I’ve said so much about this Fannie and Freddie disaster, so I don’t really feel like adding much more until I see the actual plan (not just rumors about what is going to be in it).
However, I do have a few quick takes:
- I still feel the Congress violated the Constitution by granting the Secretary of the Treasury blank check powers of the purse.
- I have no confidence in Secretary Paulson, whether that means his ridiculous stammerings about the strong dollar policy or his claims that he never intended to use the “bazooka”.
- When leading politicians like Rep. Barney Frank (D-MA) and Sen. Christopher Dodd (D-CT) suggested that the organizations were sound a few weeks ago, or that somehow a bailout would not be required because they were able to raise a few billion of debt, I called bullshit. Now I call double bullshit. The disingenuous “calming” comments from politicians to help manage a situation are only as absurd as market participants who actually trade with confidence after believing this nonsense.
- Pimco and Bill Gross are way too involved in the GSE situation and the credit crisis. Isn’t it a bit telling to see him run his mouth off on Thursday about what the Treasury needs to do to support
himthe GSEs, and then refuse to comment on Friday about what he knows or what he might do if there is a bailout? Do insider trading violations apply to these guys or is it excused because the government is directly sharing the info? - If common and preferred shareholders take a hit in deference to people like Bill Gross, I expect to see some class action lawsuits asking some tough questions.
- Citizens should be asking serious questions about the power of foreign investors over US government finances. I am fully supportive of their ability to invest, but letting those investors dictate policy has serious implications. For decades, U.S. governments ( both Republican and Democrat) made promises to foreign investors about the implicit guarantees of this paper in exchange for pumping up US housing markets, cheap mortgages, securitized mortgage investments, and most importantly, to feed our reckless and insatiable consumer-based economy. We made promises that we should never have made and now it’s time to make good on them. Unfortunately, doing so puts the returns of certain investors ahead of others who may be smaller or may not have received any promises.
- Does anyone wonder whether the Naked Short Selling ban was lifted to allow for the market to take these stocks lower so the government doesn’t look like it is solely responsible for wiping out billions of equity?
- And the big elephant in the room…. Credit Default Swaps on Fannie and Freddie. Will this be a triggering event or not? I am still watching with interest to see whether the CDS market will ever be tested or if there will just be another tricky way to avoid exposing this “insurance” as the fraud that it is. You should read this article.
This episode is one of the worst financial disasters for this country in my lifetime. I’ll have more to say when I see what actually happens.
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Take a look at this video interview it tells the story!
Let Fannie, Freddie Fail: Jim Rogers
Fannie Mae and Freddie Mac should not be saved if they go bankrupt, and economic stimulus packages do more harm to economies in the long run than good in the short term, Jim Rogers, CEO of Rogers Holdings, told CNBC Friday.Last Update: Fri. Aug. 29 2008 | 08 09 00
www.cnbc.com/id/158402...
Where were you, my dear whiners, many years ago?
The media is doing a great job pointing out how the CEO's failed to take corrective action. How about OFEHO? Are they not the ones responsible for regulatory oversight? Standing up a new oversight organization (FHFA) sounds like a deflection of true responsibility for GSE shortcomings by the government. Freddie's CEO said it best when answering questions about ignoring his Chief Risk Officer when he said "I understoood the risk, but I work for many masters". If the media wants a real story, maybe they should focus on who those masters are and what part they had in creating the "out of control, greedy GSE's" situation.
The GSE's are bloated with mortgages because of political pressure to overstimulate the market with liquidity to keep the housing boom rolling. Over the past 5 years, the GSE's have had their legally mandated ceilings increased and their capital requirements cut in half. Groups like Countrywide were writing creative loans at a blistering pace and needed the liquidity to keep things going. I wonder why friends of Anthony got such good rates?
Having Morgan Stanley advising is the same as hiring the fox to figure out what to do with the hen house. The real problems are just beginning. Taking over the GSE's will not add liquidity to the financial market. With banks like WM and WB increasing loan default times from 3 months to 12 months late and upside down homeowners being advised not to make payments and just live rent free for a year, it will not make people make payments on their mortgages or increase house values either. It will however open the doors at Fannie and Freddie so they become everyones clearing house for destressed bank debt and we the taxpayers will be the ones picking up the tab. Add a couple zeros to the $25 Billion tab folks.
About the GSE bailout:
1. Insolvency must be shown using accepted criteria.
2. All equity and debt must be junior to the taxpayer.
3. Timing of debt obligation wind-up must be structured to avoid abrupt debt devaluation (and bank capital write-downs) and triggering of CDSs.
And for dessert?
About the GSE bailout:
1. Insolvency must be strictly shown according to accepted criteria.
2. Taxpayers must come before all debt and equity holders
3. Debt degradation must be structured so that bank holders do not have to immediately take a hit to their capital, and so that CDSs are not immediately triggered.
And for dessert, why the devil doesn't our brave government governance insist that CDSs be traded on a public exchange, to avoid all this unfathomable smelly stuff?
So once again we will have a massive transfer of wealth, for the US taxpayer to billionaires like Mr. Ackman and Mr. Gross.
"Rich people of the world unite, you have nothing to lose but your pain."
. Additionally, under the terms of the agreement, common and preferred shareholders bear losses ( ahead) of the new government senior preferred shares.
So once again under the guise of helping the little guy we get screwed. The biggest bailout ever and our grandchildren will be paying for it.
only prolonging the agony.
DO SOMETHING. I'm a Brit who lived in the US for 15 years, I love America and if I had a US passport I would be protecting my liberty and my rights as a citizen of the greatest country in the world.
Instead, I sit in beautiful Costa Rica and fume with fury at what is being done to a once great nation. You all know you're being screwed, but you need to ACT and not let it happen. Remember the Boston Tea Party, you had a revolution to free you from the British Goverment....get out and free yourselves NOW!
Then their are the people that choose to remain ignorant - so much easier to just hope that the status quo will continue....not realizing that the dominos are falling.
Then there are the criminals at the heart of this mess...on both the Left and the Right.. that just don't give a rats *ss about anyone but themselves.
Pathetic.
Disclosure: Long Gold and Silver ... because I think the Septic tank has finally overflowed.
Our govt is becoming a joke, our candidates are a smoke screen for the real issue plaguing our country… Obviously, it doesn't matter who is elected as the media, the lobbyists, and govt are preying on the ignorance of the public and we have no one in the media watching out for the public at large....and isn’t it comforting that we have a former PTA President in line for the VP spot…talk about not having any good choices…
Why doesn't anyone ask the candidates what their plans are for immigration, revitalizing are infrastructure (roads are deteriorating bc their is no governance of who travels on them...overweight trucks, major problems w/drug trafficking by illegals), why we pay more for pharmaceuticals than any other country, why there is so much poverty in all of our big cities (go to Detroit and walk around....it will sadden you) lobbyist control of the govt, control of media by big corps....it is absolutely unbelievable. How much did Lockhart and Mudd receive for their stint at Freddie and Fannie...
Wall Street and the other 40,000 lobbyists are ruining this country due to the greed and the manner in which they do business...the working sector better wake up before their retirement plans are worth zero…
I am so, so, so sick and tired of hearing Paulson's double talk out of each of the 3 sides of his mouth. I am especially sick of the whole "free market" spin that Paulson puts out each time he hits China to reduce the value of the rmb claiming that government is intrusive yet I cannot think of a more intrusive and destructive act to the market than this farce. Capitalism in its pure form demands that these two bleeding, pus-ridden animals called freddie and fannie die an unceremonious death befitting their ill-spent lives. Unfortunately I also recognize that this is so beyond the average person's intellect or concern that only a select few have figured out what crap this all is.