When I wrote a couple of days ago that Bill Gross had stopped buying any Fannie and Freddie paper, I knew that it was only a matter of days before the government had to takeover the GSE’s.
The plan, which would place the companies into a conservatorship, was outlined in separate meetings with the chief executives at the office of the companies’ new regulator. The executives were told that, under the plan, they and their boards would be replaced and shareholders would be virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.
I’ve noticed that many of you are really caught up in the politics of the moment and my regular attempts to talk about our impending financial crisis have passed without much comment. Perhaps people expect a financial crisis to look like the stock market crash of 1929. But this one is different. Read what Bill Gross says in the piece I linked to above. This is a slow grinding delevering. The Government takeover of Fannie and Freddie is but a band aid. Until we know where the trough of housing values is, we will not be out of the woods.
Whoever is President in January of 2009 is going to have a hell of a mess on his hands. I believe Obama and his team understand that. As for John McCain and Phil Gramm, they still think it’s just a mental depression.