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conspiracy analyst
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 Posted: Mon Jul 14, 2008 6:11 pm Post subject: Did Freddie Kill Fannie? Depression Era Banks go to the Wall |
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With $1.2 trillion in mortgage debts and housing values in freefall, the collapse of 50% of the US mortgage banks created out of the 1930's depression are leading all to one direction.
Collapse...
Maybe its time to open a 3rd military front to ensure the collapse becomes permanent... |
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conspiracy analyst
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| Posted: Mon Jul 14, 2008 6:45 pm Post subject: |
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Fannie Plan a `Disaster' to Rogers; Goldman Says Sell (Update3)
By Carol Massar and Eric Martin
July 14 (Bloomberg) -- The U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac is an ``unmitigated disaster'' and the largest U.S. mortgage lenders are ``basically insolvent,'' according to investor Jim Rogers.
Taxpayers will be saddled with debt if Congress approves U.S. Treasury Secretary Henry Paulson's request for the authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac, Rogers said in a Bloomberg Television interview. Rogers is betting that Fannie Mae shares will keep tumbling.
Goldman Sachs Group Inc. analyst Daniel Zimmerman said the mortgage finance companies' shares may fall another 35 percent and lowered his share-price estimate for Fannie Mae to $7 from $18 and for Freddie Mac to $5 from $17. Freddie Mac fell 18 cents, or 2.3 percent, to $7.57 at 11:16 a.m. in New York Stock Exchange trading, while Fannie Mae rose 13 cents, or 1.3 percent, to $10.38.
``I don't know where these guys get the audacity to take our money, taxpayer money, and buy stock in Fannie Mae,'' Rogers, 65, said in an interview from Singapore. ``So we're going to bail out everybody else in the world. And it ruins the Federal Reserve's balance sheet and it makes the dollar more vulnerable and it increases inflation.''
The chairman of Rogers Holdings, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, also said the commodities bull market has a ``long way to go'' and advised buying agricultural commodities.
Going `Bankrupt'
Rogers, a former partner of hedge fund manager George Soros, predicted the start of the commodities rally in 1999 and started buying Chinese stocks in the same year. He traveled the world by motorcycle and car in the 1990s researching investment ideas for his books, which include ``Adventure Capitalist'' and ``Hot Commodities.''
Fannie Mae and Freddie Mac each surged more than 20 percent in pre-market trading today after Paulson moved to stem a collapse in confidence in the two companies that purchase or finance almost half of the $12 trillion in U.S. home loans.
Fannie Mae's market value is now about $10 billion, down from $38.9 billion at the end of 2007. Freddie Mac's market value has shrunk to about $5 billion from $22 billion at the end of last year.
``These companies were going to go bankrupt if they hadn't stepped in to do something, and they should've gone bankrupt with all of the mistakes they've made,'' Rogers said. ``What's going to happen when you Band-Aid and put some Band-Aids on it for another year or two or three? What's going to happen three years from now when the situation's much, much, much worse?''
Last Week's Slump
Paulson's proposal, which the Treasury anticipates will be incorporated into an existing congressional bill and approved this week, signals a shift toward an explicit guarantee of Fannie Mae and Freddie Mac debt.
The Federal Reserve separately authorized the firms to borrow directly from the central bank.
Washington-based Fannie Mae slid 45 percent last week, while McLean, Virginia-based Freddie Mac sank 47 percent on concern they may require a bailout that would wipe out shareholders.
Former St. Louis Federal Reserve President William Poole last week said in an interview that Freddie Mac is technically insolvent under fair value accounting, which measure a company's net worth if it had to liquidate all its assets to repay liabilities. Poole said Fannie Mae may also become insolvent this quarter.
Shorts Uncovered
Rogers said he had not covered his so-called short positions in Fannie Mae and would increase his bet if it were to rally. Short sellers borrow stock and then sell it in an effort to profit by repurchasing the securities later at a lower price and returning them to the holder.
The U.S. economy is in a recession, possibly the worst since World War II, Rogers said.
``They're ruining what has been one of the greatest economies in the world,'' Rogers said. Bernanke and Paulson ``are bailing out their friends on Wall Street but there are 300 million Americans that are going to have to pay for this.''
To contact the reporters on this story: Carol Massar in New York at cmassar@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net. |
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acrobat74
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| Posted: Mon Jul 14, 2008 7:04 pm Post subject: Re: Did Freddie Kill Fannie? Depression Era Banks go to the |
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| conspiracy analyst wrote: | With $1.2 trillion in mortgage debts and housing values in freefall, the collapse of 50% of the US mortgage banks created out of the 1930's depression are leading all to one direction.
Collapse...
Maybe its time to open a 3rd military front to ensure the collapse becomes permanent... |
Nah, how about another tax cut 'to stimulate the economy'? 
_________________
Summary of 9/11 scepticism: http://tinyurl.com/27ngaw6 and www.911summary.com
Off the TV: http://www.youtube.com/watch?v=M4szU19bQVE
Those who do not think that employment is systemic slavery are either blind or employed. (Nassim Taleb)
www.moneyasdebt.net
http://www.positivemoney.org.uk/ |
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acrobat74
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| Posted: Thu Jul 17, 2008 11:53 pm Post subject: |
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An amazing article by Llewellyn H. Rockwell of the von Mises Institute:
http://mises.org/story/3045
| Quote: | Freddie, Fannie, and Curses on FDR
Daily Article by Llewellyn H. Rockwell, Jr.
Posted on 7/14/2008
"It turns out that there is no magic way to put every American citizen, regardless of financial means or credit history, in a 3,000 sq ft home."
Ludwig von Mises had a theory about interventionism:
It doesn't accomplish its stated ends. Instead it distorts the market. That distortion cries out for a fix. The fix can consist in pulling back and freeing the market or taking further steps toward intervention. The State nearly always chooses the latter course, unless forced to do otherwise. The result is more distortion, leading eventually, by small steps, toward ever more nationalization and its attendant stagnation and bankruptcy.
When you think about the current Fannie Mae-Freddie Mac crisis, you must remember Mises's theory of intervention.
Reporters will not, but you must, provided you want to understand what is going on. President Bush is considering a fateful step in a 60-year-old problem: the nationalization of these mortgage companies. He wants to guarantee the $5 trillion (that's trillion with a "t") in debt owned by these companies. Another option would be to put these monstrosities under "conservatorship," which means that you and I will pay for their losses directly.
Either way, it turns out that there is no magic way to put every American citizen, regardless of financial means or credit history, in a 3,000 square foot home. Someone, somewhere, sometime has to pay. No matter what rescue plan they are able to cobble together, that someone is you.
The heck of it is that any option would be devastating to the already-suffering housing market. The reason this sector was so wildly inflated is that banks knew that Fannie and Freddie were capable of buying any mortgage debt created by the banking industry. For these companies to be nationalized would effectively end their capacity to do this on a market basis. That means banks would suddenly have to act responsibly.
Now, you might say, if that's true, the real blame is with the individual bankers that had been making irresponsible loans under the condition that these government-sponsored enterprises would absorb them. But that's not right. Put yourself in the shoes of a banker over the last twenty years. You have competitors. You have a bottom line. If you don't extend these loans, you come off as a fool. Your competition eats your breakfast. To stay ahead of market trends means that you have to play the game, even though you know it is rigged.
Place the blame not only on the banks, but also on the institutions that are siphoning off their liabilities for irresponsible behavior, and that would be Freddie and Fannie. And who created these? Travel back in time to the New Deal. Here is an article about the creation of Freddie Mac. And here is another about Fannie Mae.
They were created by FDR in 1938 to fund mortgages insured by the Federal Home Administration. They were used by every president as a means to achieve this weird American value that every last person must own a home, no matter what. So they were given the legal permission to purchase private mortgages and make them part of their portfolios. Still later, under LBJ and Nixon, they became public companies and sold stock. People called this privatization, but that isn't quite right. They had access to a guaranteed line of credit creation with the US Treasury. They had lower borrowing costs than any private-sector equivalent.
"When you think about the current Fannie Mae-Freddie Mac crisis, you must remember Mises's theory of intervention."
Government-sponsored enterprises are not subject to market discipline like regular private-sector companies. Their securities are listed as government securities, so their risk premiums were not dictated by the free market. They could leverage themselves at 50-, 75-, 100-1, pyramiding debt on a tiny foundation of equity. The financial markets have long believed that the GSEs would be bailed out no matter what. And so this put them in a completely different position from a company like Enron, which the markets watched closely. What's causing the current panic is that the markets have wised up and started evaluating these institutions by market standards. Freddie and Fannie have collapsing market prices, and their bonds are carrying ever-higher risk premiums.
In other words, we are not talking about market failure. If you have a housetop you can shout that from, please do so, because the press and the government are going to make every effort to blame private borrowers and lenders for this calamity. But the origin of both these outfits is with federal legislation. They are not market entities. They have long been guaranteed by you and me. No, they have not been socialist entities either because they are privately owned. They occupy a third status for which there is a name: fascism. Really, that's what we are talking about: the inexorable tendency of financial fascism to mutate into full-scale financial socialism and therefore bankruptcy.
Mr. Bush might have prevented this meltdown by curbing the privileges of Freddie and Fannie long ago. But no, he had another plan, one which was assisted by the Republican think tanks in Washington (the curious can Google it up). The idea was a new slogan called the "ownership society."
Sounds nice, doesn't it? Sounds like free enterprise. But if you think about it, there is nothing particularly free market about the demand that everyone should own anything in particular. The idea of free markets is that your rights to own justly are not to be infringed by public or private criminals. The suggestion that everyone should own some particular thing, by whatever means, can only be funded through financial socialism or mass theft. The claim on the part of a government that it will create an "ownership society" can prove to be highly dangerous.
As for the future, Mises's theory that the government will always favor more government seems wholly sound.
Here is John McCain:
Those institutions, Fannie and Freddie, have been responsible for millions of Americans to be able to own their own homes, and they will not fail, we will not allow them to fail … we will do what's necessary to make sure that they continue that function.
Not a single Democrat disagrees.
As with the S&L fiasco from years ago, the case of the housing bust followed by the trillions in taxpayer liabilities for the disaster will again be cited as a case of "the shock doctrine" and "disaster capitalism" in which the elites make fantastic amounts of money at the expense of the little guy. The critique will be mostly solid but for the one most important point: this kind of fiasco would not happen in a free market. It happens because government, through credit creation and guarantees, makes it possible.
Look down the road a bit here. What happens when banks won't lend for houses anymore? What will government do then? We might as well prepare for a future in which applying for a housing loan will have similar features to getting an SBA loan. This is where we are headed.
Government intervention is like a vial of mutating poison in the water supply. We can get by for a long time and no one seems really worse off. One day we wake up and everyone is desperately ill, and blaming not the poison but the water itself. So it is with the housing crisis. Lenders are being blamed for the entire fiasco, and capitalism is going to be subjected to a beating as usual, since Freddie and Fannie are traded in public markets. But the fact remains that there is only one reason that this went on as long as it did and became as bad as it is. It was that vial of government poison. |
Llewellyn H. Rockwell, Jr. is president of the Ludwig von Mises Institute in Auburn, Alabama, editor of LewRockwell.com, and author of Speaking of Liberty.
_________________
Summary of 9/11 scepticism: http://tinyurl.com/27ngaw6 and www.911summary.com
Off the TV: http://www.youtube.com/watch?v=M4szU19bQVE
Those who do not think that employment is systemic slavery are either blind or employed. (Nassim Taleb)
www.moneyasdebt.net
http://www.positivemoney.org.uk/ |
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conspiracy analyst
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| Posted: Fri Jul 18, 2008 5:35 am Post subject: |
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[quote="acrobat74"]An amazing article by Llewellyn H. Rockwell of the von Mises Institute:
http://mises.org/story/3045
| Quote: | [size=14]Freddie, Fannie, and Curses on FDR
Daily Article by Llewellyn H. Rockwell, Jr.
Posted on 7/14/2008
"It turns out that there is no magic way to put every American citizen, regardless of financial means or credit history, in a 3,000 sq ft home."
Ludwig von Mises had a theory about interventionism:
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The flip side to this are Hoovervilles and riots on the White house.
Government intervention in housing was created to avoid social conflict.
To argue that this is a form of communism/socialism is absurd in the extreme for private enterprise hasn't truly been private since before the era of WW1. |
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blackcat
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| Posted: Fri Jul 18, 2008 6:40 am Post subject: |
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| Quote: | | the fact remains that there is only one reason that this went on as long as it did and became as bad as it is. It was that vial of government poison. |
Blame the victim. Get the Federal Reserve to bail us all out as they are so good to us. If only we gave the Federal reserve complete power to do as they like without that pesky government interfering we would all be in clover.
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"The conflict between corporations and activists is that of narcolepsy versus remembrance. The corporations have money, power and influence. Our sole influence is public outrage. Extract from "Cloud Atlas (page 125) by David Mitchell. |
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acrobat74
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| Posted: Fri Jul 18, 2008 2:16 pm Post subject: |
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| acrobat74 wrote: | An amazing article by Llewellyn H. Rockwell of the von Mises Institute:
http://mises.org/story/3045
| Quote: | Freddie, Fannie, and Curses on FDR
Daily Article by Llewellyn H. Rockwell, Jr.
Posted on 7/14/2008
"It turns out that there is no magic way to put every American citizen, regardless of financial means or credit history, in a 3,000 sq ft home."
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| conspiracy analyst wrote: |
The flip side to this are Hoovervilles and riots on the White house.
Government intervention in housing was created to avoid social conflict. |
The Austrians' point, insightful imho, is that government intervention...
...doesn't accomplish its stated ends. Instead it distorts the market. That distortion cries out for a fix. The fix can consist in pulling back and freeing the market or taking further steps toward intervention. The State nearly always chooses the latter course, unless forced to do otherwise. The result is more distortion, leading eventually, by small steps, toward ever more nationalization and its attendant stagnation and bankruptcy.
Who can deny the Austrians are right in this instance?
Avoiding social conflict? By taxing (via inflation) the most vulnerable parts of the population to fund the shenanigans of the investment class?
No thanks.
Who do you think bought Freddie's and Fannie's bonds after the Treasury walked in to guarantee their debt? The poor?
Jim Rogers:
http://www.youtube.com/watch?v=rcIBFLSmVGA
| conspiracy analyst wrote: | | To argue that this is a form of communism/socialism is absurd in the extreme |
Well it is socialism. But for the rich.
The poor have to watch as the value of their dollars goes down the drain.
Bear’s Chairman Buys $26 Million Condo
http://dealbook.blogs.nytimes.com/2008/03/12/bears-chairman-buys-26-mi llion-condo
| conspiracy analyst wrote: | | for private enterprise hasn't truly been private since before the era of WW1. |
Not sure what you're talking about here, private companies still exist.
| Quote: | | ...the fact remains that there is only one reason that this went on as long as it did and became as bad as it is. It was that vial of government poison. |
| blackcat wrote: |
Blame the victim. Get the Federal Reserve to bail us all out as they are so good to us. If only we gave the Federal reserve complete power to do as they like without that pesky government interfering we would all be in clover. |
Are you saying that the Austrians are pro-Fed? Erm, no.
Their point is that Fannie & Freddie were bad government policy from the outset. Pretty much like the Fed.
_________________
Summary of 9/11 scepticism: http://tinyurl.com/27ngaw6 and www.911summary.com
Off the TV: http://www.youtube.com/watch?v=M4szU19bQVE
Those who do not think that employment is systemic slavery are either blind or employed. (Nassim Taleb)
www.moneyasdebt.net
http://www.positivemoney.org.uk/ |
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acrobat74
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| Posted: Mon Aug 04, 2008 12:01 am Post subject: |
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http://www.economist.com/finance/displaystory.cfm?story_id=11751146
| The Economist wrote: | A brief family history
Toxic fudge
Jul 17th 2008
From The Economist print edition
Chartered by Congress; out for themselves
ADAM SMITH thought that private companies chartered to fulfil government tasks had “in the long run proved, universally, either burdensome or useless”. That has not stopped them thriving. America has five government-sponsored enterprises (GSEs), set up to subsidise loans to homeowners or farmers. (Sallie Mae, which deals with students, gave up GSE status in 2004.) Because they count as privately owned, GSEs are kept off the government’s books. For politicians that has made them irresistible ever since the Farm Credit System’s creation in 1916.
Fannie Mae and Freddie Mac dominate the GSE system, accounting for four-fifths of its total credit portfolio. Fannie was created in 1938 as a government corporation. In 1968 the Johnson administration decided to list its shares to reduce the budgetary pressures created by the Vietnam war, according to Thomas Stanton, of Johns Hopkins University. Freddie was born in 1970 and listed in 1989. Both companies aim to support the secondary mortgage market. They have succeeded all too well: they own or guarantee about half of all mortgages.
Their supremacy reflects their privileges. As well as an implicit state guarantee, which allows them to fund themselves cheaply, they enjoy exemption from some taxes. They run with far less capital than banks and have more latitude to include as capital dubious items such as preference shares and tax assets. The capitalised value of these privileges is huge: between $122 billion and $182 billion, according to a 2005 study by the Federal Reserve.
It gets worse. The same analysis concluded that shareholders, who enjoy turbocharged gearing without higher borrowing costs, siphoned off about half of the subsidy. Managers trousered an unseemly sum too: between 1998 and 2003, Fannie’s top five executives received $199m.
With so much at stake, no wonder the companies built a formidable lobbying machine. Ex-politicians were given jobs. Critics could expect a rough ride. The companies were not afraid to bite the hands that fed them: in 2004, the day before a congressional committee discussed the regulation of Fannie, the company ran a television advertisement attacking the committee. Their regulator, the Office of Federal Housing Enterprise Oversight, says its powers were weakened during its creation in 1992: for example, its budget must be approved annually by Congress and thus depends on political goodwill.
Accounting scandals in 2003-04 (the two firms restated earnings by a total of $11.3 billion) led to a change of management, and, supporters argue, of culture. The pace of balance-sheet expansion and accumulation of risky private-label securities has slowed. Yet neither company can be accused of anticipating the housing crash. An end to GSE status looks unlikely: as truly private companies Fannie and Freddie would require unrealistically large injections of equity. The government wants to avoid nationalisation. That leaves the status quo, the public subsidy of private profit: a combination as toxic as it was in Smith’s day. |
And a killer comment:
| Quote: | PaidinFull wrote:
July 20, 2008 22:16
Great opening line - "ADAM SMITH thought that private companies chartered to fulfil government tasks had “in the long run proved, universally, either burdensome or useless”.
Would the Federal reserve also fit this category? Private institution with a government task... and has it proved universally burdensome or useless? |
_________________
Summary of 9/11 scepticism: http://tinyurl.com/27ngaw6 and www.911summary.com
Off the TV: http://www.youtube.com/watch?v=M4szU19bQVE
Those who do not think that employment is systemic slavery are either blind or employed. (Nassim Taleb)
www.moneyasdebt.net
http://www.positivemoney.org.uk/ |
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acrobat74
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conspiracy analyst
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