companies, which grew to account for almost half of the $12 trillion in U.S. mortgages, were able to borrow at cheap rates because of an implicit federal guarantee, Snow said. His opposition to a full government takeover echoes the signal sent today by his successor, Treasury Secretary Henry Paulson.



"Congress ought to be embarrassed"

expand affordable housing

Operation "Rescue Fannie" Underway

US TREASURY secretary Hank Paulson is working on plans to inject up to $15 billion (£7.5 billion) of capital into Fannie Mae and Freddie Mac to stem the crisis at America’s biggest mortgage firms.



Under the terms of the proposed move, the US government would receive a new class of shares in exchange for the capital, which would be hugely dilutive to shareholders.



The potential rescue comes as investors are braced for more bad news from the financial sector. Citigroup is expected to reveal further writedowns of at least $8 billion with its second-quarter results, and Merrill Lynch is forecast to reveal writedowns of some $4 billion.



Both banks are expected to post sizeable losses for the second quarter, and reveal plans to sell off billions of pounds worth of assets.



The capital injection would also see both lenders granted permission to use the Federal Reserve’s discount window - a short-term emergency funding source. Freddie Mac has a $3 billion short-term funding line that comes up for renewal tomorrow. The short-term debt is one of the hundreds of funding lines that the two agencies use.

Discount Window Pops Up Again

Freddie Mac's Next Hurdle: Raise Cash

Treasury Department officials were working the telephones yesterday to make sure that Freddie Mac, one of the nation's two troubled mortgage giants, will be able to sell $3 billion of its securities tomorrow in a previously scheduled sale that has now become a crucial test of investor confidence.

should

It would be only the latest in a series of unusual interventions. In March, the Fed extended a $30 billion credit line to orchestrate JP Morgan Chase's purchase of troubled investment bank Bear Stearns. The Fed then let other investment banks borrow directly from the Fed at favorable rates. And Friday the Federal Deposit Insurance Corp. seized control of California-based IndyMac Bank with plans to liquidate its assets at a cost that could wipe out more than 10 percent of the FDIC's funds.



"Someday this capitalistic economy, or what we used to call the capitalistic system, needs to get back on track and that means failure," said Lee Hoskins, former president of the Federal Reserve Bank of Cleveland. "You can't have risk-taking without failure."

To What Extent Did Paulson Lie?

"Keeping Fannie and Freddie in Current Form"

"There will be no nationalization of Fannie and Freddie"

"A government takeover will not be necessary"

Paulson Is The Great Pretender

Bill Gross Triples Bet On Mortgages

Bill Gross, whose Pimco Total Return fund (PTTRX) is the world's largest bond mutual fund, has tripled his bet on mortgage debt, which now comprises about 61 percent of the fund's assets, the Financial Times said on Friday.



The chief investment officer of Pacific Investment Management Co said his decision to raise exposure in recent months stemmed from the U.S. government's implicit guarantee of debt issued by Fannie Mae (FNM) and Freddie Mac (FRE), the government-sponsored mortgage financiers.



"Government policy is moving to sanctify the status of the government-sponsored agencies," Gross said, according to the newspaper. "It became a question of which institutions would be sheltered by the government umbrella."

Paulson Is A Blatant Liar

For market discipline to be effective, market participants must not expect that lending from the Fed, or any other government support, is readily available," Paulson said. "For market discipline to effectively constrain risk, financial institutions must be allowed to fail."

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