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Historic Financial Collapse Underway?

The " learned " author suggested that Fannie / Freddie due to worth zero dollar while the US dollar should slide .

The author , impressed me that salvaging Fannie / Freddie , the two government sponsored entities ( GSEs ) is like a " crime " .

I heard one said that the recent foreclosures stem from two sources :

1 ) the subprimes alleged to be fraud related ; someone organized to inflat property values by fraudulent appraisals and then mortgaged same to banks under the names of individuals with poor credit ratings ; the walking away would reap good profits for the organized criminals while leaving the banks with huge expenses and over valued properties .

2 ) the severe drop in price of the financials since October , 2007 have left traditional investors broke and unable to make mortgage payments . Foreclosures thus extended to the real people .

The " naked " short sellers intensified the damages on the economy .

Judging from the history of loss incurred by Citigroup (C) , the subprime issue can be speculated as over or almost over ; loss from over 10B in the 4th Q , 2007 to the 2.5B in the 2nd Q , 2008 .

The main hurdle now is the foreclures inflicted with the traditional investors or the good guys who lost all by confronting the unreasonably sharp drops in bank prices since October , 2007 .

Say , Regional Finance (RF) , a profitable regional banking network which has little or no exposure to the subprime , went down from $ 23 to $ 7 from April to July or in just three months .

Oh , RF has about 1.5% non performing assets (NFA) which are lands good for home construction purposes .

The real estate maxim tells us that land by nature , appreciates in value . Such NFA is in fact valuable asset to the bank and the same leaps when the real estate market becomes normal .

Investing into the future and thereby invest in financials .

When financials go back up to a reasonable level , the good guys would have their savings back to update their mortgage payments .

As a result , foreclosures would be reduced and the real estate market would be back to its normal functioning .

Some article indicated that Fennie / Freddie were told by the US government to loosen up their policy in accepting mortgages at the time when the subprime problem had surfaced while banks then generally raised their standards .

Such " startegy " was an attempt by the US government to boost up the real estate market at the time .

That attempt failed for the loose rules would naturally , invite more fraudulent subprimes .

Fannie / Freddie ended up with mortgages that they would not accept under their own policy .

On viewing the year 2001 / 2002 downturn , Fannie / Freddie flared better than or comparable to strong pretigeous banks like Bank of America .

Fannie / Freddie have proven themselves to be effective and profitable when being allowed to use their own standards in assessing mortgage applications .

Even being handicapped , the combined loss to date for the two GSEs is about 10B which is about the same as what Citigroup has lost in its 4th Q , 2007 .

Such quantity of loss is obviously manageable under today's standard .

Freddie's CEO has repeatedly told the media that their retained earnings are sufficient to finance the GSE through this crisis .

The shoring up by the US government is more for gaining back public confidence since half of the US mortgages are guarenteed or owned by the two GSEs .

Yes , substandard policy attracts frauds and eventual mortgage failures .

Published articles indicated that the substandards were used by subsidaries of investment banks and not regional banks .

The two GSEs straddled into these substandards reluctantly on a demand by the government to salvage the real estate market .

One would trust that the two GSEs would be more than happy when being allowed to go back to their own lending practice proven to be effective and profitable .

The " learned " author accepts that the economy would completely collapsed should the two GSEs fail .

The shoring up of the two GSEs would avoid such collapse .

The author however , suggested that a complete collapse in economy would best serve the US people as oppose to the backers' claim that the US people would benefit when the two GSEs or economy being uplifted .

People do have difference in opinions .