Chef Paulson Simmers Freddie and Fannie

Simmering is a cooking technique in which foods are cooked in hot liquids kept at or just barely below the boiling point of water (at average sea level air pressure), 100°C (212°F). To keep a pot simmering, one brings it to a boil and then adjusts the heat downward until just before the formation of steam bubbles stops completely. Water normally begins to simmer at about 94°C (200°F).

Treasury Secretary Paulson is in the kitchen and Frannie and Freddie are in the pot. As Wall Street watches Freddie and Fannie simmer, no sane investment banker, money manager or private equity firm will buy an equity position in these GSE's until it is clear how Chef Paulson plans to serve his dish.

Charles Duhigg and Vikas Bajaj at NYT explain:

Anxiously awaiting a move by the Treasury Department and spurned by large investment firms, Freddie Mac and Fannie Mae find themselves unable to raise capital and with little ability to maneuver.

Treasury officials have reviewed multiple plans for intervention, according to people who have spoken to top Treasury officials. But they have not identified a set of triggers that will compel a government bailout. Nor have they indicated to Freddie Mac or Fannie Mae executives when a bailout may occur or what form it may take.

As a result, investors are telling Freddie Mac and Fannie Mae that they remain unwilling to purchase new shares in the firms.

“We’re in a Catch 22,” said an executive with one of the mortgage firms who was not authorized to speak to the media. “As long as there is uncertainty over Treasury’s plan, we can’t raise money, and as long as we can’t raise money, there’s going to be more and more speculation about Treasury’s plan.”...

As speculation mounts about if and when the government will intervene, Treasury Secretary Henry M. Paulson Jr. has declined to discuss with the companies or other outsiders how a bailout might look. People close to Mr. Paulson and other Treasury officials say those policy makers are constantly taking the temperature of market participants, and will act when they think that confidence has eroded to the point that it damages the firms’ capacities to buy and sell mortgages.

Make no mistake. When Paulson moves Freddie and Fannie from the pot to the platter, it will signal the beginning of a feast. Champagne will flow, grapes will be dropped into the mouths of invited guests by exotic women and money will be made, lots of it.

It will be interesting to see who is on the guest list, but rest assured it won't be you or me.