US Blackmailed By China on Fannie and Freddie Bailout

Bloomberg is reporting Fannie's Mudd Soothed Asian Investors as Bonds Rose .
Fannie Mae Chief Executive Officer Daniel Mudd was sitting down to a glass of wine with his wife at their Washington home around 10 p.m. on Saturday July 12 when Treasury Secretary Henry Paulson called.

 

Concerns about the financial health of the biggest U.S. mortgage finance company had driven Fannie Mae's borrowing costs to the highest since March the previous week and its shares had tumbled 45 percent on the New York Stock Exchange. Investors in Asia, the biggest foreign owners of Fannie Mae's $3 trillion of bonds, were asking the Treasury to bolster the government- sponsored company and its smaller competitor, Freddie Mac, said three people with knowledge of the talks.

Paulson told Mudd he had a plan to restore confidence in Fannie and Freddie, the core of the Bush administration's efforts to revive the U.S. housing market. ``At that point, the proposal began to take form,'' Mudd, 49, said in an interview. ``We're trying to solve a crisis of confidence. Would this do it?''

The next afternoon, before financial markets opened Monday in Asia, Paulson announced the rescue plan, saying he would seek authority to buy unlimited equity stakes in the companies and their bonds if needed, while the Federal Reserve would lend directly to Fannie and Freddie. Congress included the proposals in a broader housing bill that President George W. Bush signed into law last week.

Asian investors were among the most important groups to soothe because central banks, financial institutions and funds in the region own $800 billion of Fannie Mae and Freddie Mac's $5.2 trillion in debt, according to data compiled by the Treasury. U.S. officials were concerned that sales from the region would push lending rates higher, said the people, who declined to be named because the discussions were confidential.

Paulson, the 62-year-old former CEO of Goldman Sachs Group Inc., "knows the markets; he's seen parts of this movie before," Mudd said. The decision to allow Fannie and Freddie to borrow from the Fed's so-called discount window was meant to "send a message to the markets that it wasn't just a someday aspiration, but those confidence building measures are in place right now before Tokyo opens on Sunday night," he said. Karl Denninger wrote a scathing attack of Paulson's maneuver in Now We Know - There WAS A Threat . My thoughts on the so-called "confidence building measures" of this scheme follow.

Confidence Building?

• How can anyone have confidence in the markets when the Fed, the SEC, or the Treasury Department has to intervene on a weekly basis?
  
• How can anyone have any confidence in earnings statements when level 3, market to fantasy assets rise every quarter?
  
• How can anyone have confidence in banks when Citigroup Holds $1.1 Trillion in Mysterious Off Balance Sheet Assets ?
  
• How can anyone have any confidence when the FASB Postpones Off-Balance-Sheet Rules for a Year, at Citigroup's request, because "It's not practical" to implement the rules now. (Please see Not Practical To Tell The Truth for more on this story).
  
• How can anyone gave confidence in financial institutions when Deleveraging Risk Is High And Growing At Lehman and other broker dealers?
  
• How can anyone have any confidence in banks when there are 25 Rock Solid Reasons To Believe The Banking System Is Unsound .
  
• How can taxpayers have any confidence when Congress acts in the best interest of Fannie Mae executives, investors like Bill Gross who bet on a taxpayer funded bailout, and China, rather than the best interests of taxpayers and innocent citizens that had nothing to do with this housing mess?
  
• How can anyone have confidence in the system if there is even the remotest possibility that the US financial system was held hostage by China?
  

Fannie Mae Chief Executive Officer Daniel Mudd called Paulson's move a "confidence building measure". Mudd cannot possibly be further from the truth.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Freddie and Fannie get nationalized by Feddie?

I've been reading The Black Swan, which talks about the impact of highly improbable events and how often they actually happen. Two years ago, if you had asked Wall Street insiders what the probability was of a bankruptcy of Fannie Mae (FNM) and Freddie Mac (FRE), they'd have most certainly said less than 1%. And yet that is basically what we've just witnessed. It's not technically a bankruptcy, but the equity has been wiped out and the company has been taken over by the only entity that can guaranty the debt - the US govt/taxpayers. http://seekingalpha.com/article/94191-bad-news-friday-nights

http://news.google.com/news/url?sa=t&ct=us/0-3&fp=48c2a097ee0030a3&ei=GdPCSIvpKqT2ygSHurjYAw&url=http%3A//www.digitaljournal.com/article/259495&cid=1241810220&usg=AFQjCNEITbykqvBVNfQMbQWVyyqsLZuXKA

http://www.nolanchart.com/article4736.html     "Will the foreign dollar holders, the ones who hold most of the U.S. debt in the world, also applaud the move?" If they do, the Fed will probably get away with this power grab, at the expense of the taxpayers.

Of course, they won't call it nationalization. They won't even call it a bailout. They'll use high-sounding phrases like the ones that Fox News and the Times are using, because those are the words the banking interests gave to the major news organizations in the first place.

Indeed, the U.S. financial debacle is now so ingrained - and a so-called "Super Crash" so likely - that most Americans alive today won't be around by the time the last of this credit-market mess is finally cleared away - if it ever is, Rogers said.... http://www.moneymorning.com/2008/09/06/jim-rogers-book/

http://money.cnn.com/2008/01/03/news/newsmakers/gross_pimco/?postversion=2008010311Gross avoided exposure to subprime securities and also anticipated the effect that the decline in home prices would have on the broader economy and corporate bonds, Morningstar said.

http://www.howestreet.com/articles/index.php?article_id=7395 The Treasury Department is close to finalizing a plan to help shore up mortgage giants Fannie Mae and Freddie Mac, according to people familiar with the matter. Precise details of Treasury's plan couldn't be learned. The plan is expected to involve a creative use of Treasury's new authority to make a capital injection into the beleaguered giants.

The plan includes changes to senior management at both companies, according to a person familiar with the plans. An announcement could come as early as this weekend.

On Friday, a series of high-level meetings were planned between Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, the chief executives of Fannie Mae and Freddie Mac and the companies' new regulator, the Federal Housing Finance Agency.

Treasury has been working with bankers at Morgan Stanley to use its newfound authority, granted by Congress in July, to devise a way to prop up the mortgage giants, which have been pummeled by investors in recent weeks.

 

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Ruble falls Russian bonds face potential default

http://www.bloomberg.com/apps/news?pid=20601087&sid=a2Vnuf1g659I&refer=home Sept. 5 (Bloomberg) -- Russian stocks plunged and the cost to protect government bonds from default jumped to the highest in almost four years as the central bank shored up its currency pummeled by the conflict in Georgia and tumbling commodity prices.

The central bank said it intervened after the ruble fell to the lowest level in almost a year against the dollar yesterday. Russia's RTS Index dropped the most among 88 stock indexes tracked by Bloomberg today, capping its worst week since May 2006, and credit-default swaps on the government's debt rose 13 basis points to 165, the highest since November 2004, according to CMA Datavision prices.

Palin drives down markets

http://www.clusterstock.com/2008/9/sarah-palin-pick-blamed-for-clobbering-stock-market Alongside last Friday's announcement that Alaska Governor Sarah Palin would be John McCain's running mate, the Dow Jones Industrial Average fell 170 points. Stocks have shown weakness ever since.

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World's Largest Gold Refiner Runs Out of Krugerrands

Aug. 28 (Bloomberg) -- Rand Refinery Ltd., the world's largest gold refinery, ran out of South African Krugerrands after an ``unusually large'' order from a buyer in Switzerland.

The order was for 5,000 ounces and it will take until Sept. 3 for inventories to be replenished, said Johan Botha, a spokesman for Rand Refinery in Germiston, east of Johannesburg. He declined to identify the buyer.

Coins and bars of precious metals are attracting investors as a haven against a sliding dollar and conflict between Russia and its neighbor Georgia. The U.S. Mint suspended sales of one- ounce ``American Eagle'' gold coins, Johnson Matthey Plc stopped taking orders for 100-ounce silver bars at its Salt Lake City refinery and Heraeus Holding GmbH has a delivery waiting list of as long as two weeks for orders of gold bars in Europe.

``A lot of people are worried about the dollar, they're worried about inflation and now we have geopolitical risk with what's happening in Russia,'' said Mark O'Byrne, managing director of brokerage Gold and Silver Investments Ltd. in Dublin. O'Byrne said his company's sales are up fourfold this year, heading for a record since its founding in 2003.

Gold rose to a record in March and is 25 percent higher than this time last year, while the dollar dropped 7.4 percent against the euro. Silver is up 15 percent in the period.

http://www.bloomberg.com/apps/news?pid=20601012&sid=acH4WhPh1WJ0&refer=commodities

Iran calls for production cuts

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4663676.ece
The price of crude oil tumbled yesterday in the futures markets as the destructive force of Hurricane Gustav dwindled.

Traders are focused again on the weakening global economy and panicky behaviour is being detected within Opec, suggesting that some cartel members fear that the oil price could crash. The gloom in the commodities markets pushed the price of US light crude as low as $105.46 per barrel yesterday, a $10 fall. Iran, the most hawkish member of the oil cartel, called for agreement next week on a cut of 1.5 million barrels per day in output.

Oil price of $100 a barrel on horizon...

ABU DHABI GOES TO THE MOVIES; $1B INVESTMENT IN FILM PRODUCTION...

Gustav Strikes! See local news feeds

http://www.maroonspoon.com/wx/gustav.html

Crude, Gasoline advances as forecast by EES

http://www.bloomberg.com/apps/news?pid=20601087&sid=aZQgpZMcLmfM&refer=home

Crude Oil, Gasoline Advance as Gustav Cuts Production, Refining

By Gavin Evans and Margot Habiby

Sept. 1 (Bloomberg) -- Crude oil and gasoline futures rose as Hurricane Gustav approached the U.S. Gulf coast, halting most regional oil and gas output and shutting local refineries.

Gustav, about 215 miles (350 kilometers) south-southeast of the Mississippi River mouth, will make landfall along the Louisiana coast later today as a ``major'' hurricane, according to the U.S. National Hurricane Center. Wind and sea conditions have reduced the chances of ``significant intensification,'' the center said.

``There are still some production rigs in the way'' of a major storm, said Gerard Burg, energy and minerals economist at National Australia Bank Ltd. in Melbourne. ``We're just going to have to wait and see what kind of impact it's going to have.''

Crude oil for October delivery rose $1.52, or 1.3 percent, to $116.98 a barrel in after-hours electronic trading on the New York Mercantile Exchange at 9:45 a.m. in Sydney. Prices, which dropped 7 percent in August, are up 22 percent this year.

Gulf Coast refineries have cut at least 1.56 million barrels a day of production, about 9.8 percent of the U.S. total. Eight refineries have announced shutdowns, while another five have reduced capacity.

Personnel from more than 70 percent of the platforms and rigs in the Gulf have been evacuated as the storm approaches, the U.S. Minerals Management Service said in a statement on its Web site yesterday. About 1.25 million barrels a day of oil, and 6.09 billion cubic feet of gas have been shut, or more than 96 percent of offshore oil output and 82 percent of gas production.

http://www.theoildrum.com/node/4472

PRODUCTION/INFRASTRUCTURE MAPS AND REFINERY INFORMATION

Here's a link to a really good map of oil refining/SPR storage facilities in respect to the path of Katrina (NB: OLD TRACK MAP!) and here is a listing of production and refining capability for the state of LA.

Just to give you a rough idea of where things are, the map above is a probability swath for Katrina (OLD TRACK MAP!) with the Thunder Horse platform as the red dot, and the other purple dot represents the Mad Dog development (100,000 bd); the Holstein development that produces at peak, around 100,000 bd of oil; and the Atlantis field that may have ramped up to around 200,000 bd in all. Put together these projects have the potential of around 650,000 bd, but as can be seen, they were sitting in an uncomfortable spot relative to the track of the Katrina.The white dot is where Port Fourchon is.  This is where the Louisiana Offshore Oil Port, or LOOP, is located. Rigzone pointed out that this is where the foreign tankers offload, Google and Terraserve maps you can see that the area is very low-lying.  One of the big concerns is that there will be sub-sea landslides or other ground movement that might affect the LOOP.  Were this to be disrupted, then foreign tankers would need to be diverted elsewhere, with the likely port being Houston.

Here is a really good link/map (from "Rod and Reel" no less) of the LA southern coastline showing all of the Submersible and Floater Gulf rigs.

We have accumulated resources from previous hurricans below, but we'd like to find updated materials if you know of them. Recent refinery maps, recent rig maps in the gulf, recent gas fields, SPR facilities, the Intercoastal Canal, pipeline stations and transfer points, etc., etc. Leave links in the comments please.

Also, here's the EIA's Alabama, Louisiana, Mississippi, and Texas Resources pages. They will also likely come in handy. Also, here's a link to the national page.

Here's another good resource for infrastructure maps and such. (scroll down a bit)

Here's a map from CNN with large and small refineries laid out. (though it is an old storm track)

Very detailed piece by RIGZONE on rigs and other infrastructure in the area. (thanks mw)

Here's a flash graphic of the oil refineries and rig maps from Hurricane Rita, it emphasizes Beaumont and Galveston's importance. Click on oil production in the tab. Note the many rigs on the east side of the storm that will get the brunt of the damage from the NE quad of the storm...hence the high long-term GOMEX oil production damage estimates below.

Here's a link to Rigzone's coverage of Gustav.

You want a detailed map? Well here's the probably the best MMS map I could find. Very detailed and lots of interesting stuff. (VERY big .pdf warning)

Also, Scott Wilmoth at Simmons & Co was kind enough to send us this map. The map below captures only deepwater infrastructure. For a complete list of deepwater development systems (includes operator, depth, location): http://www.gomr.mms.gov/homepg/offshore/deepwatr/dpstruct.html

(Please deposit new relevant links, graphs, and comments in this new thread...we have updated the resources part of this post with new maps and some more old maps and articles from Katrina on the LOOP and Port Fourchon--important parts of the infrastructure, as we learned about three years ago. Please leave personal anecdotes and themes unrelated to hurricane for the other upcoming 'bigger picture' posts, as yesterdays information was difficult to upload for those on dial-up)

Russia may cut off oil flow to the West

http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2008/08/29/cnrussia129.xml

Fears are mounting that Russia may restrict oil deliveries to Western Europe over coming days, in response to the threat of EU sanctions and Nato naval actions in the Black Sea.

Any such move would be a dramatic escalation of the Georgia crisis and play havoc with the oil markets.

Reports have begun to circulate in Moscow that Russian oil companies are under orders from the Kremlin to prepare for a supply cut to Germany and Poland through the Druzhba (Friendship) pipeline. It is believed that executives from lead-producer LUKoil have been put on weekend alert.

"They have been told to be ready to cut off supplies as soon as Monday," claimed a high-level business source, speaking to The Daily Telegraph. Any move would be timed to coincide with an emergency EU summit in Brussels, where possible sanctions against Russia are on the agenda.

RBV8 RBOB Buy for weekend hurricane info

http://quote.barchart.com/quote.asp?sym=RBV8&code=BSTK

http://news.google.com/news/url?sa=t&ct=us/0-0&fp=48b898e3464678dc&ei=5ky4SLTdN5nI8ATLotDYAw&url=http%3A//www.bloomberg.com/apps/news%3Fpid%3D20601087%26sid%3DagFHDeJtXOEc%26refer%3Dhome&cid=1240704120&usg=AFQjCNGrJyjdzu6YDtYW8e3IizxMHXjHLA
29 (Bloomberg) -- Tropical Storm Gustav pounded Jamaica with rain, flooding streets with water and mud, as Louisiana prepared for the system to strengthen

* Strong dollar pressures oil, balancing Gustav support
guardian.co.uk, UK - 1 hour ago
NEW YORK, Aug 29 (Reuters) - Oil prices were nearly unchanged by midday Friday as a stronger dollar balanced concerns that Tropical Storm Gustav will impact

Bernanke, Aiming to Curtail Market Risks, Met NYSE, CME Chiefs

Bernanke, Aiming to Curtail Market Risks, Met NYSE, CME Chiefs

By Scott Lanman

Aug. 28 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, aiming to curb risks in derivatives markets, met in June with NYSE Euronext Chief Executive Officer Duncan Niederauer and CME Group Inc. Chairman Terrence Duffy.

The Fed chief met on June 17 with Niederauer and on June 27 with Duffy, according to Bernanke's schedule for the month, released to Bloomberg News after a Freedom of Information Act request. CME is the No. 1 futures exchange in the U.S., and NYSE Euronext is the world's biggest owner of stock exchanges.

Bernanke and Duffy ``discussed a number of economic issues, including the credit markets and over-the-counter derivatives,'' CME spokesman Allan Schoenberg said in an e-mail message.

The central bank is trying to improve processing of trades in the $454 trillion over-the-counter derivatives markets, an effort Bernanke said last month would help the financial system ``withstand future shocks.''

The New York Fed and 17 securities dealers including Goldman Sachs Group Inc. and JPMorgan Chase & Co. agreed in July to form a central counterparty for the credit-default swap market that could absorb the failure of one of the major dealers.

Fed officials began urging banks in 2005 to improve processing of credit-default swaps as a backlog of unsigned trades ballooned to the equivalent of more than 17 days of trading volume.

CME and NYSE are seeking to expand into the $62 trillion market for credit default swaps, which let investors bet on the likelihood that companies will fail to repay debt. NYSE spokesman Richard Adamonis declined to comment.

Derivatives are financial instruments derived from stocks, bonds, loans, currencies and other assets, or linked to specific events like changes in the weather or interest rates.

At Risk

The amount U.S. commercial banks have at risk in derivatives markets jumped 50 percent in the first quarter as the credit crisis triggered an increase in the value of the contracts, the Office of the Comptroller of the Currency said last month.

Bernanke in June also continued weekly breakfasts with Treasury Secretary Henry Paulson. The Fed chief met twice with Securities and Exchange Commission Chairman Christopher Cox as they worked out an agreement on sharing information about the capital and risk-management systems of securities firms.

Bernanke had lunch at the White House with President George W. Bush on June 3. Earlier that day, the chairman had given a speech voicing concern about the declining value of the dollar.

The Fed chief delivered private remarks on June 6 to the Bilderberg Group, a gathering of North American and European government and business leaders, at a hotel in the Washington suburb of Chantilly, Virginia.

U.K. Leaders

Bernanke also met with a number of British officials. He met in his office on June 5 with Howard Davies, director of the London School of Economics, who formerly served as chairman of the U.K. Financial Services Authority and deputy governor of the country's central bank.

The daybook shows Bernanke also met for about 30 minutes on June 6 with George Osborne, Treasury spokesman for the U.K.'s opposition Conservative Party.

The British Embassy in Washington hosted a dinner on June 24 for the Federal Open Market Committee while policy makers were in town for a two-day meeting on interest rates.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net

Last Updated: August 28, 2008 11:30 EDT

Matrix NN up 200% on the week

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Real Estate adjusted for inflation negative first time since 1960

http://www.shadowstats.com/article/292
HYPERINFLATION SPECIAL REPORT

http://www.washingtonpost.com/wp-dyn/content/blog/2008/08/26/BL2008082601591_pf.html President Bush yesterday telegraphed in the clearest possible way that he's not interested in turning down the heat on the simmering geopolitical conflict with Russia. Quite the contrary. He's sending Vice President Cheney to harry Russia's borders.