The Binary Circumstance

As expected the Feds moved in to seize Fannie Mae and Freddie Mac to prevent collapse.

Under the plan, the Treasury will receive $1 billion of senior preferred stock in coming days, with warrants representing ownership stakes of 79.9 percent of Fannie and Freddie. The government will receive annual interest of 10 percent on its stake.

As a condition for the assistance, Fannie and Freddie eventually will have to reduce their holdings of mortgages and securities backed by home loans.

The portfolios “shall not exceed $850 billion as of Dec. 31, 2009, and shall decline by 10 percent per year until it reaches $250 billion,” the Treasury said. Fannie’s portfolio was $758 billion at the end of July, and Freddie’s was $798 billion.

Officials are aiming “to prevent the mortgage market from falling apart,” said former Federal Reserve Bank of St. Louis President William Poole. The Treasury’s funds “will be flowing in for quite a long time,” Poole, a Bloomberg contributor, said on Bloomberg Radio.
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Banks and insurance companies have typically purchased the two companies’ preferred shares. The Federal Reserve and three other bank regulators said that they will work to “develop capital restoration plans” with the “limited number” of smaller institutions that hold Fannie and Freddie stock as a significant portion of their capital.

There is not enough detail on what they plan to do with shareholders. Typically they come last in line when it comes to getting money back.

This and other articles seem to imply that the government is going to treat institutional shareholders differently than individual shareholders. Reportedly the Fed, FDIC and others are going to help smaller banks with significant stock holdings in the two seized GSE’s to keep them from failing.

Paulson urged banks to contact their primary federal regulator if they believe losses on holdings of common or preferred shares in Fannie Mae or Freddie Mac will cause them to fall below the government’s benchmark for “well-capitalized” institutions.

Besides the Fed and FDIC, the Office of the Comptroller of the Currency and the Office of Thrift Supervision also signed onto today’s release.

That would just be another transfer of wealth to the rich and powerful at the expense of average citizens. It keeps the shareholders in those banks afloat at the expense of the taxpayers, even when the FDIC is supposed to be adequate protection for the depositors.

The good news is that they are both required to become a lot smaller.

William Poole former president of the Federal Reserve Bank in St. Louis says that taxpayers may pay $300 billion for this bailout.

Given that the government has consistently understated the magnitude of the mortgage/banking crisis, I suspect that is a very conservative estimate.

Isaac Zamora, who is accused of killing six people in a Seattle-area shooting spree, gave his reasons at a hearing yesterday.

From the Seattle-PI:

MOUNT VERNON — Isaac Zamora, accused in the deaths of six people, says he kills for God.

“I kill for God. I listen to God,” Zamora said twice Friday, his first public words after being arrested in the killings of a deputy, two neighbors, two construction workers and a motorist.

Shackled, unshaven and dressed in an orange jumpsuit, he spoke while signing legal paperwork. He appeared in court for a complaint that prosecutors filed against him accusing him of six counts of first-degree murder and four counts of first-degree assault in Tuesday’s bloody rampage.

Now this is the part that I find interesting:

A 28-year-old housepainter with mental health problems, Zamora is accused of committing the deadly spree in the small community of Alger, violence that began with the fatal shooting of Skagit County Sheriff’s Deputy Anne Jackson. Jackson, 40, had been responding to a trespassing call about Zamora.

Prosecutors believe that Zamora also killed his neighbors Chester Rose, 58, and Julie Binschus, 48; carpenters David Radcliffe, 58, and Greg Gillum, 38, who were working in the area; and motorist Leroy Lange, 64, who was driving on Interstate 5.

Binschus’ killing was the only one in which prosecutors filed a premeditated murder charge.

Zamora is also accused of stabbing a 61-year-old neighbor, and of shooting Binschus’ husband and two other motorists. Those victims survived.

How is it that Zamora who apparently talks to God and gets his instructions to kill from God is considered to have “mental health problems” but people like President George W. Bush who has killed far more people in the name of God is considered to be sane?

Osama bin Laden kills in the name of God as well and millions of people around the globe consider him to be a moral authority. Why isn’t he considered mentally ill?

The law of identity says that A=A. Killing in the name of God equals killing in the name of God, no matter who does it. If it’s crazy for one person to do it, then it’s crazy for another.

But what defines mental illness is often determined by politics, not reason. A politically powerful person like Bush or Bin Laden can get away with killing in the name of God because they are really killing to satisfy a political demand for it–a political demand created by the existence of millions of people who think like Zamora: “I kill for God. I listen to God.”

Gov. Sarah Palin of Alaska, the VP nominee on McCain’s ticket also gets her order from God.

Interviews with the two pastors she [Palin] has been most closely associated with here in her hometown — she now attends the Wasilla Bible Church, though she keeps in touch with Mr. Riley and recently spoke at an event at his former church — and with friends and acquaintances who have worshipped with her point to a firm conclusion: her foundation and source of guidance is the Bible, and with it has come a conviction to be God’s servant.

“Just be amazed at the umbrella of this church here, where God is going to send you from this church,” Ms. Palin told the gathering in June of young graduates of a ministry program at the Assembly of God Church, a video of which has been posted on YouTube.

“Believe me,” she said, “I know what I am saying — where God has sent me, from underneath the umbrella of this church, throughout the state.”

Isaac Zamora has a lot of company in political circles. Who knows? Maybe that’s where he got the idea to listen to the voice of God in his head when it tells him to kill.

A government takeover of mortgage giants Fannie Mae and Freddie Mac is expected soon, perhaps by the end of this weekend.

WASHINGTON - The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation’s mortgage debt, a person briefed on the matter said Friday night.

Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.

[…]

Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.

While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.

Many in Washington and on Wall Street hadn’t expected Paulson to intervene unless the companies had trouble issuing debt to fund their operations.

This summer, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the two companies if needed.

Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.

I’m a little surprised with the speed at which the government had chosen to snap up these companies. The move will wipe out the equity that shareholders now have in the company.

Recent bond sales have gone well, showing that institutions which hold most the GSE debt were still willing to loan them money.

This is another example of the government putting the taxpayers on the hook for bad corporate decision-making. Previously, government (taxpayer) backing of the two private companies was only implied. Recent legislation made it explicit and this move will guarantee that taxpayers foot the bill.

Fannie Mae and Freddie Mac got “too big to fail” because the government gave them advantages in the marketplace. Now, with full government (taxpayer) backing, they will become even bigger, giving the Feds more control over the housing market than they already have.

Given the mess they’ve made of it so far, why would anybody want them to have more control?

We mustn’t forget that when it comes to whoring for lobbyist money, the Republicans do it just as much as the Democrats.

MINNEAPOLIS — Tom DeLay, the former House GOP majority leader whose connections to convicted lobbyist Jack Abramoff brought scandal and disgrace to the Republican party, returned to the spotlight in Minneapolis last night, helping to host a private party that drew hundreds of delegates and Republican officials.

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DeLay arrived at the Minneapolis night club for his party last night in a gold mini-van, no longer traveling with the Capitol police detail that used to protect him from reporters and other perceived security threats.

He declined to answer questions from ABC News as he entered the back door of the club through a loading dock.