Will PIMCO buy Fran and Fred?

[westerebus]

I've wonder why PIMCO got out of Treasuries. After they had bought and sold GSE/MBS paper. I suspect they intend to buy a fair portion of Freddie and Frannie MAC. This purchase would form the basis for the replacement corporation, one of five corporations in a proposed bill in the Congress, for the GSEs Fred and Fran. That what they are engaged in is arm twisting to get the terms they want. Not to mention a discount on what they will buy and favorable terms on any interest on any loans they might take to complete the deal. A regulation tweak or two included.

Why take a risk in the bond market when you can own the mortgage market with government guarantees on the securities they get to sell? Which would be why they bought GSE/MBS paper to see what was in there. And they got paid to do so. Thank the Bernank.

They move into Treasuries and sell back to the FED and pick up some extra capital in the process of assisting the FED QE the can down the road. Then there's all this ranting about cutting debt and default and debt ceilings and reforming social security and medicare. Have you ever heard the expression one hand washes the other? Bill Gross has.

This may never happen. If it does, then you heard it first. If I'm wrong, that would be idle speculation on my part.

[leveymg]

1. Isn't PIMCO really just the US arm of ALLIANZ, owned by German and Arab banks?

Do the housing GSEs have sufficient real equity to make this sort of massive move worthwhile, or is there still so much froth and foreclosures left in that market so that residential RE values won't rebound for a long time to come? Or, maybe you know something that we've missed? Sincere questions.

[westerebus]

2. Does it matter who owns them?

Was Allianz on the payout list of AIG/the FED?

If the GSE's claim their equity is Y and you say no it's really Y-A in California, Y-B in Florida, Y-C in Arizona, and down the list, wouldn't you want as much leverage as possible to get the GSE's to come to terms?

No one pays retail. If you know what I mean.

[leveymg]

3. Foreign holders of residential real estate in the US are less likely to to modify distressed loans,

more likely to foreclose. At least, that's my impression.

Allianz's bid to buy AIG two days before the Fed took over the company in 2008 was rejected. Allianz also showed interest in buying the company's Japanese subsidiary.

If what you're saying is true, Allianz has not given up on taking over the US residential real estate market and much of the still depressed Japanese holdings. What value do they see in it? Still seeing unrealized Pangloss Value and further bailouts?

[westerebus]

4. Modification hasn't worked out as planned.

That's what I see. The banks aren't interested. Is there any thing pending to correct this?

I'm not aware of any thing, then again Frank-Dodd is still in the fill in the blanks process of the regulators, that's going to take longer and longer as lobby pressure and deal making by k street does the heavy lifting for the FIRE industry. Presidential election anyone?

There is the line named 'other' in the FED payout for AIG that lists 4,100,000,000. Do you know who 'other' is?

To come back to Fred and Fran, they are going to be sold into the market. If the IMF gets to tell countries they must sell their water rights, what prevents our Congress from selling Fred and Fran on a voluntary basis.

I'm not so sure that glassy-eyed optimism in the RE market is a driver. It is not altruism that's paying the band and bar tab.

[leveymg]

5. "Other" $4.1 billion may be connected with this $4.1 billion

John Appel in Seeking Alpha, http://seekingalpha.com/article/111345-aig-s-bond-sale-is-no-cause-for-celebration

While the (Maiden Lane) transaction is a means of financing AIG’s securities lending payables, it is part of the bailout plan and does not provide any capital beyond that anticipated in the bailout. In fact, it provides somewhat less. The illustration in AIG’s November 10th 10-Q (1) filing shows a purchase price of $23.5 billion, based on fair market values on September 30th. The actual transaction was based on lower values as of October 31st, and the purchase price was $19.8 billion instead of $23.5 billion.

In my previous analysis, I assumed, based on the 10-Q disclosure, that $23.5 billion would cover substantially all of the securities lending payables, and the financing would provide $22.5 billion, leaving $1 billion to be paid by AIG. In the final deal, these payables required $24.9 billion – the $19.8 billion of sale proceeds plus a $5.1 billion capital contribution from AIG. In other words, the final deal required an additional $4.1 billion from AIG.

The real bad news here is not that the value of these RMBS securities fell by $3.7 billion, or 15.7%, in one month; nor is it that AIG had to contribute $4.1 billion more to wind down its securities lending business. The bad news is that until the deal was finalized, the NY Fed had the ability to make it a more effective tool for saving AIG, and now that chance is gone.

Banks hate loan modifications, particularly if the government isn't going to pay then 110 cents on the dollar to to do them. I imagine that aversion particularly applies to foreign direct investments in the U.S.

[westerebus]

6. So you thought is now is not a good time for them to buy?

Thanks for the info on the $4.1 billion.

The EU banks aren't very happy with their own back yard.

May be we are more accommodating?

[leveymg]

7. You'd have to be betting that the US economy and employment are going to improve

Otherwise, the demand won't be there to pull the residential housing market out of the shitter. There are still a large volume of foreclosures in the pipeline, and that's a force that will continue to drag it down. I wouldn't rule out another round of bail-outs, of course - Congress and the Admin. are capable of giving away just about everything to big institutions if they're given enough, uh . . . incentive.

[orangeapple]

8. everyone hates loan modifications

If you put $100,000 in the bank and they offered to let you take back only 60% or 80%, would you? Or would you reach for the 'federal guarantee'?

The banks borrowed money to lend it. If they sold debt @5% so they could make you a loan at 8%, a 'modification' to 4%, or change in the principal balance, essentially means they have to pay you for you to buy a house. I can understand why they balk.

The surviving institutions have decided they can slow drip their way out the mess on their balance sheets. We'll see.