Friday, February 04, 2005

The Cracks Begin to Appear

Fannie, Freddie regulator seeks power to close
companies; legislation begins moving in Congress

By Robert Schroeder
Thursday, February 3, 2005

WASHINGTON -- The federal office that regulates Fannie Mae and Freddie Mac is seeking authority to close the giant mortgage finance companies in the event of a financial crisis, as legislation toughening rules on the firms begins to make its way through Congress.

"Receivership is a valuable thing," Patrick Lawler, chief economist of the Office of Federal Housing Enterprise Oversight, told a forum about Fannie Mae and Freddie Mac on Thursday. Receivership refers to the ability of a regulator to settle the affairs of a business or to manage a corporation during reorganization.

Lawmakers and the Bush administration have their sights set on both Fannie and Freddie as the legislative year begins. Both companies, which pump millions of dollars into the mortgage market, have weathered accounting scandals recently, with two of Fannie's top executives resigning over a massive earnings restatement. The company may have to record a loss of $9 billion and it is still being investigated by the Justice Department and the Securities and Exchange Commission.

Meanwhile, legislation is beginning to move through Congress. Republican Sens. Chuck Hagel of Nebraska, Elizabeth Dole of North Carolina, and John Sununu of New Hampshire have co-authored a bill that would create a receiver for Fannie and Freddie, as well as allow for higher levels of capital at both institutions. The senators are members of the Senate Banking Committee, which has scheduled a hearing about Fannie and Freddie for Feb. 10. Assistant Secretary of Housing John Weicher is scheduled to testify. The Office of Federal Housing Enterprise Oversight is part of the U.S. Department of Housing and Urban Development.

Separately, chief Securities and Exchange Commission accountant Donald Nicolaisen will testify before a House Financial Services subcommittee about his determination in December that Fannie Mae broke accounting rules. Meanwhile, a coalition of 37 federal, state, and local groups urged the federal government and Congress to cut ties with Fannie and Freddie Thursday. Warning that Americans are threatened by a potential taxpayer bailout of the two companies, the groups recommended privatizing both.

Russia Ends De-Facto Dollar Peg;
Moves to Align Rouble with Euro

By Steve Johnson
Financial Times
Saturday, February 5, 2005

LONDON -- Russia said yesterday it had abandoned efforts to tie the rouble's movement closely to the dollar and switched to shadowing both the euro and the US currency.The move heightened expectations that other countries operating de-facto dollar pegs, such as China, could follow suit.With 81 percent of Russia's oil exports currently sold to Europe, the move also provoked fresh speculation that Russia could decide to denominate its oil in euros. Russia is the world's second-largest oil exporter, behind Saudi Arabia.

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