Ticking Time Bomb, May 2009: Fannie Mae Liabilities

Decades from now the summer of 2008 will likely be remembered as the turning point where legislative blundering took an otherwise serious financial crisis and molested it into an epic financial collapse.

By fully assuming the liabilities of Fannie Mae (FNM) and Freddie Mac (FRE), the two colossal and corrupt (and conduit of corruptness funneling junk Countrywide Financial (BAC) loans onto the implied balance sheet of the federal government) government sponsored enterprises, the federal government, led by Treasury Secretary Paulson and Federal Reserve Chairman Ben Bernanke, has thrust taxpayers into an abyss of insolvency with one mighty shove.

Given the sheer size of these government sponsored companies, with loan guarantee obligations recently estimated by Federal Reserve Bank of St. Louis President William Poole of totaling $4.47 Trillion (That’s TRILLION with a capital T… for perspective ALL U.S. government debt held by the public totals roughly $4.87 Trillion) this legislative reversal is making certain the “implied” government guarantee is reckless to say the least.

The following chart (click for larger ultra-dynamic and surf-able chart) shows what Fannie Mae terms the count of “Seriously Delinquent” loans as a percentage of all loans on their books.

It’s important to understand that Fannie Mae does NOT segregate foreclosures from delinquent loans when reporting these numbers and that should they report the delinquent results as a percentage of the unpaid principle balance, things might likely look a lot worse.

Finally, the following chart (click for larger ultra-dynamic and surf-able chart) shows the relative movements of Fannie Mae’s credit and non-credit enhanced (insured and non-insured) “Seriously Delinquent” loans.

Comments

[MinAkkar20:]

Great post. This will get no attention in main-stream press until it actually happens. When you follow the money from mortgage brokers, to the GSEs, to the banks & politicians, it reveals a blatant scam that could easily justify a RICO case. This will be swept under the rug so when it hits it can be labeled a "crisis". At that point, the Fed/Treasury (since there is no distinguishing anymore) can justify whichever response they want.

Jul 02 09:17 AM

[honkytonker:]

MinAkkar20, you forgot to add Goldman to the Fed/Treasury "[Un]Holy Trinity".

Jul 02 09:36 AM

[Living4Divi...:]

Great post.

Not to worry, Fannie and Freddie are backstopped by the Feds using taxpayer money.

Just another example of your tax dollars at work!

Jul 02 12:08 PM

[Socialism c...:]

Look for the same in healthcare as has happened in housing. Decades of government interference in housing -- attempts to force affordability of home ownership for all -- have skewed the way mortgage lending operated, and skewed home pricing. Fannie, Freddie, FHA, Commie Reinvestment Act, etc.

Now, we are looking at a "government option" for healthcare being rammed down our throats. Its costs will be subsidized, by definition. But it's claimed it will be "just another option" alongside the private health insurance options. Those latter, however, will NOT have the government picking up their costs...they will face a competitor with a monetary printing press. Impossible to compete against. We will see a skewing of the healthcare market, precisely in the same way as happened with housing.

Why can't we learn from our past socialist mistakes???

Jul 02 12:18 PM

[the gerald:]

Just doesn't look all that bad to me. why don't you wipe out another chart that shows the same info on loans other than fannie & freddie. instead of 3.42%, i 'm pretty sure the default ratio is around 20%

Jul 02 02:08 PM

[James Anderson:]

With regard to the United States Congress, Thomas Carlyle said it best when he said, "I do not believe in the collective wisdom of individual ignorance." The level of malfeasance in pursuit of self-serving political interest is overwhelming.

In 1970, the federal spending totaled some $800+billion. The amount of interest we pay solely on the federal debt today is $400+billion. To put that into perspective, rather than revamping healthcare, leaving all those with insurance as is... it would likely cost roughly $300+billion to insure the 46million uninsured directly with the same insurance provided IRS agents, Postal employees, or Congressmen/women themselves...

We have a federal budget today of roughly $3+trillion if you include the unaccounted for $16+billion in 2008 earmarks and the federal debt is $11.5+trillion (WE OWE ROUGHLY 4X WHAT WE TAKE IN ANNUALLY). 13+% of our federal expenditure is currently devoted to an unproductive capital waste that does little more than crowd out private investment and severely limit our ability to deal with issues that would make a dramatic impact on our nation as a whole. The fact that $1 of every $7.50 is spent on interest payments that build ZERO equity in our country, to borrow a paradigm, is maddening.

The level of stag-flation and capital destruction we have in the offing could likely make recent economic troubles look almost pleasant...

Jul 02 04:18 PM