Russia to invest in Fannie Mae, Freddie
Mac bonds
In
a development likely to be warmly-received by international finance and stock
markets, Russia announced Thursday it will buy Fannie Mae and Freddie Mac bonds
through its sovereign wealth funds, Russia's Finance Ministry said and Bloomberg News reported.
Russia will invest money from its Reserve Fund and National Wellbeing
Fund into 15 government bond funds in Europe and the United States, including
those in Fannie Mae
(NYSE: FNM)
and Freddie Mac
(NYSE: FRE).
Russia will also purchase government bonds in the U.K., Germany, France,
Austria, Canada, and the Netherlands, Bloomberg News reported.
Both Fannie, down 56 cents $29.27, and Freddie, down 80 cents to $27.94,
moved lower Thursday afternoon; however it should be noted that the declines
occurred during a broad market sell-off, with the Dow down 159 points to 12,267.
U.S.: subprime defaults weigh
Over
the past year, sovereign wealth funds have provided a needed infusion of
capital to investment-strapped U.S. corporations, many of which are in the
midst of trying to rebuild balance sheets following losses sustained during the
surge in subprime mortgage and related asset defaults. To-date, sovereign funds
have invested about $60 billion in the U.S., according to data compiled by the
U.S. Federal Reserve.
Further, part of that foreign sovereign fund wealth stems from increased
oil revenue, with oil-producing Russia being a classic example. A cash-strapped
country a decade ago when it had to default on its government bonds in 1998,
record-high oil prices and privatization have helped propel an economic boom in
Russia, including soaring hard, foreign currency reserves. Russia has amassed
more than $700 billion in foreign currency reserves as amid an economic
expansion that's featured a growing middle class, a thriving domestic
commercial sector, and broadening trade ties with the E.U. and China.
Russia's postmodern stance
http://en.wikipedia.org/wiki/Freddy_Mac
http://www.bloggingstocks.com/2008/02/21/russia-to-invest-in-fannie-mae-freddie-mac-bonds
The Federal
Home Loan Mortgage Corporation (FHLMC) (NYSE: FRE), commonly known as Freddie
Mac, is an insolvent[1]
government sponsored enterprise
(GSE) of the United States federal government
The FHLMC was
created in 1970 to expand the secondary
market for mortgages
in the US. Along with other GSEs, Freddie Mac buys mortgages on the secondary
market, pools them, and sells them as mortgage-backed securities to investors on
the open market. This secondary mortgage market increases the
supply of money available for mortgages lending and increases the money
available for new home purchases. The name, "Freddie Mac", was a
creative acronym of the company's full name that had
been adopted officially for ease of identification (see "GSEs" below
for other examples)
On September 8,
2008, Federal Housing Finance Agency
(FHFA) director James B. Lockhart III announced he had put Fannie Mae
and Freddie Mac under the conservatorship of the FHFA (see Federal takeover of
Fannie Mae and Freddie Mac). The action has been described as "one of
the most sweeping government interventions in private financial markets in
decades.
Moody's gave
Freddie Mac's preferred stock an investment grade rating of A1 until August 22,
2008 when Warren Buffett said publicly that both Freddie Mac
and Fannie Mae had tried to attract him and others. Moody's changed the credit
rating on rating that day to Baa3, the lowest investment grade credit rating.
Freddie's senior debt credit rating remains Aaa/AAA
from each of the major ratings agencies Moody's, S&P, and Fitch.[5]
As of the start of the conservatorship, the United States Department of
the Treasury had contracted to acquire US$1 billion in Freddie Mac senior
preferred stock, paying at a rate of 10 percent a year,
and the total investment may subsequently rise to as much as US$ 100 billion
Home loan
interest rates may go down as a result, and owners of Freddie Mac debt and the
Asian central banks who had increased their holdings
in these bonds may be protected. Shares of Freddie Mac stock, however, on
September 8, 2008 were worth about one U.S. dollar. On the same day the U.S dollar increased
in value compared to yen and euros. The yield on U.S Treasury securities rose in anticipation of
increased U.S. federal debt
LUCH 2008