FT PD article from this AM: Saskia Scholtes and Francesco Guerrera in New York Published: August 25 2008 18:24 | Last updated: August 26 2008 02:49 The crisis gripping Fannie Mae and Freddie Mac spread across the financial system on Monday as JPMorgan Chase warned of a possible $600m (£323m) loss from its holdings of preferred shares in the two mortgage financing groups. JPMorgan said it would write down the value of its $1.2bn of preferred shares in Fannie and Freddie by half. Banks and insurers own most of the $36bn in preferred stock in Fannie and Freddie, and JPMorganâs announcement will raise pressure on other holders to make similar writedowns. Preferred shares are a hybrid of debt and equity and are attractive to investors because they pay interest above equivalent debt instruments. No other bank has written down the value of its Fannie and Freddie preferred shares, and only a few have revealed their holdings. Philadelphia-based Sovereign said last week that it held more than $600m in Fannie and Freddie preferred stock. In a regulatory filing, JPMorgan said that since June, the value of its preferred shares in Fannie and Freddie had âdeclined in value by approximately an aggregate $600mâ. The bank said that the precise amount of the losses would not be known until the end of the third quarter. The value of preferred stock in Fannie and Freddie has tumbled to less than 50 cents on the dollar in recent weeks on fears a US Treasury rescue could wipe out holders of preferred as well as common stock. The Treasury was granted powers late last month to extend its credit lines to Fannie and Freddie and invest in their debt and equity. The JPMorgan news came after Freddie easily sold $2bn of short-term debt, helping to reassure investors that Freddie and Fannie still have access to fund their operations without a government rescue. Freddie and Fannie rose 17.08 per cent and 3.8 per cent respectively, halting last weekâs sell-off even as US indexes finished sharply lower on Monday. Fannie and Freddie both lost about 40 per cent of their value last week. Freddieâs auction of $2bn in three- and six-month bills drew strong demand as buyers were attracted by higher rates. The actions of JPM are interesting in the light of a post earlier this PM, "Dead Men Walking". Sort of a 'Variations on a Theme of Approaching the Event Horizon' do-da. When's Hank going to lay it down and straighten things out? lj
âThe crisis gripping Fannie Mae and Freddie Mac spread across the financial system on Mondayâ Itâs just talking. Short sellers have media tribune in a form of CNBC, AP, REUTERS etc. etc. There has been no material events in Fannie or Freddy since the infamous Barons article started this attack. Nothing changed. The mortgage default rate is miniscule 1%! Bill Ackman crawls out from the woodwork with his PowerPoint presentation on how to wipe out shareholders and CNBC is right there to offer him 2 hours on Squawk. The guy is short the stock for godsake! And yet he is allowed to talk on TV. He did the same to MBIA. Then they shut up and the stock is up 110%. Greenspan used (and still does) to talk markets down. He managed to destroy the .com boom and induce recession with 2 words. Just recently a mere talking shaved $30 off the price of barrel of crude Itâs just talking.
While you've raised some interesting points about 'talking', to my mind there is some importance to be attached to the person, media source, etc. that's doing the talking. Some are more credible than others, e.g., FT vs CNBC. As to the effect of the talking, well that's what a trader has to deal with whether or not what was said was true. Lastly, trying to correlate what happened with what was said is not far removed form reading tea leaves. My general take on a lot of this stuff is that what wasn't said and later came to light is often far more more relevant to what's truly going on. The shell game is being run by masters of deception, so enjoy and make some money while they move the pea around. lj