GOVERNMENT: Fed Looks to Spur Growth by Buying Government Debt

Federal Reserve officials will reinvest principal payments on their mortgage holdings into long-term Treasury securities, the central bank’s first attempt to bolster growth in more than a year.

“The pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a statement in Washington. “To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level.” The Fed retained a commitment to keep its benchmark interest rate close to zero for an “extended period.”

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FINANCE: Fannie Mae Seeks $1.5 Billion From U.S. Treasury After 12th Straight Loss

Fannie Mae, the mortgage-finance company operating under federal conservatorship, is seeking $1.5 billion in aid from the U.S. Treasury Department after a 12th straight quarterly loss.

Fannie Mae had a loss of $1.2 billion in the second quarter, compared with a loss of $14.8 billion in the same period a year earlier, it said today in a filing to the Securities and Exchange Commission. The Washington-based company posted more than $147 billion in losses in the preceding 11 quarters, according to data compiled by Bloomberg.

The Treasury Department seized Fannie Mae and McLean, Virginia-based Freddie Mac, the biggest sources of U.S. mortgage funding, in September of 2008 and has spent $145 billion already to keep them solvent. In April, the Treasury and Department of Housing and Urban Development asked for public comment on how to fix the funding system after the companies’ losses on subprime mortgages pushed them to the brink of collapse.

FINANCE: You Made More in 2010 Than Fannie Since 1970

House Financial Services Committee Chairman Barney Frank, who begins drafting legislation next month to overhaul Fannie Mae and Freddie Mac, said in 2003 the mortgage companies were “financially sound.” How wrong was he?

The CHART OF THE DAY shows Fannie Mae’s cumulative profit since going public in 1970. In 2008 alone, the company lost $58 billion, erasing its cumulative profit as a publicly traded company. In 2009, it lost $72 billion more.

Frank’s challenge will be to create an entity that serves the goal of making housing more affordable without the conflict of interest of being driven by shareholder returns.

Republicans may highlight Frank’s past support for the government-sponsored agencies. The Massachusetts Democrat said seven years ago of Fannie Mae and Freddie Mac: “We see entities that are fundamentally sound financially and withstand some of the disaster scenarios. . .” and ‘‘I want to roll the dice a little more in this situation towards subsidized housing.’’

The government-backed mortgage giants were placed in conservatorship in September 2008 and are now 80 percent owned by U.S. taxpayers. They own or guarantee more than half of the nation’s $11 trillion in residential mortgages. Fannie Mae and Freddie Mac have an unlimited line of credit from the government and have so far cost U.S. taxpayers $145 billion, more than American International Group Inc.

FINANCE: Stock Trading Bearish Watchlist: MS, BWLD

The stock MS and BWLD are coming in to swing points and may get rejected at those prices, which would make opportunity as bearish trades to profit on the down side.

The swing point for MS is $27.89 which was the high made on July 21st.

The swing point for BWLD is $42.93 which was the high made on April 28th.

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