I think this is the beginnings of an economy based on perpetual growth and fossil fuel energy running headlong into geological energy constraints. Basically I see an undulatory downward path for the rest of my life. From here out, I think any rallies in our economic condition are going to be met with spiking commodity prices that knock us right back down.
Posted: Sun Sep 07, 2008 9:23 am Post subject: US government takes over Fannie and Freddie
Quote:
US financial officials have outlined plans for the government to take over the failing mortgage giants Freddie Mac and Fannie Mae.
The two companies account for nearly half of the outstanding mortgages in the US, and have lost billions of dollars during the US housing crash.
The most recent figures show about 9% of US homeowners were behind on their payments or faced repossession.
The federal takeover is one of the largest bail-outs in US history.
Joined: Sep 08, 2005 Posts: 764 Location: Atlanta, GA
Posted: Sun Sep 07, 2008 9:28 am Post subject: Re: US government takes over Fannie and Freddie
KevO wrote:
Quote:
US financial officials have outlined plans for the government to take over the failing mortgage giants Freddie Mac and Fannie Mae.
The two companies account for nearly half of the outstanding mortgages in the US, and have lost billions of dollars during the US housing crash.
The most recent figures show about 9% of US homeowners were behind on their payments or faced repossession.
The federal takeover is one of the largest bail-outs in US history.
So I guess this means that the stock market will go up 300 points tomorrow, right? _________________ Nowhere to run, nowhere to hide...
...and the meek shall inherit the Earth!
Joined: Aug 11, 2005 Posts: 818 Location: Eastern NC
Posted: Sun Sep 07, 2008 9:50 am Post subject: Re: US government takes over Fannie and Freddie
Oh boy! My government assumes 5 trillion dollars of debt in one day, wonder what my dollar will be worth the day after? Spend now, for tomorrow we crash?
Posted: Sun Sep 07, 2008 10:38 am Post subject: Re: US government takes over Fannie and Freddie
I wonder what Ron Paul would have done were he president?
$5 trillion! But, I see on CNN that Paulson does not see this costing the taxpayer anything. I assume he's got a giant silent asterisk after that remark with a few miles of tiny print detailing the assumptions. He will remember to describe it only when the deal soes sour later.
So, I guess the auto companies are likely are good to go with their $50 billion gift loan package, and of course we'll hear that this won't cost the taxpayer anything either.
Meanwhile our dumb Canadian Harper government is donating lending several hundred million dollars to Ford for upgrading a V8 engine plant. For sure, that seems like a real good job growth prospect in peak oil times.
It sounds pretty grim, but let’s think about that. Would the end of the current financial system really be so bad? The international financial system is now controlled by a network of private central banks that print national currencies and trade them with sovereign governments for government bonds (or debt). The bonds then become the basis for creating many times their value in loans by commercial banks. At a 10% reserve requirement, banks are allowed to fan $1 worth of reserves into $10 in loans, effectively delivering the power to create money into private hands. The price exacted by this private money-creating machine is compound interest perpetually drawn off the top, in a Ponzi scheme that has now reached its mathematical limits. The chief role of Fannie and Freddie has been to keep the Ponzi scheme alive by adding “liquidity” to markets, something they do by buying mortgages and bundling them together as securities that are then sold to investors. Old loans are moved off the banks’ books, making room for new loans, further expanding the money supply and driving up home prices.
Quote:
In the first half of the 18th century, the province of Pennsylvania completely funded its government without taxes or debt, through a publicly-owned bank that issued paper currency and lent it to farmers. The bank did not have to borrow capital before it made loans; it just created the currency on a printing press. The money was lent rather than spent into the economy, so it came back to the government in a circular flow, avoiding inflation; and interest on the loans was sufficient to fund the government’s operations without taxation. Such a public bank today could solve not only the housing crisis but a number of other pressing problems, including the infrastructure crisis and the energy crisis. (See E. Brown, “Sustainable Energy Development: How Costs Can Be Cut in Half,” webofdebt.com/articles, November 5, 2007).
Once bankrupt businesses have been restored to solvency, the usual practice is to return them to private hands; but a better plan for Fannie and Freddie might be to simply keep them as public institutions. In the August 8 London Tribune, British MP Michael Meacher proposed this alternative for Northern Rock, a major British bank that was recently nationalized after becoming insolvent. He wrote:
“[W]hen the banks have failed the public interest so badly and still even now continue to pursue so single-mindedly their commitment to privatise their gains whilst socialising their losses, would not a publicly owned bank be the most effective way of changing the current corrosive financial culture of short-termism, lower investment, house price inflation, and insider enrichment at the expense of systemic fragility for everyone else? Perhaps we should not return Northern Rock to the private sector after all.”9
Perhaps we should not return Fannie and Freddie either.
Posted: Sun Sep 07, 2008 11:49 am Post subject: Re: US government takes over Fannie and Freddie
Mark this day and remember it well. Today will be remembered as the day Capitalism critically failed and died. The button has been pushed. It may take a few days for the world to digest what just happened but the dollar will be dumped and the DOW will be down 1000s of points in the coming days.
Joined: Oct 23, 2004 Posts: 5928 Location: New Jersey
Posted: Sun Sep 07, 2008 12:06 pm Post subject: Re: US government takes over Fannie and Freddie
Novus wrote:
Mark this day and remember it well. Today will be remembered as the day Capitalism critically failed and died. The button has been pushed. It may take a few days for the world to digest what just happened but the dollar will be dumped and the DOW will be down 1000s of points in the coming days.
The immeadiate effect is very bad for many banks, being that they own many shares of F & F common and preffered.
Because of the losses those banks take, they will have to issue more stock to raise capital.
So the outlook is very bad for the financial sector, contrary to all the hype we've been hearing that the worst was over for that.
The only silver lining here is when the Fed starts issuing new money to facilitate the huge increase in government debt, some of that extra money will find its way in to stocks and commodities. _________________ It's already over, now it's just a matter of adjusting.
Joined: Feb 20, 2005 Posts: 2880 Location: Uppsala, Sweden
Posted: Sun Sep 07, 2008 12:45 pm Post subject: Re: US government takes over Fannie and Freddie
Novus wrote:
Mark this day and remember it well. Today will be remembered as the day Capitalism critically failed and died. The button has been pushed. It may take a few days for the world to digest what just happened but the dollar will be dumped and the DOW will be down 1000s of points in the coming days.
Bullshit. Banks and other financial companies have been nationalised to many times to remember and capitalism does all right, and definitely better than the alternatives.
So what do you do if the DOW does not go down thousands of points in the next few days? Eat your hat on Youtube?
As you are so sure of this, you have of course just sent massively leveraged orders to short the DOW? You'll be as rich as Warren Buffet in no time!
And really, who gives a crap about the stock market? Stock markets go up and down, that's what they do. Go take a look at unemployment and real median wages instead. _________________ Peak oil is not an energy crisis. It is a liquid fuel crisis.
Joined: May 30, 2008 Posts: 270 Location: On the highway, or the water somewhere!
Posted: Sun Sep 07, 2008 1:04 pm Post subject: Re: US government takes over Fannie and Freddie
Quote:
Then, last week, advisers from Morgan Stanley hired by the Treasury Department to scrutinize the companies came to a troubling conclusion: Freddie Mac’s capital position was worse than initially imagined, according to people briefed on those findings. The company had made decisions that, while not necessarily in violation of accounting rules, had the effect of overstating the firm’s capital resources and financial stability.
Indeed, one person briefed on the company’s finances said Freddie Mac had made accounting decisions that pushed losses into the future and postponed a capital shortfall until the fourth quarter of this year, which would not need to be disclosed until early 2009. Fannie Mae has used similar methods, but to a lesser degree, according to other people who have been briefed.
Freddie Mac and Fannie Mae have also inflated their financial positions by relying on deferred-tax assets — credits that the companies have built up over the years that can be used to offset future profits. Fannie maintains that its worth is increased by $36 billion through such credits, and Freddie argues that it has a $28 billion benefit.
But such credits have no value until the companies generate a profit — something they have failed to do over the last four quarters, and something that is increasingly unlikely within the next year. Moreover, even when the companies’ profits soared, such credits were often unusable because the companies also had large numbers of affordable housing tax credits, which themselves offset profits.
One analyst estimates the companies, in the future, would have to collect roughly double the profits of the past five years for the credits to become usable. Most financial institutions are not allowed to count such credits as assets in the manner used by Fannie and Freddie.
Regulators and auditors may question the companies’ use of deferred-tax credits because they cannot be sold to anyone else and they would disappear in a receivership. And, if those credits were not counted as assets, both companies would probably fall below the capital threshold they are required to hold.
Quote:
As a result, tens of thousands of loans that previously would have been marked down have maintained their value. The companies have injected their own capital into pools of securities, arguing that new business policies are helping greater numbers of borrowers.
Under conservative accounting methods, such a change in policy should not have any impact on the companies’ books. However, people briefed on the accounting inquiry said that Freddie Mac may have been using their new policy to delay recognition of losses.
“We have just had to nationalize the two largest financial institutions in the world because of policy makers’ inaction,” said Josh Rosner, an analyst at Graham Fisher, an independent research firm in New York, and a longtime critic of the government-sponsored enterprises. “Since 2003, when these companies’ accounting came under question, policy makers have done nothing. Even though they had every reason to know that the housing market’s problems would not be contained to subprime and would bring down the houses of Fannie and Freddie.”
_________________ Courtesy and Courage, Sincerity and Self-control, Honor and Loyalty...a Code to Live By!
Where is my wooden pitchfork and torch anyway? I may need them for a visit to the castle soon!
Last edited by the48thronin on Sun Sep 07, 2008 1:20 pm; edited 2 times in total
Posted: Sun Sep 07, 2008 1:06 pm Post subject: Re: US government takes over Fannie and Freddie
Quote:
Bullshit. Banks and other financial companies have been nationalised to many times to remember and capitalism does all right, and definitely better than the alternatives.
How about the entire mortgage system a five trillion dollar market. We aren't talking about some car company that only employs a few hundred thousand people or an airline we are talking about the entire mortgage system.
Well actually its been "nationalized" for the past year. FHLB and Fanne/Freddie (aka Fanron) have been providing 80% of the liquidity for the housing market. The US housing system isn't so different from the French system, or maybe France is more capitalistic?
The US has in effect decided to underwrite and guarantee a level of debt that exceeds all the Treasury debt that's outstanding. America has decided to bailout something that's issued more debt that the Federal government . In other words America has decided to bailout another America.
This sort of proposition is much bigger than anything any other country has EVER done before.
The real danger here is how does the US bail out Fanron. At somepoint if the US decides to simply give you dollars for your Fanron debt you could be talking about monetizing Fanrons obligations. If this happens the world would be flooded with dollars.
Who knows maybe investors just want a "guarantee" to feel better. Of course Fanron has a problem with duration risk because Fannie is lending to most borrowers for 15-30 years, but they're borrowing from anywhere between 2-30 years. A good deal of that debt needs to rolled over within 2-5 years. The problem here is that what Fanron can earn on its debt is capped, so if interest rates shoot up within the next 2-5 years Fanron will be paying more on its rollover than what its getting from its borrowers.
Although I am by no means an expert I can't see how this takeover won't be anything but a disaster. The government should just let Fanron implode and tell the private sector folks that they should pay for being such idiots in the first place.
Unfortunately our government can't stand the thought of a recession much less a depression(which is what would happen if it simply walked away from Fanron).
Fanron is simply impossible to fix(at least not without destroying the dollar) we should simply let it go down the tubes and start over so we can have our depression and simply get these problems over with.
Quote:
The only silver lining here is when the Fed starts issuing new money to facilitate the huge increase in government debt, some of that extra money will find its way in to stocks and commodities.
Independent finance houses said in an assessment Tuesday that annual inflation rose this month to 1,063,572 percent based on prices of a basket of basic foodstuffs.
Posted: Sun Sep 07, 2008 1:59 pm Post subject: Re: US government takes over Fannie and Freddie
I would guess as it stands at minimum 10% of the USD will be devalued in the next few months from monetizing the junk debt associated with Fannie and Freddie. This sets the stage for further devaluations, maybe another 10-20% or more of the currency will go if some serious circumstances come upon us within the next 6-12 months. Commodities and gold are favorable (and oversold) but will most likely go a bit lower before rallying as the price of oil continues to fall (which I predicted many months ago would happen during this time and will continue). It wont be until next year before the effects of this really start to manifest. We can say now that the government is taking an increasing amount of control over the housing market and will begin to decide where a certain portion of the population will live. I would bet the stock market will have some sort of artificial rally tomorrow followed by a series of down days and a lot of public reassurance and/or a foreign distraction. I would expect the market to level out or begin to rally in the next 1-2 months as we head into election time with further decreases in oil/gas. I'm keeping my eyes on gold as the opportunity is growing. _________________ Just look at us. Everything is backwards; everything is upside down. Doctors destory health, lawyers destroy justice, universities destroy knowledge, governments destroy freedom, the major media destroy information and religions destroy spirituality.
Posted: Sun Sep 07, 2008 2:24 pm Post subject: Re: US government takes over Fannie and Freddie
mmasters said:
Quote:
I would guess as it stands at minimum 10% of the USD will be devalued in the next few months from monetizing the junk debt associated with Fannie and Freddie. This sets the stage for further devaluations, maybe another 10-20% or more of the currency will go if some serious circumstances come upon us within the next 6-12 months. Commodities and gold are favorable (and oversold) but will most likely go a bit lower before rallying as the price of oil continues to fall (which I predicted many months ago would happen and will continue).
One thing here: the US government is taking on $6 trillion in assets, and their underlying assets are proposed to depreciate by at least another 40%. I don’t think the bond market is going to take this lying down! That will not set well for the rest of the equities market, or most likely the dollar!
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