Use access key #2 to skip to page content.

A few words on Fannie and Freddie

Recs

4

September 07, 2008 – Comments (9)

So, the GSE's finally got taken over by the Federal Govt.  Nice.  Let's see what it means.  First it means that common stock holders will be diluted by about 90% so expect to see both stocks around a buck soon.  What, you didn't read that.  Well take a look.  The Govt can buy up to $100b in common essentially to capitalize the companies which are undercapitalized by at least that much.  It'll happen, even if they are only starting with a billion.  SKF I've been touting, watch it run now.

How will this impact the macro economy.  Well, the main effect will be one of smoothing.  While we should avoid a depression save for some rediculously bad govt actions over the next few years, we will have a prolonged and deeper than anticipated a year ago recession- probably lasting to late 2009 at the earliest and likely to 2010.  

Get your wish list ready.  Mine is almost done.  You will have a great buy low opportunity sometime soon.  I think by year end, but it could be next year as well.  You are about to get an opportunity to buy high quality cheap.  Take it.

Now, while I hesitate to talk politics, I hope folks realize that although McCain is a good man, his economic policy, and policy on Russia, are not good at all.  In fact, McCain could bury the nation in the hole that Bush/Cheney dug if he wins and the Democrats for some inexplicable reason roll over to him.  Can you say philbuster.  If McCain wins, heck I'll deliever the phone books anytime he advocates for some neo-con policy to get pushed for Congressional consideration. 

Ask yourself a simple question, what's worse, some new taxes on the 5-10% most well off Americans or continued inflation and growing umemployment?  It's a no-brainer.  Read the actual platforms before spouting please.  This economist, who worked for McCain in 2000, is telling you that Obama is better for your pocket book and our foriegn policy.  Essentially what I tell clients and friends is before asking any other questions about the candidates ask these:

1. Who is more likely to get you killed.

2. Who is more likely to make you poor.  

Ask in exactly those two ways.  Don't quibble.  Answer those questions.

McCain is clearly the higher risk candidate- decent guy and all.  But, either he continues Bush policies that have run their course (or in some cases ought not to have been policy) or he creates deadlock at a time when we need a dynamic job producing energy policy at the heart of a recovery for the next decade, an overhauled healthcare system, a rejuvenated not replaced education system and a better face on foriegn policy.

Peace out, I need that rum now.

9 Comments – Post Your Own

#1) On September 07, 2008 at 6:53 PM, HooDaHeckNose (95.18) wrote:

Well said, all of it.

Report this comment
#2) On September 07, 2008 at 7:13 PM, Option1307 (30.12) wrote:

Nice post, looking forward to those much needed caps points from fnm/fre. Even though its going to screw our economy in the real world, go caps points!! While I mostly agree with your thoughts...And in no way do I think McCain is solid on economics...I also have a question:

"some new taxes on the 5-10% most well off Americans", do you really think that is a good idea/ok idea/fair idea? As I said, I'm not arguing for McCain policies over Obama's. This is just simply question. I find that many people agree with your thoughts, basically saying, "ya who cares, raise their taxes, they have toooo much money". However, why should those who succeed and do well for themselves be punished? Why would we want to curb success? Isn't that what we are saying when we suggest raising the taxes on the "rich" (top 5-10% as u said)? Isn't the american dream to become rich? Isn't that what everyone wants to become, generally speaking anyway?

Just some thoughts...once again, Im not advocating for either clown we have running for pres...we be screwed either way.

Report this comment
#3) On September 07, 2008 at 7:32 PM, UltraContrarian (31.77) wrote:

"Can you say philbuster."

How ironic.

Report this comment
#4) On September 08, 2008 at 12:02 AM, kirkydu (92.19) wrote:

Well Option1307, here's the thing, the Federal Budget is in shambles.  I know I'm being counterintuitive as my income puts me in the top 10%, but a slightly higher tax burden on me will make me more money over time as the economy will be bigger and I happen to have a nice slice.  A smaller economy hurts my pocketbook much more than an extra thousand or two in taxes.  The simple fact is that the extreme damage to the economy, and it really is extreme (have you ever asked why a Great Depression expert was made Fed Chairman), that the last seven years has been done requires unpleasant medicine. 

As a mature economy it will be difficult- probably impossible- to grow out of it.  We need tax revenue to ultimately go up and tax cuts have never stimulated that long run- only for a couple years a couple times as the superwealthy repatriated assets to put into the types of tax shelters that the IRS and GAO are busting now.  What will increase tax returns in the 2010s is the same thing that stimutated it in the 1990s.  A more progressive tax scale and a larger economy driven by more people with more money. 

If you take a look at economic history, Reagan's policies created a massive recession (there was no miracle, just a greater divergence in wealth to go along with cities that deteriorated), Bush I broke his promise and added some taxes to the top 10%, then Clinton and the Repub Congress' (give credit where credit is due) OMBRA '93 set the stage for job creation and increased tax revenue, which balaced the budget very quickly.  Bush I (although it lost him an election) and Clinton did the right things with the economy.  When else other than the mid to late 1990s have so many people climbed the economic ladder?

Bush II/Cheney (Dick makes Mike Milken- since gone good- and Al Capone- stayed bad- look like a pickpockets) undid everything his father and Clinton did.  The next President must remake those conditions.  It will begin by making the tax code slightly more progressive (as Obama proposes), cutting the corporate income tax for job creating companies (as Obama suggests), a massive job creating alternative energy program (as Obama suggests), and a kick up of arms and aerospace production (hate to say it, but it will happen as we arm and provide airplanes to Eastern Europe). 

As for fairness. Is it fair that 90% of the population has had noticable loss of purchasing power over the last several years because the dollar was destroyed to benefit a few big investors.  Is it fair that up to 10% of the population will lose their home this decade due to a really screwed up housing market which was created by the greed of a fraction of a percent of wealthy investment bankers, hedge fund managers and GSEs run amok?  Is it really fair that hedge fund managers get to pay cap gains tax rates even though they aren't proportionately betting their own capital on their funds (many of which are going bust now). 

Look, like I said earlier, a shrinking pie is much more important than a few people's slice getting slightly smaller.  That doesn't mean I'd be ok with crazy quasi-socialist ideas (you know like bailing out Bear Sterns), but preserving the pie, even if that means a few percent of us eat a little less for a year or two, is plenty fair.  Besides, I'm a little chubby right now anyway, I could use a diet. 

Report this comment
#5) On September 08, 2008 at 12:05 AM, kirkydu (92.19) wrote:

Hmm, a clarification.  I worked for McCain's Wisconsin campaign in 2000, but not as an economist.  Though had he won, I'd have tossed my hat in the ring.

Report this comment
#6) On September 08, 2008 at 12:07 AM, kirkydu (92.19) wrote:

Hmm, a clarification.  I worked for McCain's Wisconsin campaign in 2000, but not as an economist.  Though had he won, I'd have tossed my hat in the ring.

Report this comment
#7) On September 08, 2008 at 2:04 AM, awallejr (77.67) wrote:

You have a Congress and White House controlled by the Democrats and hello high taxes, hello recession, hello increased government, hello higher gas/oil prices.

We kept hearing how this Country is in recession, tho we have yet to have back to back negative GDP.  In fact last quarter's was pretty darn good (3.3). Why?  Because exports were actually working for us and the TAX rebates.  Don't discount the implication of those rebates.  Obviously LOWER  taxes will make a positive impact on GDP as opposed to higher taxes.

I'm not blaming Bush for the housing mess.  Afterall we had a Democratic Congress during this time.  I blame greed. Churn those loans for the fees, until the ponzi scheme caught up to reality.

Time and sensible Fed policy (which Bernanke is actually following and hopefuly will continue to ignore the blustering armchair quarterbacks like Kudlow and company) will work in the end.  This happened before (ala late 1980s). 

The irony is Obama really is OLD school Democrat, and I just don't want to live through those Jimmy Carter years again.

Report this comment
#8) On September 08, 2008 at 8:55 AM, kirkydu (92.19) wrote:

awallejr

I understand what you don't understand, but this is America, and you have the right to be wrong.  A few facts to consider:

These loose money issues were apparent to a lot of people in 2001 and 2002.  Congress was controlled from 2003 to 2006 by the Republicans.  Bush hasn't allowed the Democrats to do anything since 2007 when they took a majority.  All the financial problems of this country are owned by Bush/Cheney, Rebublicans & Neo-cons.  I'm not hating here, just stating fact.

BTW, Obama wants to lower taxes on 80% of the people, leave it the same on 10%, raise a little on 8% and raise a little more on 2%.  Based on what the govt just spent to bail out BS and now FNM/FRE the govt will need the money.  It makes sense to get it from those who made money from the leverage in this crisis, not you, somebody who isn't in the top 10% of income.

Two quarters of declining GDP is a short cut for identifying recession in the present, not what the NBER uses.

You make assertions with no support, just misplaced ideology.  It will hurt you in the long run because this is a dead cat bounce today.

 

Report this comment
#9) On September 08, 2008 at 8:56 AM, kirkydu (92.19) wrote:

awallejr

I understand what you don't understand, but this is America, and you have the right to be wrong.  A few facts to consider:

These loose money issues were apparent to a lot of people in 2001 and 2002.  Congress was controlled from 2003 to 2006 by the Republicans.  Bush hasn't allowed the Democrats to do anything since 2007 when they took a majority.  All the financial problems of this country are owned by Bush/Cheney, Rebublicans & Neo-cons.  I'm not hating here, just stating fact.

BTW, Obama wants to lower taxes on 80% of the people, leave it the same on 10%, raise a little on 8% and raise a little more on 2%.  Based on what the govt just spent to bail out BS and now FNM/FRE the govt will need the money.  It makes sense to get it from those who made money from the leverage in this crisis, not you, somebody who isn't in the top 10% of income.

Two quarters of declining GDP is a short cut for identifying recession in the present, not what the NBER uses.

You make assertions with no support, just misplaced ideology.  It will hurt you in the long run because this is a dead cat bounce today.

 

Report this comment

Featured Broker Partners


Advertisement