IndyMac, Freddie, Fannie, & Feds (BSC anyone?)

It's been awhile (read: less than 6 months) that the Feds have had to release an emergency news update regarding Freddie Mac and Fannie Mae discount mortages.

After all, if you ran a business and you made a wrong decision and bought red wine when your clients preferred white wine... is anyone going to bail you out with taxpayer's money when you go out of business?

Apparently, in socialist America - Sunday night is when companies like FNM and FRE does. Long live capitalism?

Associated Press

Monday July 14, 7:17 pm ET By Martin Crutsinger and Alan Zibel, AP Business riters

WASHINGTON (AP) -- Now that the federal government has thrown a lifeline to mortgage giants Fannie Mae and Freddie Mac, taxpayers could be on the hook for billions more if the crisis of confidence spreads.

There were encouraging signs Monday for the rescue plan, but also signs of concern -- notably on Wall Street, where shares of the two companies slumped further -- that the plan won't be enough.

Other banks are already teetering: National City Corp. shares fell nearly 15 percent on rumors of financial trouble, even though it said it was experiencing no unusual depositor or creditor activity. And Washington Mutual Inc.'s shares fell 35 percent, to a paltry $3.23 amid worries about whether it had enough cash to handle the mortgage market downturn. WaMu said that it did.

And worried customers lined up Monday to pull cash out of their accounts at IndyMac Bank, seized on Friday by the federal government.
Some critics said they fear the Fannie-Freddie rescue effort will make more bailouts inevitable by sending a message that some institutions are too big to fail and thus encouraging risky behavior.

"It sends the wrong message to the world," said Joshua Rosner, managing director of research firm Graham, Fisher & Co. in New York.

One of the worst fears of any banker is what happened over the last year to a bank called IndyMac - a large retail chain of banks in the eastern US states. It traded around $30/share last year... last Friday it closed at a paltry $0.15.

FIFTEEN CENTS. That's less than many of the quality penny stock juniors on the TSX.

Funny enough, almost akin to BSC's announcement on the fated Wednesday before its weekend collapse, Indymac denies it's going to collapse.

Battling rumors that it may collapse, Pasadena-based IndyMac Bancorp
acknowledged Monday that its financial position had deteriorated but described
the fears as overblown and said it was working with regulators to improve its
"safety and soundness."IndyMac, a national home lender burned by the mortgage
meltdown, went public after depositors lined up at San Gabriel Valley branches
starting Friday to pull out their money. Striving to reassure them, the thrift
said nearly all their deposits were insured by the Federal Deposit Insurance
Corp.

Nonetheless, Elizabeth Brown closed four accounts totaling $200,000 Monday at an Arcadia branch where about 20 customers were lined up at noon, saying: "The only reason I'm panicking is if anything happens, my money is tied up.

"I don't want to take the chance," said Brown, 62, of Temple City. "I'm going to put my money somewhere else, and if they come back, I'll come back."Rick McPherson, 64, said he grew worried after hearing news reports that IndyMac was struggling, and withdrew $1,000 he had at IndyMac. "I'm not certain what happens when a bank fails," said McPherson, a printer from Arcadia. "I don't trust the economy right now."

The company's stock sank 19 cents Monday to close at 62 cents a share. The shares are down 90% this year.IndyMac, which had specialized in making -- then often selling -- jumbo mortgages, sub-prime loans and mortgages with little or no income verification, was hit hard last year when defaults caused the market for such nontraditional loans to collapse. It has since recast itself as a maker of loans that can be sold to government-sponsored loan buyers Fannie Mae and Freddie Mac, but its May loan production, at $2 billion, was down 72% from a year earlier.

The above is the single biggest fear of any banker - bank runs.

A bank run (also known as a run on the bank) is a type of financial crisis. It
is a panic which occurs when a large number of customers of a bank withdraw
their deposits because they fear it is, or might become, insolvent. This action
can destabilize the bank to the point where it becomes insolvent. Banks retain
only a fraction of their deposits as cash (see fractional-reserve banking): the
remainder is invested in securities and loans. No bank has enough reserves on
hand to cope with more than the fraction of deposits being taken out at once.

After all, no matter how sophisticated an investor you are - at the end of the day all that zero and numbers in your online banking / brokerage account is just that - a figure. What does it equal? A whole bunch of treasury bills backed by a soon-defunct government? Dollar bills that the Feds are using freely to bail out multi-billion dollar errors greedy execs made?

No wonder USD is going down and trending down further. (see graph at top)

Of course, those of us in the precious & base metal companies will know that this long term erosion of dollar will mean more sunny skies for gold, copper, zinc, & various metal producers and explorers (lag behind).

Kinross Gold (KGC) is one of my personal favorites. It's up nicely today on further news of USD inflation and free money printing by the Feds for unjustified bail outs.

http://finance.yahoo.com/q/ta?s=KGC&t=1y&l=on&z=m&q=c&p=e200,b&a=r14,m26-12-9&c=

Kitco's Gold prices is up to $970/ounce. Remember last month when it hovered around $890?

http://www.bloomberg.com/apps/news?pid=20601012&sid=a2Bq4RVCKg0c&refer=commodities

I'd pick up the juniors and profitable producers now... USD is rapidly deteriorating and no improvements in sight. When fiat currency isn't worth anything, would you rather have something that has intrinsic value (gold) or can be used to build something (copper / moly)... or portraits of past Presidents?