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The bailout of America’s failed housing finance giants is taking on Greek proportions. On Wednesday, Freddie Mac asked the Treasury for an additional $10.6 billion after posting first-quarter losses. Together, Freddie and its cousin Fannie Mae have drawn $136.5 billion from Treasury’s unlimited equity line since they were seized in September 2008. The European and International Monetary Fund rescue package for Greece, one that was supposed to shock and awe international markets, comes in at the same kind of figure, around $139.7 billion.
The tragedy, as far as taxpayers in the United States are concerned, is that Fannie and Freddie will most likely need much more capital in coming years. High unemployment and the shaky housing market all but ensure more losses for the two agencies responsible for guaranteeing a majority of mortgages.
As wards of the state, it is even harder for the companies to return to profitability than it would be otherwise. Loan modification programs and other initiatives to reduce the burdens felt by homeowners are hardly moneymaking ventures for lenders. Fannie and Freddie also can’t sell assets to stop the hemorrhaging, since unloading too many home loans from their huge investment portfolios would send mortgage rates higher.
Moreover, the housing finance giants are saddled with a 10 percent dividend on any funds drawn from the Treasury. That’s more than $13 billion annually and counting. Such a penalty made sense when the government’s conservatorship of the two companies looked temporary. Nearly two years later, it seems more like a troublesome drag on recovery. Greece, by comparison, will pay around 5 percent on its emergency financing.
Despite this, Washington continues to dither. Last month, the government asked for public comment on what to do with Fannie and Freddie. Last year, it promised to deliver a plan by February 2010. A minimum requirement is a hard deadline for deciding whether to privatize them, nationalize them or wind them down. Setting one is long overdue. In the meantime, Treasury should lower the dividend on its bailout funds. Otherwise it risks forcing its two charges to dig even deeper holes for themselves.
Cold Feet in China
Has Chinese tightening claimed a scalp? Swire Pacific, one of Hong Kong’s oldest conglomerates, withdrew the $3 billion listing of its property business on Thursday, a day before it was due to price. That is a clear vote of no confidence in something — and probably in a few things.
To start, the pricing of Swire Properties looked rich when the initial public offering was started in April. Before factoring in new money raised, the midpoint of the range represented a discount of about 10 percent to its estimated net asset value for 2010 — less than half that of some peers. Its pitch was a push into the Chinese mainland, where it has little experience. It’s hard not to conclude that the company just got a little greedy.
Still, a collection of patchy measures from Beijing is also a significant factor. China’s government is determined to quell rapid property price increases, so has raised minimum down payments and restricted mortgage lending. Investors aren’t convinced, but markets are likely to remain in limbo as long as Beijing shies away from an interest rate increase, which is more likely to work. The stocks of Swire’s Hong Kong peers have fallen as much as 9 percent in two weeks.
Then there is the Greece effect. Not that there is much risk of China or other Asian sovereigns getting into trouble over debts. Even traditional weak links like Indonesia and the Philippines have now brought their external borrowings under control. But a flight to safety may take money out of Asia. Property and I.P.O. stocks are likely to be on top of the unsafe list.
There is still confidence in some parts of the Chinese I.P.O. market. The $700 million offering by the cosmetics maker L’Occitane showed boom-time exuberance: the retail part was oversubscribed by 160 times. And Swire might have had a warmer reception if it had aimed a little lower. But fearful investors are clearly cooling on the riskier new issues. And with volatility like Thursday’s in United States markets not far from the surface, it’s hard to blame them.
http://www.nytimes.com/2010/05/07/bu...y/07views.html
seems like a bad idea, considering Spain and Portugal's economies are struggling as well.... I'll wait and see what happens
The tragedy, as far as taxpayers in the United States are concerned, is that Fannie and Freddie will most likely need much more capital in coming years. High unemployment and the shaky housing market all but ensure more losses for the two agencies responsible for guaranteeing a majority of mortgages.
As wards of the state, it is even harder for the companies to return to profitability than it would be otherwise. Loan modification programs and other initiatives to reduce the burdens felt by homeowners are hardly moneymaking ventures for lenders. Fannie and Freddie also can’t sell assets to stop the hemorrhaging, since unloading too many home loans from their huge investment portfolios would send mortgage rates higher.
Moreover, the housing finance giants are saddled with a 10 percent dividend on any funds drawn from the Treasury. That’s more than $13 billion annually and counting. Such a penalty made sense when the government’s conservatorship of the two companies looked temporary. Nearly two years later, it seems more like a troublesome drag on recovery. Greece, by comparison, will pay around 5 percent on its emergency financing.
Despite this, Washington continues to dither. Last month, the government asked for public comment on what to do with Fannie and Freddie. Last year, it promised to deliver a plan by February 2010. A minimum requirement is a hard deadline for deciding whether to privatize them, nationalize them or wind them down. Setting one is long overdue. In the meantime, Treasury should lower the dividend on its bailout funds. Otherwise it risks forcing its two charges to dig even deeper holes for themselves.
Cold Feet in China
Has Chinese tightening claimed a scalp? Swire Pacific, one of Hong Kong’s oldest conglomerates, withdrew the $3 billion listing of its property business on Thursday, a day before it was due to price. That is a clear vote of no confidence in something — and probably in a few things.
To start, the pricing of Swire Properties looked rich when the initial public offering was started in April. Before factoring in new money raised, the midpoint of the range represented a discount of about 10 percent to its estimated net asset value for 2010 — less than half that of some peers. Its pitch was a push into the Chinese mainland, where it has little experience. It’s hard not to conclude that the company just got a little greedy.
Still, a collection of patchy measures from Beijing is also a significant factor. China’s government is determined to quell rapid property price increases, so has raised minimum down payments and restricted mortgage lending. Investors aren’t convinced, but markets are likely to remain in limbo as long as Beijing shies away from an interest rate increase, which is more likely to work. The stocks of Swire’s Hong Kong peers have fallen as much as 9 percent in two weeks.
Then there is the Greece effect. Not that there is much risk of China or other Asian sovereigns getting into trouble over debts. Even traditional weak links like Indonesia and the Philippines have now brought their external borrowings under control. But a flight to safety may take money out of Asia. Property and I.P.O. stocks are likely to be on top of the unsafe list.
There is still confidence in some parts of the Chinese I.P.O. market. The $700 million offering by the cosmetics maker L’Occitane showed boom-time exuberance: the retail part was oversubscribed by 160 times. And Swire might have had a warmer reception if it had aimed a little lower. But fearful investors are clearly cooling on the riskier new issues. And with volatility like Thursday’s in United States markets not far from the surface, it’s hard to blame them.
http://www.nytimes.com/2010/05/07/bu...y/07views.html
seems like a bad idea, considering Spain and Portugal's economies are struggling as well.... I'll wait and see what happens
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