LOLFED

It’s a bird! It’s a plane! It’s a BAILOUT!

Fed and Treasury agree to buy up preferred stock from Fannie Mae and Freddie Mac, buy some more mortgage backed securities, and basically toss money left and right into the crappy MBS market because awww, banks who own this crap are on the verge of meltdown:

The agencies believe that, while many institutions hold common or preferred shares of these two government-sponsored enterprises, a limited number of smaller institutions have holdings that are significant compared to their capital.

Where’s the common going? Oh, I don’t know, probably zero. Because we’re putting the big fish first.

“While conservatorship does not eliminate the common stock, it does place common shareholders last in terms of claims on the assets of the enterprises,” Paulson said. “Similarly, conservatorship does not eliminate the outstanding preferred stock, but does place preferred stock shareholders second, after the common shareholders, in absorbing losses.”

What will it cost? Who knows. Depends on the default rate. Where is that going? Who knows. Probably higher, though. As a US taxpayer, I guess this makes me now a slumlord.

EDITED TO ADD: As I just explained Fannie and Freddie’s mechanisms to a friend, I think I will put the explanation I gave her here in case anyone else needs it –

Basically it works like this: A bank makes a mortgage loan. Then, the bank can sell it to Fannie/Freddie. Then they use the $$ they get from selling it to make more loans. Repeat many many times.

Fannie and Freddie bundle all those mortgages they are buying into a mortgage backed security (MBS). Then F&F sell those MBSes - to other banks, to mutual funds, to anyone who is buying basically. And the content of some of those MBSes really sucks because houses are devaluing and people are defaulting and nobody wants MBSes anymore bc we don’t know how bad they really are. Fed and Treasury bought a bunch of MBSes too, trying to stabilize this market.

And yep, the banks do own F&F stock, too, lots of it. JPMorgan is one of the biggest owners of that preferred stock. This announcement was really kinda two pronged. Fed/Treasury are trying again to stabilize the MBS market by buying up some MBSes and are hopefully under conservatorship trying to stop the banks’ investments in F&F from going to 0. The common stock that Joe Average can buy is probably going to 0 though, Paulson reaffirmed it is dead last in priority.

You were hoping for nasty, brutish and short? Allen Sinai says expect long, wide and deep:

From Bloomberg: The U.S. economy shrank at the end of 2007 and grew less than forecast in this year’s second quarter, signaling that the country is in worse shape than investors had anticipated.

“We’re in a recession,” Allen Sinai, chief economist at Decision Economics Inc. in New York, said in a Bloomberg Television interview. “It’s going to widen, it’s going to deepen.”

The last time the economy contracted was in 2001. It may weaken further as the temporary boost from tax rebates, which aided a pick-up in gross domestic product last quarter from the previous three months, fades. Stocks dropped, Treasuries rallied and traders reduced bets that the Federal Reserve will raise interest rates this year.

Stolen but we loved it. Thanks Jess! Click for fullsize.

PASADENA, California (Reuters) - Hundreds of worried IndyMac Bancorp Inc customers descended on the company’s branches on Monday to withdraw their money, after regulators seized what was once one of the largest mortgage lenders in the United States. At a branch at IndyMac’s headquarters, customers began arriving at 4 a.m., five hours before the doors opened.

Some wags have blamed Charles Schumer’s less than reassuring comments for the trickle of funds out of IndyMac in the days prior to its demise. Of course, it takes a good Northern Rock-style FAIL to bring ‘em out in droves.

IndyMac Bancorp Inc., a prolific mortgage specialist that helped fuel the housing boom, was seized Friday by federal regulators in one of the largest bank failures in U.S. history.

The Pasadena, Calif. thrift was one of the largest savings and loans in the country with about $32 billion in assets. It now joins an infamous list of collapsed banks, topped by Continental Illinois National Bank and Trust Co., which failed in 1984 with $40 billion of assets.

Alt-A takedown.

Always room for one more on the failboat…

Serious traders with a day job are probably scrambling for their DVR remote right about now, as CNBC has made the decision to cancel the 8pm EST rerun of Fast Money (the only show on the network where you might get info worth trading on) and replace it with a nightly installment of Suze Orman’s preachy middle-class-debtor financial advice on expelling your financial demons or whatever the hell.

Last night’s episode of Suze was on while I was at the gym and I peeked over just long enough to see a ‘case study’ where someone had a $20K car loan (but respectable other income and assets) and wanted to buy a $2K tag heuer watch. I would’ve said pay off the depreciating asset sitting in your driveway, but Suze gave the watch the nod, maybe because the economy needs her to encourage a little spending right about now.

YRC swears that they are moving things about the country, but FedEx, not so much. A dismal report from FDX this morning combined with some fresh dilution and dividend-chopping from Fifth Third Bank (FITB) is making it look like another fine day to have sold LAST May and gone away.

I’m surprised Ceiling Cat didn’t drop in to check out this map of fail hotspots.

Bernanke spoke yesterday at Columbia b-school on the relative levels of mortgage fail in different areas of the US, differing causes, and what can be done to stop it. He pointed out that epic mortgage fail in areas such as the Midwest is more job-related, while in the South and West it’s more likely in cases where someone is suddenly $100K+ underwater on some no-doc ARM that readjusted or something. And, of course, he wants the FHA to help distressed borrowers, Congress to give more latitude to Fannie and Freddie, and those lenders to raise capital.

“Doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It’s in everybody’s interest,” he said.

…and to make it KIND OF LOLFed related, I’ll tell you it’s not the credit crunch - this one did not fall through because of the financing! Despite a 10% runup on Friday from investors who thought it was really gonna happen at a sky-high price, Microsoft walked away from Yahoo this weekend.

As an investor, I now think MSFT is an okay buy (couple reasons: they will either get YHOO at a bargain bin price and thus finally have some presence in search, or, at the very least, they are better off for NOT overpaying on this one). I think YHOO will open close to where it was before MSFT made the offer, but not AS low, since the Google deal they’ve put in place since has to be worth something. Yang should be lambasted by investors, and I bet a lot of little guys playing along at home got burned playing arbitrage on this one, too.

(Click on the Lolrus to read his commentary [at YuppieJournal])

The NY Fed is now offering an interactive map of counties in the United States and their relative rates of subprime/Alt-A/defaulted/abandoned/whatever mortgages.

Your truckload of subprime fail has arrived, indeed.