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Saturday, October 11, 2008 10:25 PM


Fannie, Freddie Commit to Waste $40 Billion a Month Taxpayer Money


Not content to waste $700 billion of taxpayer money, Fannie and Freddie are going to waste another $40 Billion a month buying troubled assets.

Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.

Fannie and Freddie began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities, according to the people, who asked not to be identified because the plans are confidential. The purchases would be separate from the U.S. Treasury's $700 billion Troubled Asset Relief Program.

Adding underperforming assets to Fannie and Freddie's combined $1.52 trillion mortgage portfolios would come at a time when the two mortgage-finance companies already hold as much as $210 billion of bad debt that may be eligible itself for the Treasury's relief program, their regulator said Oct. 5.
$400 Billion Germany Bank Bailout

The Wall Street Journal is reporting German Bailout Likely to Be Over $400 Billion.
German Chancellor Angela Merkel heads to Paris to present Sunday to her colleagues from the euro zone a financial sector bailout plan for Germany that's expected to be more than half the size of what has been enacted in the U.S.

A person familiar with the situation told Dow Jones Newswires that the government is considering a total bailout plan of €300 billion to €400 billion ($402 billion to $536 billion), which includes state guarantees and the option to get a direct stake in banks. As part of this, the government is mulling recapitalizing financial institutions by injecting €50 billion to €100 billion in capital, the person who declined to be named said.

Speaking in France Saturday after a bilateral meeting with French President Nicolas Sarkozy, Chancellor Merkel said she wouldn't rule out support for banks who seek it, but that conditions would be attached.

"One cannot talk of nationalization," Ms. Merkel said at a press conference in Colombey-les-Deux-Eglises according to the Associated Press.

Germany, Europe's largest economy, will outline the plans to the leaders of the other 14 euro-zone countries, who will meet for an emergency summit in Paris Sunday to ensure a coherent approach in dealing with the current crisis that has led to massive sell-offs in stocks and has frozen credit markets. Mr. Steinbrueck has been tight-lipped about details of the plan, which he said he already outlined to the G-7 officials in Washington.

The U.K. government Wednesday said it will invest in a number of U.K. banks in an effort to recapitalize the industry, end concerns about the viability of individual institutions and encourage banks to resume lending to consumers and businesses.

As part of the £400 billion ($682 billion) package, the U.K. government will boost banks' capital by buying preference shares of up to £50 billion, provide a £250 billion guarantee for short-and medium-term bonds issued by the banks, and provide additional liquidity of around £100 billion through the Bank of England's Special Liquidity Scheme.

The U.K's move to guarantee bonds has put pressure on other countries to act because it will put their banks at a disadvantage to U.K. banks.
Chain Reaction

Ireland guaranteed bank deposits putting Germany and the UK at a disadvantage. After criticizing Ireland, Germany did the same. The UK stepped in to guarantee bonds so now Germany and the US are at a competitive disadvantage.

Am I the only one who sees how absurd his is? Is the final ending point, the government of every nation guaranteeing everything?

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