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<DIV><FONT size=2>The article below from today's (11/11/08) <EM>Washington
Post</EM> shows the utter folly letting the government (without the needed
expertise) try to run/manage businesses and economic entities instead of
intelligently regulating them (and using our cash to produce their
failures).</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>This whole mal-conceived, ill-managed bailout business is the
brainchild of the Republicans in power and mindlessly endorsed by the
Democrats. If Bush, Paulson, et al weren't Republicans, they be called
Communists, since this way of managing the economy was the way Russia did it
(and likely to produce the same results).</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>W.</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><STRONG><FONT size=5>Fannie, AIG Struggling After Federal
Takeover<BR></FONT></STRONG>Firms Report Massive Losses, Cite Shortcomings of
Rescue<BR>
<P><FONT size=-1>By Zachary A. Goldfarb<BR>Washington Post Staff
Writer<BR>Tuesday, November 11, 2008; A01<BR></FONT></P>
<P></P>
<P>Two months after the government began taking over ailing financial companies,
the two largest efforts have failed to go as planned, with the firms complaining
that federal officials set overly strict terms and took other unhelpful rescue
measures.</P>
<P><A
href="http://www.washingtonpost.com/ac2/related/topic/Fannie+Mae?tid=informline"
target="">Fannie Mae</A> yesterday reported a $29 billion loss for the three
months ended Sept. 30 and warned that the mission it was given by the
government, to help revive the mortgage market, could be compromised unless <A
href="http://www.washingtonpost.com/ac2/related/topic/U.S.+Department+of+the+Treasury?tid=informline"
target="">the Treasury Department</A> takes new steps to support the company.
Fannie Mae chief executive <A
href="http://www.washingtonpost.com/ac2/related/topic/Herbert+M.+Allison?tid=informline"
target="">Herbert M. Allison</A> has approached the Treasury about providing
more help, but Treasury Secretary <A
href="http://www.washingtonpost.com/ac2/related/topic/Henry+M.+Paulson?tid=informline"
target="">Henry M. Paulson</A> Jr. has demurred, according to three sources
familiar with the discussions.</P>
<P>The insurance giant <A
href="http://www.washingtonpost.com/ac2/related/topic/American+International+Group+Inc.?tid=informline"
target="">American International Group</A>, meanwhile, reported a $24.5 billion
quarterly loss yesterday as the government agreed to offer it a more generous
lifeline in the form of a new, $152 billion loan on easier terms. The government
extended an $85 billion loan to AIG in September followed by $38 billion more in
October, but the company has been eating away at it at an accelerating pace.</P>
<P>The struggles of these two largely nationalized companies underscore the
government's difficulty in intervening in private markets in a way that both
protects taxpayers and ensures that the rescue efforts succeed. The government's
experience in addressing the financial troubles at Fannie Mae and AIG offers a
cautionary tale at a time when Washington is debating whether to extend the
federal umbrella to Detroit automakers and other beleaguered firms. Before
September, it had been a generation since the government took over a private
company out of concern that its failure could endanger the U.S. economy.</P>
<P>At both Fannie Mae and AIG, the reported losses largely reflected poor
decisions by the companies before the government intervened.</P>
<P>But the willingness of the government to revise the rescue package for AIG
and not, so far, for Fannie Mae reflects what's happened since. AIG has
continued to hemorrhage despite the government's involvement. Fannie Mae has
not. But while the government takeover has largely stabilized Fannie Mae, the
federal actions have made it difficult for the company to expand its purchases
of home loans, in turn undercutting its mission to boost the mortgage
market.</P>
<P>The government took a controlling stake in both AIG and Fannie Mae, along
with <A
href="http://www.washingtonpost.com/ac2/related/topic/Freddie+Mac+Holdings?tid=informline"
target="">Freddie Mac</A>, when the Treasury bailed them out and imposed stiff
terms on the help, sending a signal to the market that the Treasury would
intervene only at a big cost to shareholders.</P>
<P>In AIG's case, those terms, including relatively high interest rates, proved
too tight as the company experienced far greater losses than the government had
anticipated. To make interest payments on the loan, AIG had to borrow more money
from other government sources, and the company's finances risked spiraling out
of control. The plan announced yesterday expands the current AIG program to $152
billion. It also restructures it to make it easier for AIG to repay taxpayers
and provides $40 billion in direct government investment.</P>
<P>In Fannie Mae's case, the government offered in September to extend loans and
make direct investments in the District-based company to allay concerns that it
would collapse. But the conditions attached to those potential sources of
capital made it difficult for Fannie Mae to tap them, in turn limiting its
ability to pump money into the mortgage market.</P>
<P>Yesterday, Fannie Mae went public with its concerns about this federal
assistance. It warned that it "may prove insufficient" to allow the company to
routinely pay off its loans or "continue to fulfill our mission of providing
liquidity to the mortgage market at appropriate levels."</P>
<P>Fannie Mae's reported loss of $29 billion, or $13 a share, was the single
biggest loss for any U.S. company this year. It compared with a loss of $1.4
billion, or $1.56 a share, in the third quarter of 2007. More than two thirds of
the loss resulted from writing down the value of deferred tax assets, which are
credits that can be applied against income taxes.</P>
<P>The company added that its difficulties had been further compounded by
government actions after the takeover that made the task of supporting the
housing market even tougher.</P>
<P>In October, the government announced a series of steps to protect loans made
to banks and big corporations. These loans to private banks, the company
reported, may have become "more attractive investments" than loans to Fannie
Mae, historically one of the safest investments. Although investors have long
assumed that the government stands behind Fannie Mae, this guarantee is no
longer as strong as those now explicitly provided to some other financial
companies.</P>
<P>Fannie Mae uses loans to buy up mortgages and mortgage bonds. "The U.S.
government does not guarantee, directly or indirectly, our securities or other
obligations," the company said.</P>
<P>As the financial markets took a sharp turn for the worse in October, the
government introduced a variety of protections for financial institutions. The
Treasury Department, Fannie Mae and its regulator, the <A
href="http://www.washingtonpost.com/ac2/related/topic/Federal+Housing+Finance+Agency?tid=informline"
target="">Federal Housing Finance Agency</A>, initiated a series of discussions
about what else the government could do to support the mortgage market.</P>
<P>Fannie Mae had begun taking steps to make home loans more affordable, such as
buying more mortgage bonds to put money into the market and eliminating fees it
charged to insure loans. But the company was having trouble raising affordable,
long-term funding in the debt markets -- the money it uses to buy mortgages. As
a result, mortgage rates were rising. That was the opposite of what government
officials intended when they took over Fannie Mae and Freddie Mac.</P>
<P>The government could provide more support for Fannie Mae by buying the
company's debt or making it easier for the company to get loans or capital
directly from the Treasury.</P>
<P>But Paulson wasn't interested in renegotiating the terms of the department's
agreement with Fannie Mae, according to sources who spoke on condition of
anonymity because they were not authorized to disclose the discussions.</P>
<P>"We have occasional discussions with [Fannie Mae and Freddie Mac] and FHFA as
we monitor the mortgage market and look to address the housing correction," said
Treasury spokeswoman Michele Davis. "We have received no recommendations from
Fannie Mae."</P>
<P>Peter J. Wallison, a former Treasury official and a fellow at the <A
href="http://www.washingtonpost.com/ac2/related/topic/American+Enterprise+Institute+for+Public+Policy+Research?tid=informline"
target="">American Enterprise Institute</A>, said the government was being
foolhardy in failing to do more for Fannie Mae. "What is the reluctance on the
part of Treasury to put money into Fannie and Freddie? We know they're going to
lose money. So what?" he said. "Their objective is to help the housing
market."</P>
<P>Some financial experts have suggested that the government go even further and
fully nationalize firms like Fannie Mae and Freddie Mac, allowing them to borrow
at the same low rates the U.S. government can.</P>
<P>In contrast to Fannie Mae, AIG won a new relief package after the initial
bailout aggravated the company's difficulties.</P>
<P>AIG, which has recorded $43 billion in losses on home mortgages, was facing
bankruptcy in September when the government stepped in. To raise capital to pay
back the government's initial loan, the chief executive appointed by the
Treasury, <A
href="http://www.washingtonpost.com/ac2/related/topic/Edward+M.+Liddy?tid=informline"
target="">Edward M. Liddy</A>, planned to sell off some AIG subsidiaries, such
as life insurance and airplane-leasing firms.</P>
<P>But the falling stock market made that difficult by depressing the value of
the company's shares. Meanwhile, the freeze in credit markets made it even
harder for AIG to remain liquid and pay off debts. AIG was forced to put up
billions of dollars to cover derivatives it had sold to investors.</P>
<P>"It was obvious to me from Day One that the terms of that arrangement were
really quite punitive in terms of the interest rate and the commitment fee and
the shortness of it," Liddy said in a Bloomberg Television interview yesterday.
"I started really about a week after I got here trying to renegotiate."</P>
<P>Under the new plan, the government will inject $40 billion into AIG, a move
similar to what it has done with U.S. banks. In addition, the government will
help unload $52.5 billion in troubled assets on AIG's books while reducing the
amount of the original loan and cutting its interest rate.</P>
<P>"In September, when AIG had to be rescued, we did not have authority to
purchase equity," said Davis, the Treasury spokeswoman. If the Treasury's
financial bailout program had already been created, she added, "we would have
purchased equity at that time."</P></DIV></BODY></HTML>