John McLeod

Fannie and Freddie: The Gifts that Keep on Giving

The OMB could put an end to this idiocy in 10 minutes by simply stating the obvious, that the GSEs' senior debt is now explicitly guaranteed by the Treasury. The effect would be to double the nominal value of America's national debt and apply a reality shock to everyone's econometric model, not to mention Congress' silly legal limit. This Wyle E. Coyote situation is becoming ridiculous.

The Fed and Fannie Mae: Throwing Money Down a Black Hole

I'd like to draw your attention to this SIFMA press release from January 7th, in the very last days of the Bush administration, and just before the Fed started buying up MBS. It's the guidance that started the Re-Remic recycling of old stuff back into the TBA market.
www.sifma.org/capital_...

From the information you're reviewing in the above post, how in blazes can the OMB still be in denial that agencies **don't** enjoy an explicit US guarantee?

New Housing Initiative Insures Freddie and Fannie's Survival

No need for confusion on this. If F&F die, the effective guarantee has to be clarified -- door #1) haircuts to bondholders large enough to sink the entire world financial system; door #2) nominal value of US National Debt doubles and economists go nuts changing their computer models to prevent their showing that America is in a state of collapse. Long live the obfuscation!

Fannie's Huge Loss: Did Anyone Even Notice?

VennData,

Well, not really. If you look at our latest Treasury & GSE chart you'll see that the red foreign cenbank Agency Debt holdings line has been perfectly (and ludicrously) flat for 19 solid weeks. This is not the result of a happy market, it's obviously massive official intervention.

This story Jumped the Shark the day Jim Lockhart issued his "clarification" on the government's "effective guarantee" on agencies. That day a junior OMB type uttered the obvious, that Agency Debt was now on Congress' balance sheet, but that unhappened within minutes. Now the effective guarantee is converging infinitely close to an explicit guarantee (to soothe the bondholders) from the negative side (so that America has the option to default on the stuff without having a mob of BIS economists coming to tear down Hamilton's statue).

I for one gave up in despair a few days ago and am no longer posting opinions on this issue. Tom, I appreciate you still are.

Fannie, Freddie and the Ballooning U.S. Balance Sheet

Nicely done. This issue has consumed the last few years of my blogging career, and in a way it's good to be close to a final resolution.

Misunderstanding the Great Recession

It is clear now that the present crisis was caused by hedonic shock resulting from a disruptive cornucopia. That is, East Asia sented sending Europe and North America massive amounts of cheap cars and manufactured goods, clothes, etc. I think it was pre-Xmas 2006 when LA & Long Beach were backed up 6-weeks deep in Bratz dolls and radio controlled cars. This destroyed the competing domestic suppliers, but caused consumers to (temporarily) feel about twice as wealthy and confident. Thus banks-gone-wild, the re-fi boom and so on.

As Professor Scott Nelson of William & Mary recently pointed out in the Chronicle of Higher Education, of all places, exactly the same thing happened in the run-up to the Crisis of 1873. Then it was American grains and manufactured goods flooding Western Europe. First the economies of their traditional bread basket (Russia & Ukraine) collapsed, while at the same time financial innovation and hedonic shock caused exuberant consumerism and a monumental building boom (that's where all those touristy piles in Vienna, Berlin, Paris and so on came from). It took about 6 years to clear.

Does Moral Hazard Apply to Sovereign Wealth Funds?

This is the third advocate for an agency debt haircut I've seen in the last month (1st Nouriel Roubini, 2nd James P. Tuthill). I believe the sticking point here is what would happen to yields over treasuries of agency debt (90bp over yesterday in the FRE bill sale heard around the world) if Paulson were to endorse Roubini's "very modest" 5 percent haircut. The rates on 30 year fixed conforming mortgages (unless Paulson himself bought the paper) would likely rise.

Several Firms Come to Defense of Fannie, Freddie

Even if FASB allows the GSEs (and heaven knows how many other sectors) to keep their QSPEs, I'm concerned about just who is on the buy-side of those $1.4+ trillion of deals Fannie and Freddie wrote. There is curiously little talk about just who is supposed to have taken on all that risk in the first place.