The truth is this: that FRE/FNM 800B or so money is just pulled out of paulson ass. Why not 500B or 1T, nice round number? What does 800B correspond to? Nothing to the best of my knowledge. Just a LARGE number being thrown out there to soothe the nerve of bond holders.
What it signifies is just USA politely asking Asian people to continue rolling their debt to FRE and FNM. FRE and FNM isn't in my opinion out of cash or negative equity.
The issue is the DEBT. Imagine your bank coming to you asking you to repay your 30-yr mortgage and tell you to find another lender. You'd be immediately dead regardless to the fact that you a) have a job and b) have been paying your bills on time every month since you have the mortgage.
That is precisely the condition of the GSE today. This isn't a Wamu case where money was lost, or ABK/MBI/MTG where money wasn't even there in the first place. It is a ST debt story.
Now, Paulson wouldn't mind at all moving the request to 100B or 500B or 1 Trillion, cuz he knows he isn't gonna pay a dime of it. He doesn't need to. At the worst case of losses, it is the share holder, and perhaps preferred who will get wiped out and not anybody else. And I mean SHITKICKING BAD situation resembling the Civil War era.
It is again, politely begging the GSE investors not to cancel their debts and leave in droves.
I know this is HARD to believe, after BSC, after LEH, after WM, after ABK/MBI, after MTG/RDN/PMI. But it is what it is.Should you buy FRE/FNM? I don't at all suggest that. The damage is now very real. Now that the government is running the lending business, you MUST NEVER expect credit expansion within the next decade. FRE and FNM makes money from expanding credit and earning spreads from that credit. How much contraction of credit should you expect? A LOT.
Think this way: Credit will be dried out like the levee in New Orleans. Then the regulations are like the sharks being thrown in the smaller, drying pond. The pond, is now crowded with monetarily misled people (inflationists) as well as people who would like to sell their Potash to you.
I wish it was just caught swimming naked when the pond is drying. You can still use your hands to cover what it is you want to cover. But, those shark teeth will leave their marks pretty good on your members too if you think PRINTING is the key to tomorrow.
I like TF for the entertainment values; I am absolutely surprised they spent that much energy in opposing the housing bill and FRE/FNM-related bill; something that absolutely confirms their lifelong belief of deflation, won't really spend any tax $ and more about jawboning, and would actually help a lot making money in the short side by sucking in yahoo message board investors into some of the bank trash out there. They even fly some dude to make a video to Florida having President Karl giving his 2c on GSE "bailout" that really isn't a bailout but more of a way to neuter the GSEs permanently. What I am saying is just focus on the credit dry-up and find opportunities in taking out over priced stocks be it in banking, commercial, commodity, or retail one by one in a focused fashion and leave the marching band to run the parade.
So long as it's free, you and I can watch.