Monday, July 14, 2008

Fannie plan a "disaster" says Rogers

Well, this is the video I had been waiting for.

Given all that has happened with Fannie Mae (FNM) and Freddie Mac (FRE) over the last week, along with the weekend announcement of a proposed government bailout plan for the two mortgage giants/GSEs, you had to figure that when Monday rolled around, we'd almost certainly get to hear Jim Rogers' view on the matter (as he has been short Fannie and Freddie for some time, and is one of the main go-to contrarian voices for the cable business channels).

Never one to disappoint, Rogers was happy to make his opinions on the Fannie/Freddie debacle known in this Monday morning interview with Bloomberg TV.

But first, a brief overview of the US government's latest plan (FT):

" Trading in Fannie Mae and Freddie Mac was volatile on Monday morning after the US government on Sunday night announced that it would seek unlimited authority from Congress to lend money to the troubled mortgage groups and invest in their equity.

The Federal Reserve said it would give Fannie and Freddie access to emergency funds on the same terms as banks, “should such lending prove necessary”.

It goes further than many market participants expected. In effect the government is seeking full discretion to inject both debt and equity into Fannie and Freddie, and take them over if necessary.

The Fed will act as a bridge by providing a backstop source of emergency finance in the interim while Congress passes the required legislation. "

And as Bloomberg notes, this latest and greatest "Paulson plan" will, "bring the U.S. closer to giving an explicit guarantee for the debt sold by the shareholder-owned, federally chartered companies."

"Paulson's proposal, which the Treasury anticipates will be incorporated into an existing congressional bill and approved this week, signals a shift toward an explicit guarantee of Fannie Mae and Freddie Mac debt. The shareholder-owned companies are government-sponsored enterprises, giving investors the indication of an implicit federal backing."

As noted above, investor Jim Rogers is less than thrilled with the plan, calling it "a disaster". Those of you who are US taxpayers, or holding dollars and dollar-denominated assets, might want to hear Jim's reasoning on this one.

" The U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac is an ``unmitigated disaster'' and the largest U.S. mortgage lenders are ``basically insolvent,'' according to investor Jim Rogers.

Taxpayers will be saddled with debt if Congress approves U.S. Treasury Secretary Henry Paulson's request for the authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac, Rogers said in a Bloomberg Television interview. Rogers is betting that Fannie Mae shares will keep tumbling.

``I don't know where these guys get the audacity to take our money, taxpayer money, and buy stock in Fannie Mae,'' Rogers, 65, said in an interview from Singapore. ``So we're going to bail out everybody else in the world. And it ruins the Federal Reserve's balance sheet and it makes the dollar more vulnerable and it increases inflation.''

Go straight to the source in the video above to hear more.