Exports Prop Up Local Economies

Exports Prop Up Local Economies
WSJ, 11-Sep-08
By TIMOTHY AEPPEL

Much of the world may be struggling with the economic downturn, but life has been getting better in Columbus, Ind., Kingsport, Tenn., and Waterloo, Iowa.

These out-of-the-way places have become trade hot spots as U.S. exports, fueled by the dollar's fall, continue to provide a rare spark in an otherwise gloomy economy.

While many economists expect a recent snapback in the value of the dollar and a spreading global slowdown to soften that growth, exports have become a key to greater local prosperity more than at any time in decades.(more...)

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Govt Takes Over GSEs

Treasury and Federal Housing Finance Agency (FHFA) Action to Protect Financial Markets and Taxpayers
http://treasury.gov/news/index1.html

Key Paragraphs of the Press Release
Since this difficult period for the GSEs began, I have clearly stated three critical objectives: providing stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers – both by minimizing the near term costs to the taxpayer and by setting policymakers on a course to resolve the systemic risk created by the inherent conflict in the GSE structure.

Based on what we have learned about these institutions over the last four weeks – including what we learned about their capital requirements – and given the condition of financial markets today, I concluded that it would not have been in the best interest of the taxpayers for Treasury to simply make an equity investment in these enterprises in their current form.

The four steps we are announcing today are the result of detailed and thorough collaboration between FHFA, the U.S. Treasury, and the Federal Reserve. The four steps are as follows:

(1) Allow GSEs to grow their guarantee MBS books without limits but their mortgage portfolio modestly through the end of 2009 to $850 billion each , and then reduce at 10 percent a year, largely through natural run off to about $250 billion each.
(2) Treasury entered into a Senior Preferred Stock Purchase Agreement with each GSE. This commitment also eliminates any mandatory triggering of receivership. These agreements provide significant protections for the taxpayer, in the form of senior preferred stock with a liquidation preference, an upfront $1 billion issuance of senior preferred stock with a 10% coupon from each GSE, quarterly dividend payments, warrants representing an ownership stake of 79.9% in each GSE going forward, and a quarterly fee starting in 2010 (Details: http://www.treas.gov/press/releases/reports/pspa_factsheet_090708%20hp1128.pdf).
Terms of the Agreements:
* The agreements are contracts between the Department of the Treasury and each GSE. They are indefinite in duration and have a capacity of $100 billion each, an amount chosen to demonstrate a strong commitment to the GSEs’ creditors and mortgage backed security holders. This number is unrelated to the Treasury’s analysis of the current financial conditions of the GSEs.
* If the Federal Housing Finance Agency determines that a GSE’s liabilities have exceeded its assets under generally accepted accounting principles, Treasury will contribute cash capital to the GSE in an amount equal to the difference between liabilities and assets.

(3) The establishment of a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The facility will offer liquidity if needed until December 31, 2009. The Housing and Economic Recovery Act of 2008 provided Treasury with the authority to establish this facility.
* Funding will be provided directly by Treasury from its general fund held at the Federal Reserve Bank of New York (FRBNY) in exchange for eligible collateral from the GSEs which will be limited to guaranteed mortgage backed securities issued by Freddie Mac and Fannie Mae as well as advances made by the Federal Home Loan Banks (Details: http://www.treas.gov/press/releases/reports/gsecf_factsheet_090708.pdf).
* Loans will be for short-term durations and would in general be expected to be for less than one month but no shorter than one week. Loans will not be made with a maturity date beyond December 31, 2009
* The rate on a loan request ordinarily will be based on the daily LIBOR fix for a similar term of the loan plus 50 basis points (LIBOR +50 bp).
(4) Treasury is initiating a temporary program to purchase GSE MBS. Treasury financing of purchases of GSE MBS will be deemed as outlays and are subject to the statutory debt limit. Treasury will make available information on purchases through this program in the Monthly Treasury Statement (http://fms.treas.gov/mts/index.html) (Details: http://www.treas.gov/press/releases/reports/mbs_factsheet_090708hp1128.pdf)

About Conservatorship
* At present, there is no exact time frame that can be given as to when this conservatorship may end.
* The Company will continue to run as usual during the conservatorship
* During the conservatorship, the Company’s stock will continue to trade. However, by statute, the powers of the stockholders are suspended until the conservatorship is terminated (voting rights of all stockholders are vested in the Conservator). Stockholders will continue to retain all rights in the stock’s financial worth; as such worth is determined by the market.
* Under a conservatorship, the Company is not liquidated. The Director of FHFA does have the discretion to place any regulated entity, including the Company, into receivership. Receivership is a statutory process for the liquidation of a regulated entity. There are no plans to liquidate the Company. Once, the company is in Receivership, it can only be dissolved by an Act of Congress.
(Details: http://www.treas.gov//press/releases/reports/fhfa_consrv_faq_090708hp1128.pdf)

There are several key components of conservatorship:
(1) Monday morning the businesses will open as normal, only with stronger backing for the holders of MBS, senior debt and subordinated debt.
(2) The Enterprises will be allowed to grow their guarantee MBS books without limits and continue to purchase replacement securities for their portfolios, about $20 billion per month without capital constraints.
(3) As the conservator, FHFA (Federal Housing Finance Agency) will assume the power of the Board and management.
(4) The present CEOs will be leaving, but we have asked them to stay on to help with the transition.
(5) Herb Allison will be the new CEO of Fannie Mae and David Moffett the CEO of Freddie Mac. They will be joined by equally strong non-executive chairmen.
(6) At this time any other management action will be very limited.
(7) In order to conserve over $2 billion in capital every year, the common stock and preferred stock dividends will be eliminated, but the common and all preferred stocks will continue to remain outstanding. Subordinated debt interest and principal payments will continue to be made.
(8) All political activities -- including all lobbying -- will be halted immediately.
(9) Lastly and very importantly, there will be the financing and investing relationship with the U.S. Treasury, which Secretary Paulson will be discussing.

LINKS
* Paulson Remarks on Housing GSE Actions
* FHFA Director Lockhart Remarks on Housing GSE Actions (pdf)
* Fact Sheet: FHFA Conservatorship (pdf)
* Fact Sheet: Treasury Preferred Stock Purchase Agreement (pdf)
* Fact Sheet: Treasury MBS Purchase Program (pdf)
* Fact Sheet: Treasury GSE Credit Facility (pdf)