Insolvency concerns have driven the share prices for the once venerable firms of Freddie Mac and Fannie Mae almost into the ground. Today, share prices for these two have fallen substantially. Freddie Mac's 52 week high is $67.20 and it closed yesterday at $8.00 and today's low share price (as of noon CST) was $3.90 although it has crept "up" to the $5 to 6 dollar range. The fear is that the Federal government might have to put these companies into a conservatorship based on a law set up in 1992. This "credit crunch" or "bumpy period" as some have called it is not limited to the mortgage business and is far from over.

Quote:
The two firms, which have no explicit government backing despite their government charter, provide liquidity to the housing market by buying mortgages and repackaging them into securities sold to investors. But the horrific housing slump has led to billions of dollars in losses for the firms.

Freddie Mac has a loan portfolio of 1.5 trillion dollars and Fannie Mae's is over 700 billion. Together they own or guarantee some 5.2 trillion dollars in loans, or about 40 percent of the total value of home loans in the United States.

The prospect of insolvency for the so-called government-sponsored entities or GSEs could send more shockwaves through the global financial system because of the size of the companies, and the notion of a bailout has prompted heated debate.

"The markets are concerned that these GSEs would default on their five trillion dollars of debt," said Andrew Busch at BMO Capital Markets.

Michael

Sen. Phil Gramm has been at the Swiss banking giant, UBS since 2002. During that time, the bank has (like many banks/brokers) encountered some major losses. This fact may take on more importance as the US Presidential election draws near as Sen. Gramm has been touted as a possible Secretary of the Treasury in a McCain administration.

Quote:
Former Texas Sen. Phil Gramm has emerged as the key behind-the-scenes economics/Wall Street guy for John McCain and is being touted as the treasury secretary in waiting. Since 2002, Gramm has been an executive with the U.S. operations of UBS, the giant Swiss Bank. An unintentionally hilarious interview with Gramm on the Wall Street Journal editorial page last week asserted that Gramm has "been a key instigator of some of the biggest money-making UBS deals of recent years." The interview was noteworthy not just for first-class butt-kissing, but for deliberately gliding over the avalanche of disasters in the past year that has turned UBS from a respected Swiss titan of discretion and risk management into a laughing stock.
…
UBS used to stand for Union Bank of Switzerland. But perhaps it should stand for Untold Billions Squandered.

Here is a link to the entire article, which article has many links to other informative articles as well: http://www.slate.com/id/2194933/

Michael

This article on the bleak report turned in for US auto sales for June is interesting because it provides a make by make break down on the sales numbers. Interestingly, Mini posted a 40.5% increase while not surprisingly, Hummer posted a 54.2% decrease. Pity the Hummer dealers who were forced to build million dollar stand alone dealerships in the last year or two. The sales numbers might be palatable if the overhead was low, like when they had shared dealerships with GMC, but in order to service the debt associated with the new buildings, these numbers are fatal. Of note, Kia, with its line up of new value oriented, fuel efficient cars, was up 21%.

Here is the link to the article: http://www.autoblog.com/tag/june+2008+auto+sales/

Michael

Fridson Investment Advisors was founded by Martin Fridson who says, “that new issues of junk bonds are healthier and more default-resistant than in recent years. This shift in what has been a challenged market is happening because weaker borrowers are being shut out, in Mr. Fridson’s estimation. With fewer really risky borrowers able to sell debt, the default rate will decrease after the current toxic debt left over from the leveraged buyout boom clears out after two years”.

“This shift in what has been a challenged market is happening because weaker borrowers are being shut out, in Mr. Fridson’s estimation. With fewer really risky borrowers able to sell debt, the default rate will decrease after the current toxic debt left over from the leveraged buyout boom clears out after two years”. The S&P reported on Wednesday that “as of mid May, corporate borrowers had defaulted on almost $19 billion of debt-more than double last year’s total.”

.......

“... statistics from Advantage Data show that default rates on speculative-grade debt will decline after in the next two years. He concludes that this is because there will be fewer debt issues rated below BB-minus, which is the higher end of the speculative spectrum. The addendum is that any company that will default on its debt likely will do so within three to four years of a buyout or big debt sale.”

Here is the link to the full article:
http://blogs.wsj.com/deals/2008/06/26/breaking-news-from-2010-junk-bond-default-rates-fall/?mod=hpp_europe_blogs

Michelle

The FBI said that "it has arrested more than 400 real estate brokers since March in a crackdown on incidents of mortgage fraud that have contributed to the country's housing crises." Apprehensions were made all over the country including Chicago, Atlanta, Miami and suburban Maryland.

"Operation Malicious Mortgage resulted in 144 mortgage fraud cases in which 406 defendants were charged." A law enforcement officer stated that the losses to the victims in these schemes totals more than $1 billion.

The Justice Department and FBI announced the arrests at a news conference in Washington. On Wednesday alone, "60 arrests were made in mortgage fraud-related cases in 15 districts."

A news station also reported that the indictment of two former Bear Sterns managers in New York was also a part of Operation Malicious Mortgage. "They are the first executives to face criminal charges related to the collapse of the subprime mortgage market."

Houston Arrests

In Houston, six people are suspected of defrauding banks and stealing $24 million dollars in fraudulent mortgage scams.

The indictment alleges, "phony buyers were recruited to apply for loans to buy pricey condominiums in Houston and surrounding suburbs." "The loan applications allegedly used fraudulent information to obtain millions of dollars that the defendants then pocketed," the indictment said.

The defendants were charged with conspiracy, fraud and money laundering.

Here is a link to the article:
http://www.kctv5.com/money/16652452/detail.html

Yameena