June 6, 2009

This Is Why The Chinese Laugh At Us…

Filed under: Economy,MSM Biz/Other Bias,Taxes & Government — Rose @ 2:07 pm

Not suprisingly, it took some doing to wrap my thoughts around this article because it was so poorly written.  With a little scrutiny however, one can see the two distinct agendas behind the Fred/Fan mess still at work, as well as the bottom line options and consequences.

Since the author doesn’t seem to know the meaning of “transitional statements” or “segues,” I’ll try to piece it together to make my point (“Exit Strategy” link is mine)…

June 2 (Bloomberg) — Christopher Cox, in one of his last acts as Securities and Exchange Commission chairman, took Fannie Mae and Freddie Mac’s regulator to task in a letter questioning whether the agency was upholding its legal duty to “preserve and conserve” the mortgage companies’ assets.

Cox asked in the Jan. 16 letter to Federal Housing Finance Agency Director James Lockhart whether the government-sponsored enterprises were being pressed too hard to bolster U.S. housing markets at the expense of profits. As a member of an oversight board advising Lockhart, Cox urged Lockhart to develop an “exit strategy” from government conservatorship that would restore the companies’ finances.

….. Public demands on the companies may prevent their emergence from government control, Cox said in the letter. He warned of “significantly” adding to taxpayer liabilities.

Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac are the largest U.S. mortgage-finance companies, owning or guaranteeing about 55 percent of single-family loans. They were seized by President George W. Bush’s administration in September as their losses deepened.

….. Fannie Mae and Freddie Mac were among the few remaining sources of mortgage credit after the housing market collapse last year. The Bush administration pushed the companies to reduce fees and loosen credit standards to stem foreclosures.

Obama went further than Bush, making the companies a central part of his plan to save as many as 9 million homeowners from foreclosure through low-cost refinancing and easing of loan terms. Fannie Mae and Freddie Mac are required to cover $25 billion of the administration’s $75 billion loan-modification program called Making Home Affordable.

“Fannie and Freddie are being used by the Obama administration, as they were by the prior administration, as social policy tools,” said Joshua Rosner, an analyst with independent research firm Graham Fisher & Co. in New York.

Both companies said in securities filings last month that policy demands are hampering their recovery, and may leave them dependent on government aid.

….. Fannie Mae has reported a combined $86.8 billion in net losses going back to the third quarter of 2007, and Freddie Mac has logged $63.6 billion in losses over the same period. To remain solvent, the companies have requested a combined $84.9 billion in taxpayer funds from a $400 billion pool set up by the Treasury after their takeover.

At the core of their troubles are about $152.3 billion in subprime and “Alt-A” assets acquired mostly from 2005 through 2007, according to Lockhart. Cox said in the letter that the volume of “high risk mortgage products” owned or guaranteed by Fannie Mae and Freddie Mac may be closer to $1.7 trillion.

Failure to make Fannie Mae and Freddie Mac financially sound would impose expanded burdens on the Treasury and private debt markets because their $1.7 trillion in unsecured debt and $4 trillion in mortgage bonds are so widely held, he said. The government would bear responsibility even though the companies’ liabilities aren’t technically backed by its full faith and credit, he wrote.

The U.S. may be forced to assume the companies’ liabilities, increasing the $11.3 trillion in outstanding U.S. debt by about 50 percent and hampering the Treasury’s ability to borrow, Cox said.

OK, so while sinking deeper into debt and losing money by the minute, Fred/Fan is juggling both a socio-political agenda (keeping Joe CantMakeEnough in the home he should have never been approved to buy) and a financial agenda (getting Fred/Fan OUT from under the United States Government).

Additionally, that discrepancy between what number (in bold above) constitutes Fred/Fan’s high risk mortgage products is outrageous.   Given that the political agenda of Fred/Fan’s hacks in the US government made it possible for them to procure & package toxic assets long before 2005-2007, the number is arguably closer to Cox’s $1.7 trillion.

Now I’m no finance wiz, but logic dictates that first and foremost, they have to get the toxic assets off the books.  Otherwise, Fred/Fan eventually becomes yet another government entitlement program.

So, do we learn from our mistakes and escort ”Johnny CantMakeEnough” into a more realistic living situation NOW, deal with (i.e., write off) the toxic assets and take the hit upfront OR or do we put the entire US Government on the hook and increase the $11.3 trillion in debt by half?

Newsflash: The United States Government does not have a lender of last resort. And when the Chinese stop buying our debt and call in their loans, what will happen?  My guess is that they will either accept land that our government takes from us as partial payment, or call in the loans.  What in the world do our “Gee, socialism looks great on paper” dimwits in DC think will happen then? See Zimbabwe (full PDF here).

Well that is when missiles in China will start fine-tuning in on us (I won’t assume here that our sensitive bunch in DC have the guts to defend this country).

Ha, ha…it’s all very funny, isn’t it?

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8 Comments

  1. So, we got the Communist Chinese calling our presidents financial policies irresponsible, Chavez saying he’s more conservative than Obama, and Obama reaching out to Hamas and saying Israel has “no right to exist.” What a whirlwind tour of madness the last few weeks have been for Our Dear Leader.

    Comment by zf — June 6, 2009 @ 2:44 pm

  2. #1, a link on the Israel quote would be welcome.

    Added at 3:45 p.m.: There is little doubt that many of Obama’s Palestinian fans hold that sentiment, but I haven’t seen anything telling me that he does. The fact that he believes Israel bears the burden of ensuring peace in the region is outrageous enough, when the other side never has, and likely never will, renounce their belief that Israel has no right to exist.

    Comment by TBlumer — June 6, 2009 @ 3:04 pm

  3. His “big speech” in Egypt is where he expressed that sentiment about Hamas and Israel.

    Liberals can’t help but dislike Israel in the end no matter what they say or how hard they try not to, it’s so ingrained in the liberal ideology these days that they are inevitably lead to this dislike sooner or later. In some cases only because other parts of their ideology shovel them into it.

    Comment by zf — June 6, 2009 @ 4:28 pm

  4. #3, the closest I can get is “The United States does not accept the legitimacy of continued Israeli settlements.”

    HERE

    That’s not close enough.

    Comment by TBlumer — June 6, 2009 @ 5:28 pm

  5. On the Freddie and Fannie issue, let’s reflect on the fact that 45% of housing sales are foreclosures & short sales! Now if Obama would stop meddling to allow the market to sort out the other houses in default or nearing so then those who really could afford a mortgage payment would be buying houses at realistic pre-2005 prices. What people fail to understand about the mortgage debacle is that the market is giving everyone what they wanted when they whined (affordable housing, blah, blah, blah) in 2005/6 that housing prices were too high. Be careful what you ask for because you just might get it!

    The upshot is the social engineering stupidity of the Dems caused the housing bubble with easy credit and then perversely made housing unaffordable. Now housing is becoming affordable to the middle class but not the economically challenged. Libs just can not accept the notion that renting is perfectly fine and it is an incentive to advance economically in order to get what you want in life. Libs just can’t understand that the process of advancement is the all important dynamic in people’s development to becoming a contributor to society, the process is not the obstacle, the obstacle is the process! Circumventing the process denies a person the necessary training to reach the goal and therefore makes them unable to maintain the goal when simply given to them under the fallacy of equality of outcome so beloved by libs.

    In conclusion, distressed property continues to comprise a significant part of the market—45 percent. The discount to market narrowed in April to 9 percent from the 20 percent reported in March, apparently due to Realtor® pricing strategies as buyers competitively bid to obtain distressed property. Distressed properties in poor condition have tended to sell at a greater discount relative to the market than has been the case for distressed properties in good condition. However, many owners of non-distressed properties are apparently not subject to the same level of intense pressure to complete a sale and are refraining from responding to what they view as unrealistic price offers.

    http://www.realtor.org/research/economists_outlook/commentaries/distressed0509js_gr

    Comment by dscott — June 6, 2009 @ 5:57 pm

  6. #5, Indeed, and if our 401k had not been reduced to a 201k (forced-laugh) in addition to what’s coming b/c of all the meddling (taxes, socialized hc, etc.), we’d consider investing in a couple of properties. But, that plan in moot.

    Currently, the only “investments” most people we know deem worthy enough to to spend their discretionary income, are guns & ammo (semi-laugh).

    Comment by Rose — June 7, 2009 @ 9:02 am

  7. A must read: Alan Abelson: No Bottom in Housing

    http://www.news-to-use.com/2009/06/alan-abelson-no-bottom-in-housing.html

    Comment by dscott — June 7, 2009 @ 10:57 am

  8. #7, thanks for that fantastic link. Confirms our concerns & decision not to invest (at least right now).

    Comment by Rose — June 8, 2009 @ 7:33 am

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