Fannie Mae plummets--why we're not whiners... Updated

Time to pull the fire alarm? Born in the 40's, I've heard all my life about the Great Depression and I always wondered why people were so surprised by the whole thing, why they did not anticipate it better. Now I think I know. It's just beyond belief that things could get that bad, but hearing that Fannie Mae and Freddie Mac and GM could fail I think perhaps we should take this far more seriously as a possibile outcome and start preparing.

You may have seen this excellent diary which passed by earlier today,  Paul94612's
UPDATE: Bank Seizures Triple! Potential Fannie/Freddie Failure Warning From Former Fed Governor. He was right to raise the alarm as further news has shown.

Since then the stock has fallen 33%! Fannie & Freddie drop sharply.

Updated: You've heard the talk about a "broader crisis." Wall St. Journal see below for further quotes.

Updated: The WSJ says all this uncertainty has caused policy makers to undertake "unprecedented thinking" about how to keep "the integrity of the financial system." They are trying to come up with a plan, a "break-the-glass" idea, you know, like when you have to pull a fire alarm.

Any move to prop up the mortgage giants would likely set off a political firestorm...

The word "insolvent" has been let out of the bag. :::

"Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer," Poole, 71, who left the Fed in March, said in an interview yesterday.

These two entities own or guarantee nearly half of the $12 trillion in today's outstanding home loans.

Fannie & Freddie drop sharply. :::

A firestorm of anxiety over the ability of U.S. mortgage giants Fannie Mae <FNM.N> and Freddie Mac to get the capital they need to survive sent their debt and stocks plummeting on Thursday.

Stoking concerns, former St. Louis Federal Reserve President William Poole said the two major U.S. mortgage finance companies were "insolvent" and may need a U.S. government bailout, according to Bloomberg News.

The outlook was so dire that Bush administration officials were meeting with regulators to discuss contingency plans should they be unable to raise funds and support the worst housing market since the Great Depression, according to a report in the Wall Street Journal.

Shares in these companies have not been lower since 1991.

Our money may be needed to bail them out! They need "billions of dollars in capital to support their balance sheets to try to stabilize the mortgage market." That becomes more difficult by the hour. Indeed, one expert says what is happening in that regard is "just increasing that downward spiral within the financials, not even to mention the confidence in the whole system." insolvent. :::

Fannie Mae and Freddie Mac "are vital to Americans' ability to own their own homes," the presumptive Republican presidential nominee said in response to a reporter's question during a campaign stop at a diner in Livonia, Michigan. "They will not fail; we cannot allow them to fail."

Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules, Poole said. The fair value of Fannie Mae's assets fell 66 percent to $12.2 billion, data provided by the Washington-based company show, and may be negative next quarter, he said.

Now Bloomberg says, Fannie, Freddie Tumble on Bailout Concern, UBS Cut

U.S. Treasury Secretary Henry Paulson told lawmakers in Washington today that he's been assured by the regulator for Fannie Mae and Freddie Mac that the companies have enough capital. snip/

The Treasury has been discussing what to do if Fannie Mae and Freddie Mac fail for months as part of its contingency planning, the Wall Street Journal reported today, citing three people familiar with the matter. The government doesn't expect the companies to fail and it doesn't have a rescue plan in place, the Journal said.

Other comments:
Another Great Depression? asks a conservative.

"Unfortunately," said Larry Summers, "we are in an economic environment where we have more to fear than fear itself."  Excerpt:::

"As home prices decline and Washington struggles to end the economic malaise, Wall Street is starting to send a sobering message: The worst is yet to come." snip/

...with Monday's plunge, each of these giants has now lost more than 60 percent of its market value this year. snip/

"Everything points to a lot more bad news to come," said Paul Miller of the Friedman, Billings, Ramsey Group in Arlington, Va. "If Fannie and Freddie are vulnerable, it means no one is absolutely safe."

Why the troubles at Fannie and Freddie are yours

UPDATE:::

Wall St. Journal uh-huh, uh-huh. They are asking: what will be the outcome if a big hedge fund or large commercial bank fails.

 U.S. Mulls Future of Fannie, Freddie
Administration Ramps Up Contingency
Planning as Mortgage Giants Struggle

The Bush administration has held talks about what to do in the event mortgage giants Fannie Mae and Freddie Mac falter.... as the stock prices of both companies continue to fall sharply.

The talks have become more serious recently given the financial woes of the shareholder-owned, government-chartered companies, whose stability is vital to the functioning of the nation's housing market, these people say.

The government doesn't expect the entities to fail and no rescue plan is imminent.... Government officials and market analysts expect both companies will be able to raise large amounts of capital relatively easily. Treasury officials are nonetheless talking about what the government could -- or should -- do if Fannie and Freddie become so pressed that they are unable to borrow money and continue operating.

snip/ "They can't be allowed to fail," said Peter Wallison, a former Treasury Department general counsel. "The losses would extend through so much of our economy, and so much of the world economy...."

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Little sidenote out of frustration. Given a banking committee with members like this is it any wonder things are so messed up? This morning in the Senate, Sen. Shelby, R-AL, said something like this:

"Sen. X served in the senate some 25 years and I've served 25 some years. That's 50 years we've served on the banking committee. I've not served 50 years on the banking committee."