Morgan Stanley Hired Gun after the GSE's?

Henry Merritt "Hank" Paulson Jr. (born March 28, 1946) is the United States Treasury Secretary and member of the International Monetary Fund Board of Governors. He previously served as the Chairman and Chief Executive Officer of Goldman Sachs, one of the world's largest and most successful investment banks.

To many Paulson distinguished himself from his two predecessors in the Bush administration by formally identifying the wide gap between the richest and poorest Americans as an issue on his list of the country's four major long-term economic issues to be addressed, highlighting the issue in one of his first public appearances as Secretary of Treasury.

He also helped to create the Hope Now Alliance to help struggling homeowners during the 2007 subprime mortgage financial crisis. The Hope Now Alliance is a cooperative effort between the US government, counselors, investors, and lenders to help homeowners who may not be able to pay their mortgages.

The main criticisms we have with the Alliance are based on the fact that it has not been effective at addressing the increasing problem of foreclosures in the United States, with recent figures indicating that the rate of foreclosures rising faster than the increase in homeowners helped.

WE ARE LOOKING AT 4 MILLION BAD LOANS THATS OVER 30 MILLION AFFECTED AMERICANS!!

It has also been noted that the majority of assistance provided by the Alliance has been to establish repayment plans, rather than actually modifying the terms of the mortgage. For this reason we support a modified National Community Reinvestment Coalition (NCRC) Homeowners Emergency Loan Program (or HELP Now) program for a million bad loans in 50 regions.

Fact: Today, as home prices decline and foreclosures mount, one of the big questions facing policymakers is what to do with Fannie Mae and Freddie Mac, which provide crucial funding for mortgage lenders.Together, they own or guarantee $5.3 trillion of mortgages and securities backed by mortgages out of a total market of a little over $12 trillion dollars.

Fannie Mae was first chartered by the U.S. government in 1938 to help ensure a reliable and affordable supply of mortage funds throughout the country. Today it is a shareholder-owned company that operates under a congressional charter. Like Freddie Mac, safety and soundness oversight is assigned to OFHEO and mission oversight is assigned to the U.S. Department of Housing and Urban Development.

Freddie Mac was chartered by Congress in 1970 as a private company to likewise help ensure a reliable and affordable supply of mortgage funds throughout the country. Today is is a shareholder-owned company that operates under a congressional charter. Like Fannie Mae, safety and soundness oversight is assigned to OFHEO and mission oversight is assigned to the U.S. Department of Housing and Urban Development.

Background: Analysts at Citigroup, Merrill Lynch, and Goldman Sachs since mid-August have issued reports saying the companies had plenty of capital to operate for the near term, and both companies have successfully rolled over debt on schedule in the meantime.

However, the major credit rating companies since August 22 all cut their ratings on preferred stock of the two GSEs on expectations that the share price declines had cut access to capital, increasing the need for emergency financial support.

The companies never lost their access to capital markets where they raise money to support the U.S. housing market, but the biggest buyers of the debt have grown more cautious.

Foreign central banks reduced their holdings of "federal agency" debt in custody at the Federal Reserve in the past week for the seventh week in a row, suggesting a growing aversion to the debt.

Bush Administration Action: Friday, the Treasury said it was "making progress on our work" with Morgan Stanley, the Fed and the companies regulator the Federal Housing Finance Agency and headed by Director James B. Lockhart III . The Treasury had hired Morgan Stanley

on August 5 to advise it on whether the companies were adequately capitalized and help it determine how it would use its new powers to support them.

"These entities are so big and they're so tied into the housing market that it's probably true that we have to take steps to make sure they dont just collapse," Democratic presidential nominee Barack Obama said at a rally in Terre Haute, Indiana. "Because the housing market, which is already weakened, would be in even worse shape it we didn't take some steps."

Paulson called Obama on Friday night to brief the Democratic candidate and Obama discussed the situation on Saturday with his economic advisers, including former Fed Chairman Paul Volcker, a campaign official said.

Separately, an economic adviser to Republican presidential hopeful Sen. John McCain said Paulson had briefed McCain on the situation over the phone on Saturday morning.

The adviser, Douglas Holtz-Eakin, said the Arizona senator would support a short-term solution that would keep any trouble at the two companies from spreading further to financial markets. "Over the long haul he believes we should downsize and privatize them so that they're not a risk to the American taxpayer," he said.