Mac and Mae

[Newguy07]

So government took them over..


Good news or bad?

[Spelunking]

bad for investors, already cut all dividends

[fencerider2]

So government took them over..


Good news or bad?


How could hundreds of billions of dollars in bailouts be good, who the fuck do you think is going to pay.

Mr big time investor ask such a dumb fucking question.

[Newguy07]

How could hundreds of billions of dollars in bailouts be good, who the fuck do you think is going to pay.

Mr big time investor ask such a dumb fucking question.

whoa watch the language big guy.

First of all I am not an investor in mae and mac. Yes, I am a citizen of US and as a tax payer it is bad.


On the other hand I own bank stocks and if you get regulations in mae and mac we could see lower interest rates on loans. I could see this as a positive.

[Newguy07]

bad for investors, already cut all dividends

It was always going to be bad for shareholds and bond holders. The government doesn't have the investor in its mind.

[MianoSM]

There is always a way to make a buck off of others misery.

[Newguy07]

There is always a way to make a buck off of others misery.

ehh I agree and disagree it's different when the government is involved.

[shinmei2006]

^ you must be joking

[Newguy07]

^ you must be joking


Why do you say that?

[MianoSM]

Why do you say that?

$100 pencils.

[Newguy07]

There is always a way to make a buck off of others misery.

hank paulson said it himself taxpayer comes first before shareholders

[Spelunking]

Let me ask you guys this, why would progressive insurance have $500 million in mea and mac? That doesn't seem to be very diversified for a $1.16 billion company, over 40% of your income in one place? Why wasn't it moved prior to this?

[Newguy07]

Let me ask you guys this, why would progressive insurance have $500 million in mea and mac? That doesn't seem to be very diversified for a $1.16 billion company, over 40% of your income in one place? Why wasn't it moved prior to this?

more like a 11.68 billion

[perdition79]

Sorry for the thread gravedigging, but I didn't see the point of creating a new thread when a Fannie and Freddie one already exists.

As we all know, the $850,000,000,000.00 "bailout" passed and was signed in to law. In case anyone forgot since the Fannie and Freddie takeover last month, the largest credit default swap auction ever happens this week as a result of that takeover:

link to source (http://in.reuters.com/article/governmentFilingsNews/idINN1058111220080910)

NEW YORK, Sept 10 (Reuters) - Auctions that will be used to
settle credit derivatives triggered by the government takeover
of Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) will be the
largest the market has ever seen, likely involving hundreds of
billions of dollars in contract volumes.

In spite of the large size and some key differences between
this technical default and other defaults caused by
bankruptcies, market participants anticipate the process should
run smoothly and losses will be relatively easily absorbed.

The government takeover of the agencies on Sunday triggered
terms in the derivative contracts that require them to be paid
out, even though the $1.6 trillion of outstanding agency debt
will continue to be repaid.

"This is the largest default the credit derivative market
has seen," said Doug Warren, head of North American credit
trading at Barclays Capital in New York. "Volumes on Fannie Mae
and Freddie Mac are enormous, totaling hundreds of billions of
dollars."

Credit default swaps are used to hedge against the risk of
a borrower defaulting on their debt, or to speculate on a
company's credit quality. The contracts trade in the private
market, so the actual amount of protection written on Fannie
Mae and Freddie Mac's debt is hard to estimate.

When a credit event occurs, sellers of protection pay the
buyer the full amount insured, and the buyer gives the seller
debt underlying the contracts or a cash sum based on the debt's
value, which is determined by auction.

The International Swaps and Derivatives Association, the
industry's trade association, said on Monday it will create a
protocol that includes a process to set the value of the swaps
in an auction to simplify trade settlement.

The auctions take place 30 days after a default, and so are
expected to take place in October.

AUCTIONS

"You'll see a lot more players in this auction than you
have before, the absolute size outstanding and the size of the
auction could be much different than previous auctions," said
Ira Jersey, analyst at Credit Suisse in New York.

The number of bonds that back the contracts, and can be
used to set their value, dwarfs that of typical corporate
defaults, he added.

"The process of determining bonds that are deliverable into
the credit default swaps is also going to take longer than
normal, because they have thousands of bonds that have to be
gone through," Jersey said.

Auctions have been used to settle credit derivative
contracts in several cases after companies defaulted on their
debt, including the bankruptcies of Quebecor World Inc, Movie
Gallery Inc, Dura Automotive Systems, Dana Corp and Calpine
Corp.

"The auction process has been tested several times and
settling Fannie Mae and Freddie Mac's swaps should go
smoothly," said Barclays' Warren.

Some market participants are expected to suffer losses as a
result of the contracts being triggered, with protection buyers
that held contracts that had made market value gains the most
likely losers, analysts and traders said. Gains on these
contracts were wiped out when the contracts were triggered.

Losses are unlikely to be of systemic consequence,
however.

"In a credit default swap contract there are always winners
and losers of the same amounts; the creation of any type of
systemic risk would be if the dispersion of such risks were
lopsided," Jersey said. "We suspect that it is likely not the
case for Fannie Mae or Freddie Mac."

As an example, if there are around $500 billion in credit
derivatives on the agencies outstanding, and the contracts
recover 97 cents on the dollar, total gains and losses would
stand at $15 billion, Jersey said.

"This is a non-trivial number to be sure, but compared to
the number of participants, it is also not overly dramatic," he
said.

INTEREST RATES

The high trading levels of agency debt underlying the
credit default swaps will also make the settlement of Fannie
Mae and Freddie Mac's debt different from other auctions, as
the debt remains sensitive to interest rates moves.

"This event is unprecedented among CDS credit events, as it
is the only one we can think of whereby the recovery rate on
CDS is not only going to be near par, but the CDS recovery rate
itself is likely be impacted by the level of interest rates,"
Jersey said.

For example, the price of a bond that is trading at around
98.5 cents on the dollar could rise or fall half a cent if
yields on comparable U.S. Treasuries change by as little as 12
basis points, he said.

"Most other corporate defaults are done at a price that's
significantly lower than par and they tend to trade on dollar
price and are insensitive to rates," Jersey said.

According to this story (http://www.ft.com/cms/s/0/6beabcdc-8f51-11dd-946c-0000779fd18c.html?nclick_check=1) at the financial times site, the Fannie CDS auction is this Monday.

[Queenie]

Just curious...what do you guys think will happen if all of the current and former students who have ever had student loans with Sallie Mae just decided to stop paying them?

I understand that most student loans are federal loans because everyone has to fill out the FAFSA form, but I just had a weird, and probably uneducated thought about this, especially since I don't read too much in the papers/internet about this kind of stuff.