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Congratulations, Bagholders...



July 13, 2008 – Comments (14)

Pay taxes in the U.S.?

Congratulations, you are now the undeniable bagholder for the entire housing bubble. Paulson made it happen over the weekend. As Congress rushes legistlation through to enable Fannie and Freddie to buy even more, even larger loans on rapidly-depreciating McMansions in bubble economies, investors got nervous...

They were nervous that all those deadbeats out there who paid more than they could afford would welch on their payments, making Fannie and Freddi paper worth less than it ought to be.

As the stocks tanked, Paulson claimed that he would not pursue a solution that would reward current equity holders, but in the end, he didn't have the guts to let his Wall Street buddies take the losses, at least not yet.

Instead, we get a plan where the U.S. taxpayer will be stuck with an explicit guarantee on Fannie and Freddie. Get that? The wink-wink, nudge-nudge guarantee that allowed these profiteers to load their pockets with money at taxpayer expense is no more. Intead, the taxpayer ripoff is even worse: The taxpayer-backed guarantee is worth a great deal, and getting that for a cost of zero amounts to one of the biggest taxpayer ripoffs around.

The Treasury also said it would seek temporary authority so that it could buy equity in either company "if needed" to ensure they have "sufficient capital to continue to serve their mission" of providing a steady flow of money into home mortgages. The plan, which requires congressional approval, also calls for a provision to give the Federal Reserve a "consultative role" in the process of setting capital requirements and other "prudential standards" for Fannie and Freddie.

The Fed's Board of Governors met Sunday in Washington and voted to grant the New York Fed authority to lend to Fannie Mae and Freddie Mac "should such lending prove necessary," the central bank said in a statement. The move would effectively give the two companies access to the Fed's discount window if necessary, providing a backstop in case the firms were to face a short-term funding crisis down the road.

I'm sorry I expected better of Paulson. Apparently he's not willing to let.

If he's got any shame left, he'll organize a major equity purchase by the government of preferreds, make the bondholders take a haircut, and make the government the majority owner, installing some decent controls and throwing out current management.

But don't hold your breath. Instead, hold the bag. One of the biggest Ponzi schemes ever perpetrated in the history of the entire world is ending, and taxpayers who did all he right things are going to have to pay dearly for all their greedy neighbors.

The Feds have to do something to hold these two entities up, but doing it in a way that lets all the risk takers off the hook is an insult to capitalism, and an insult to hardworking, bill-paying Americans.


14 Comments – Post Your Own

#1) On July 13, 2008 at 8:48 PM, jahbu (78.48) wrote:

Save us globalist elite!

Problem, reaction, solution.

Amazing watching this whole thing unfold.  The complete dismantling of the sovereignty of the good Ol USA. 

Drunken sailor spending, endless war, and crooked bankers.  They went fishing for asssets and caught the mother load.

"Some even believe we (Rockefeller family) are part of a secret cabal working against the best interests of the United States, characterizing my family and me as 'internationalists' and of conspiring with others around the world to build a more integrated global political and economic structure---one world, if you will. If that's the charge, I stand guilty, and I am proud of it."
- David Rockefeller, “Memoirs”, 2002 

"The most powerful clique in these (CFR) groups have one objective in common: they want to bring about the surrender of the sovereignty and the national independence of the U.S. They want to end national boundaries and racial and ethnic loyalties supposedly to increase business and ensure world peace. What they strive for would inevitably lead to dictatorship and loss of freedoms by the people. The CFR was founded for "the purpose of promoting disarmament and submergence of U.S. sovereignty and national independence into an all-powerful one-world government."  Harpers, July l958 




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#2) On July 13, 2008 at 8:50 PM, jesusfreakinco (28.24) wrote:

I am in my late 30s and am so pissed at our government for raping and pillaging my generation and my kids generation.  On the other hand, an iminent collapse of our financial system wouldn't be a good thing either.

I just hope my gold investments pay off to the point where they make up for my loss in purchasing power and standard of living.  Unfortunately, for most my age and 98% of the sheeple living in the US, they are screwed - being sold out by having to bail out the rich and famous on Wall St...

Indeed we live in interesting times.  We'll see if the bears or bulls are in control of the market on Monday... 

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#3) On July 13, 2008 at 9:32 PM, abitare (30.02) wrote:

FYI - Mish Shedlock
Operation "Rescue Fannie" Underway - Paulson a Blatant Liar

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#4) On July 13, 2008 at 10:23 PM, alstry (< 20) wrote:

Amen Brothers......or shuld I now say comrades.

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#5) On July 13, 2008 at 10:24 PM, DemonDoug (31.05) wrote:

from the second they started raising interest rates in august i knew this was gonna happen.  the BSC deal was much worse than this one, but overall this stinks too.

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#6) On July 13, 2008 at 10:40 PM, alstry (< 20) wrote:

The BIG, and I repeat BIG, issue is whether the Fed or Treasury starts making equity investments in private business. 

That starts the slippery slope when there is no limit to how much private business government can own.

The Federal Government can, in theory, print as much money as it wants and buy as many businesses as it  wants.  Individuals do not have such luxury.

At the end of the day, we pay taxes to protect our individual liberties......not to take our property away from us.

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#7) On July 14, 2008 at 12:08 AM, dth20k (78.25) wrote:

Look at the bright side, we don't have to worry about those scary budget surpluses anymore!

From 2001 and Greenspan's support of Bush's tax cuts:

Greenspan warned that "continuing to run surpluses beyond the point at which we reach zero or near-zero federal debt brings to center-stage the critical longer-term fiscal policy issue of whether the federal government should accumulate large quantities of private (more technically nonfederal) assets."

Whew, we sure dodged that bullet!  Of course investing on the equity side of FNM or FDE while running either the largest or second largest (2004 or 05) budget deficit in the history of the world might not be so great for the dollar.  I think there's probably a sweet spot between apocalypse and the end of the dollar as a reserve currency where gold is a pretty good investment.



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#8) On July 14, 2008 at 12:20 AM, AntiRL (< 20) wrote:

I am so Freakin' @#$#@%$%

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#9) On July 14, 2008 at 12:47 AM, garyb52 (< 20) wrote:

In Italy in the 1930's, this was called Fascism.


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#10) On July 14, 2008 at 8:59 AM, Gemini846 (34.82) wrote:

This is very similar to the Fascist uprising in Europe.  I'm trying to pinpoint some of the differences, but they allude me.

1) Economic Pain (largely due to rampant socialisim).

2) Strong "redneck" type values. Religon, Guns, PATRIOT act.

3) Scapegoat present (imigrants).

4) Support for the Military but not the government.

5) Debt due to foreign wars. 

Don't be confused into me saying that Hitler II is comming to america. I don't think we're that radical. There is a lot of anger amongst younger americans, but they tend to be a lot more flexiable than the "bitter" older americans clinging to "religion and guns". 

I remind you that Facisim lasted over 60 years in Spain. 

If you are open to ideas regarding our individual liberties and how they are being stripped please read Ron Paul's Address to the Congress. You can find it here:


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#11) On July 14, 2008 at 9:46 AM, abitare (30.02) wrote:

FYI - Jim Rogers is on video talking about FRE and FNM "it is an unmitigated disaster"

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#12) On July 14, 2008 at 9:59 AM, TDRH (97.41) wrote:

To offer this backing with no changes in their lending/reporting  policies is gross negligence.   Their standards need to change in order to force borrowers to have skin in the game.     As it stands now this only delays the collapse of the financial system.  

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#13) On July 14, 2008 at 11:00 AM, Imperial1964 (95.07) wrote:

Why, thank you.  I always wanted to afford a large equity stake in a failing corporation. :P

So, does this mean I need to buy Puts on FRE and FNM to hedge?

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#14) On July 17, 2008 at 3:56 PM, TheGarcipian (35.49) wrote:

Great post, Seth. I couldn't agree more. Paulson is no less a liar than so many others in pats & present Bush Administration: Colin Powell, Tom Ridge, Condie Rice, Darth Cheney, Don Rumsfeld, Alberto Gonzales, Scooter Libby, Dana Perino, and Michael Mukasey. All of them have been caught red-lipped. Why should this surprise anyone that Paulson would flip-flop? I knew it to be a lie when I first heard him speak it a few weeks back. These people believe strongly in their version of the American dream: privatize the profits, but socialize the losses.

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