FloridaBuilder....The Implications of Fannie and Freddie
Just a few weeks ago Paulson was saying no intervention was needed and Fannie's CEO was bragging about how well capitalized they were.
It is likely this weekend that we are about to find out that Fannie and Freddie are bankrupt. The largest financial institutions in the world are bankrupt?
If the government is now willing to admit Fannie and Freddie are bankrupt, how many other financial institutions are also in a similar situation?
Fannie and Freddie securities make up a relatively small portion of banks total assets.
We know that residential mortgage delinquency rate at the end of Q2 was almost 10% of all loans.(10% of mortgages are not generating cash)
We know that banks leverage up 10-1 and more.
We know prime mortgage defaults skyrocketed in July and August.
We know that commercial mortgage defaults are skyrocketing.
We know the majority of assets on banks' books are residential and commericial mortgages.
We know credit card delinquencies are rising.
We konw auto loan delinquencies are rising.
We know municipal debt distress is rising.
We know unemployment is skyrocketing.
We know that bankers have, UP TO THIS POINT, LIED OR MISLEAD about financial condition. (Just ask FloridaBuilder who is reviewing distressed bank portfolios that have not been written down)
We know that our two largest financial institutions are effectively bankrupt. Now the question is simply what is the true condition of the rest of the remaining financial institutions? You think saving a little Fannie and Freddie paper is gonig to solve the commerical problems and non fannie and freddie residential assets?
Another bank was shut down this weekend.....if banks were really honest with their financials.....how many banks do you think would have shut down by now????
People think Fannie and Freddie good for the markets on Monday???? That is what the futures wanted you to believe after hours........Now we know that equity of Fannie and Freddie is essentially worth zero......The stock market is a market of equity.........What happens Monday if the market questions what the equity of any company is really worth if the equity of our two largest financial institutions is zero??????
It is obvious debt has some value.....but will Fannie and Freddie show us equity has little value???