They are Killing You, But You Keep Voting for Them

Vice President Dick Cheney said Russia's military action in Georgia and assertiveness elsewhere run the risk of confrontation with the North Atlantic Treaty Organization military alliance. "Our principles are being tested anew," Cheney said in prepared remarks today at a global security conference in Cernobbio, Italy. "We must meet those tests with candor and resolve and, above all, with unity. Russia has a choice to make, and we in the trans-Atlantic alliance have responsibilities."

While Cheney made no specific threats of retaliation, his message to Russia was a blunt reminder of the alliance's mutual defense accord among the 26-member nations against threat from outside forces. Cheney spoke at a global forum, capping a three- day visit with leaders of Azerbaijan, Georgia and Ukraine, U.S. allies in the former Soviet Union. Cheney accused Russia of "bullying others" while using its oil wealth to fuel its own economic progress. "They cannot presume to gather up all the benefits of commerce, consultation and global prestige, while engaging in brute force, threats or other forms of intimidation against sovereign countries."

Treasury set to bail out Fannie Mae, Freddie Mac...

The Treasury Department is expected to announce as early as this weekend a plan to bail out and recapitalize collapsing home mortgage giants Fannie Mae and Freddie Mac in one of the biggest government rescues in U.S. history.

Such a plan would end a long downward spiral for the firms, which the government created to help expand home ownership and provide a secondary market for home loans.

Rep. Barney Frank (D.-Mass.) confirmed in a statement Saturday that Treasury Secretary Henry Paulson is set to put the federal government in control of the two troubled mortgage owners. But Frank, who is chairman of the House Financial Services Committee, said he had no details on the intervention plan. Officials at the Treasury Dept. could not be reached for comment.

According to media reports citing unnamed sources close to the negotiations, the government is expected to take at least temporary control of Fannie Mae and Freddie Mac and place the troubled firms under the umbrella of the Federal Housing Finance Agency.

Fannie Mae Chief Executive Daniel Mudd and Freddie Mac CEO Richard Syron are expected to leave their positions soon after the federal bailout is complete.

War of words escalates between Russia & US...

Russian President Dmitry Medvedev on Saturday accused the United States of rearming Georgia under the guise of humanitarian aid, following the arrival of a US Navy flagship in the Georgian port of Poti. "The rearming of the Georgian regime is continuing, including under the guise of humanitarian assistance. They've sent a whole fleet to provide humanitarian assistance," Medvedev told top officials at a Kremlin meeting. "I wonder how they would like it if we sent humanitarian assistance using our navy to countries of the Caribbean that have suffered from the recent hurricanes," Medvedev said in toughly-worded comments.

The war of words between Russia and the United States has intensified with Moscow questioning why Washington chose one of its most sophisticated warships, the USS Mount Whitney, to transport aid to Poti. Since bombing the Black Sea port last month during the war with Georgia, Russia has deployed troops at checkpoints near the strategically important port, who patrol in the town from time to time. "Russia is a state that has to be reckoned with from now on," said Medvedev. "We have lived a moment of truth.... The world changed after August 8 this year," he said, referring to the date Russian troops entered Georgia at the start of a conflict over the Georgian separatist province of South Ossetia.

The US State Department on Friday rejected earlier Russian criticism of the US aid deliveries, saying the Mount Whitney was carrying only humanitarian assistance including blankets, juice, nappies and hygiene products. "There's absolutely no foundation to this Russian charge," said deputy spokesman Robert Wood. Russia has said US ships in the Black Sea are in breach of an international pact limiting naval deployments in the area. Medvedev's speech came after a visit to Georgia this week by US Vice President Dick Cheney, who promised one billion dollars (690 million euros) in aid and accused Russia of an "invasion" aimed at redrawing the map of Georgia.

"After your nation won its freedom in the Rose Revolution, America came to the aid of this courageous young democracy," Cheney told Georgian President Mikheil Saakashvili on Thursday, referring to a 2003 popular uprising. "We are doing so again as you work to overcome an invasion of your sovereign territory and an illegitimate, unilateral attempt to change your country's borders by force that has been universally condemned by the free world."

The stand-off between Russia and the West over the Georgia crisis has been sharpened by the arrival of several foreign military vessels in the Black Sea, a deployment that Russia sees as a form of intimidation. Medvedev on Saturday described the aid deliveries to Georgia as "political pressure" being exerted on Russia by the West. RIA Novosti news agency quoted an unnamed Russian intelligence officer saying there were currently a total of seven military ships belonging to Germany, Poland, Spain and United States in the Black Sea. "The fleet of NATO ships has basically been deployed in all the key points of the Black Sea. They are only missing in areas where Russia's Black Sea fleet is operating," the intelligence officer was quoted as saying.

Russian troops poured into Georgia last month to repel an attack by the Georgian army aimed at retaking South Ossetia from Moscow-backed separatists. Moscow says it was protecting Russian citizens from the Georgian assault. Western countries have called on Russia to withdraw its remaining troops from Georgia immediately and have condemned Moscow's decision to recognize the independence of South Ossetia and Abkhazia, another rebel province of Georgia.

Don't Say You Weren't Warned...

It looks like Fannie Mae's and Freddie Mac's tenure as public companies is drawing to a close. Yves Smith at Naked Capitalism (one of my daily must-reads) has put together a helpful overview of the latest (breaking) developments in "NY Times: Fannie, Freddie Nationalization (aka Conservatorship) Imminent":

Guess the powers that be were unwilling to risk playing chicken with the markets and losing.

So much for the theory espoused by some that the government couldn't put the GSEs into custodianship absent a breaching of statutory minimums (technically, by being insolvent under the "fair asset" valuation method, Freddie is already on plenty thin ice). Nevertheless, this is quite a Friday night bombshell, particularly since the plan, as the Times appears to have garnered a few more details beyond the initial reports, is not minimalist (say an preferred equity purchase with no management changes). Conservatorship officially makes the GSEs wards of the state.

However, the rumors have not yet converged on the shape of the plan, The New York Times says that not only would the existing chiefs and likely the board will be given the heave-ho, but that the preferred shareholders would suffer as well as the common equity holders (note the details of the recapitalization were not reported). That was surprising and may not be correct. Most observers had assumed that preferred shareholders would be spared, since many banks hold significant slugs of Freddie and Fannie preferred, and a big writedown would be a direct hit to the bottom line.

A report from the Washington Post gives a skeletal outline of the financial and legal arrangement; the Times has a more background (note the post has been updated to include the WaPo information and reflect the divergence of reports). Per the Times, a formal announcement is expected before the Asian markets open Sunday.

From the Washington Post:

The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives, and use government funds to prop them up, government officials told the two companies yesterday, according to sources familiar with the conversations.

Under the plan, the federal government would place the firms in a legal state known as conservatorship, the sources said. The value of the company's common stock would be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, would be protected by the government.

Instead of giving each company a big capital infusion up front, the government plans to make quarterly infusions as the companies' losses warrant, the sources said. This would be an attempt to minimize the initial cost of the rescue.

From the New York Times:

Senior officials from the Bush administration and the Federal Reserve on Friday informed top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, that the government was preparing to seize the two companies and place them in a conservatorship, officials and company executives briefed on the discussions said.

The plan, effectively a government bailout, was outlined in separate meetings that the chief executives were summoned to attend on Friday at the office of the companies' new regulator. The executives were told that, under the plan, they and their boards would be replaced, shareholders would be virtually wiped out, but the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.

It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation's history....