But analysts warned that a bailout carries considerable risk for the government. The two lenders carry $5.2 trillion in mortgages on their books, dwarfing even the $2.9 trillion in spending budgeted for the entire federal government in fiscal 2008. Washington would essentially be betting that only a small portion of the agencies' mortgages will result in defaults in the months ahead, analysts said.
The bottom line is Freddie and Fannie have a combined portfolio value that is almost twice the size of the federal government's budget. Let's play this out a bit further and assume that only one of these companies needs help -- and more than a loan at the discount window. Where is the federal budget is the money coming from?
Also consider this:
Traders and analysts said the woes of IndyMac, once one of the nation's largest independent mortgage lenders, also underscored the possibility of meltdowns at regional firms that may be too small to merit a Bear Stearns-style intervention. Regulators are keeping tabs on the health of about 90 banks.
Shares of such companies were sharply lower Monday. Zions Bancorp dropped 23.2% and First Horizon National plunged 25.2%.
National City slid 14.7% despite issuing a statement that it "is experiencing no unusual depositor or creditor activity. As of the close of Friday's business, the bank maintained more than $12 billion of excess short-term liquidity." National City also said its capital position was strong after its recent capital raising.
.....
Other banks also saw big declines. Washington Mutual fell 34.8% and Wachovia dropped nearly 14.7%.
Investment banks also fell. Lehman Brothers Holdings, which has been battered in recent weeks, was down more than 12.2%. Merrill Lynch dropped nearly 6.3%. Morgan Stanley fell 5.1% and Goldman Sachs Group was down 2.3%.
Shares of M&T Bank slid 15.6% after the company reported a 25 % drop in second-quarter profit, missing analysts' expectations.
The firm's report was part of a series of earnings announcements due this week from financial institutions, with analysts expecting to see more write-downs and disclosures of bad credit bets. Reports are due Thursday from J.P. Morgan, Merrill Lynch, and Zions. On Friday, Citigroup will report. Overall, Wall Street expects the financial sector to lead a decline of over 13% in aggregate profits at S&P 500 companies for the second quarter, according to Thomson Reuters.
Expect more reports like this:
U.S. Bancorp posted a larger-than-expected 18 percent decline in quarterly profit due to mounting housing-related credit losses, and said that tough economic conditions will cause bad loans to increase further.
The results, from a bank that has avoided the massive credit losses afflicting many rivals, do not augur well for the rest of the nation's banks, many of which are expected to report dismal quarterly results this week and next.
U.S. Bancorp, whose shares fell nearly 7 percent in pre-market trading, is the sixth-largest U.S. bank and the first of the 10 biggest to report.
The entire financial sector is suspect right now -- not just IndyMac. Here are some charts to prove it:
Bank of America is tanking, as is
Citigroup
Lehman Brothers
Merrill Lynch
Wachovia and
Washington Mutual
For anybody that is saying:
-- Schumer caused the IndyMac failure, and/or
-- To keep buying those bank shares because they're cheap,
Please shut up. Schumer is an idiot of the highest order (isn't everybody in Washington?), but Indy Mac caused their own problems. And the financial sector is about to go through another round of writedowns caused by the mortgage mess. And this one won't be the last either. The Case Shiller index is still dropping hard. As prices of homes drop, the mortgages tied to those properties become less valuable. Hence, the owners of those mortgages must lower the estimated value of those mortgages leading to more and more writedowns.
