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alstry (35.45)

FloridaBuilder....The Implications of Fannie and Freddie

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September 06, 2008 – Comments (6)

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???

6 Comments – Post Your Own

#1) On September 06, 2008 at 5:16 PM, alstry (35.45) wrote:

Remember folks, total Fannie and Fredde papar is about $5 Trillion.  Foreigners probably own about1/3 to 1/2 of it.

The the assets of our commercial banks total about $12 Trillion not including money center or brokerage firms.  Therefore, telling us Fannie and Freddie are bankrupt does not instill too much confidence about the veracity of capitalization coming from our commercial banks since they all mostly have real estate loans as assets.

What's is Cramer going to say...."10% of our banks assets are being backstopped by the government....Boo Ya????"   What about the other 90% of banks assets????

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#2) On September 06, 2008 at 6:30 PM, dinodelaurentis (58.95) wrote:

is it just me or is the election getting strange? like you said, how will they spin this one?

we are living in historic times.

oh joy.

P.S. what predictions does the caps community have for an October Suprise? current conditions make one seem likely.

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#3) On September 06, 2008 at 7:21 PM, givmeabreak (29.70) wrote:

october surprise = war with Iran

 

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#4) On September 06, 2008 at 7:27 PM, Jhana9 (< 20) wrote:

Or a cross-border raid in to Pakistan that gets Bin Laden; which describes why we're doing it now.

Sorry, back to debt... 

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#5) On September 07, 2008 at 6:25 AM, Lordrobot (89.80) wrote:

This is a truly stupid move by the Government. First off Fannie and Freddie were the idiocy of FDR and the underlying assumption is the same as national flood insurance for the buyers of beachfront property that build in the hurricane and flood zones. It is an sssumption that life can be made safe if you steal money from the taxpayers when home buyers do stupid things, like buy in a bubble or buy in a flood zone.

The backstop prevents the marketplace from disgorging stupidity out of the marketplace. It props up  home prices artificially and encourages waste. There is nothing about a home that is leveraged at 90% and consumes 75% of one's annual income. By proping up such idiocy it guarantees inflated prices not only in housing but wage price inflation which is the economy killer.  The result of this absurd tinkering, and this is much worse than tinkering, will be a severe inflation.  Reality tells you that private equity would take over the whole mess at say 30 cents on the dollar. That is essentially the real value of the property as set by the marketplace. But the Washington idiots with the blessing of McCain and Obama, two more idiots, and Barney Frank that stuffed couch, are creating the dream of FDR, to nationalize real estate allowing the gov to print money and launder it through this scheme. 

Fact: Idiot buys home for 400K on income of 40K a year. Replacement value of the home is 80K. The rest is presumably land and markup. Gov takes over asset when Marketplace devalues property to 200K. Mortgagor is insolvent. Gov takes over mortgage, prints more money because it has NO productive capacity and inflates the 200K to 400K dollars. Mortgagor has been fleeced by the gov for 200K and doesn't even know it. But his pride feels better because he thinks the FMV of his home is the same as the purchase price. This gives the government the capacity to tinker with a highly leveraged 5 trillion dollars. This is a total abrogation of the Constitution and property. This is a fifth Amendment Taking with no compensation, and no indexing. It is unlawful.

I want to give you some numbers. In 1955 my dad bought a three bedroom two bath home for 15K, brand new. He bought a top of the line buick for 2800. While he did get a mortgage and car loan, his salary was 16K a year.  Now lets move forward to 2005. The same house was sold for 310K, a top line buick of 2005 was 35K. Total 345K. That is how much a person would have to make annually to equal the buyiing power of 1955!  That is 50 freaking years. Money is measured by what it can buy, not by the sound of the number.

This government idiocy is preventing a natural real estate deflation from occuring. It is a disaster. We have four billion hands in Asia and India that represent an inexhaustable supply of new labor. It will be impossible to compete with them when housing inflation ravages. It triggers wage price inflation and the untimate price is not recession but depression. The policies of this absurd taking were the work of the dumbest congress in history with two nodding imbiciles running for President, and another imbicile presently in the White House.

Our country, our buying power, and investment are being destroyed by a handfull of nonelected political appointees. This is a bigger power grab than Al Gore's global warming farce. At least with Gore, you knew he was out of his mind but the presumption with Treasury and the Fed and the SEC is that they are protecting the public instead of skinning them alive.

The SEC and FED has robbed the banks from seeking and obtaining abundant privite equity. SEC did this by stupidly allowing naked short selling which spread to naked short selling of bank portfolios. The markets otherwise would have properly valued the assets and they could have sold them instead of being picked apart by the hedge funds engaged in this tort of economic duress. The Fed and its bank regulators refused to allow private equity to save the banks even though money was available. So the natural unwinding process was disallowed.

Financial stocks and housing stocks will surely roar on Monday and short sellers will run for their lives and the home inflation bubble will reinflate and every shortsighted clown in America will cheer as the Government steals five trillion dollars of assets and prints cheap money to cover their recklessness. Bottom line... the government doesn't produce anything, they can only steal from you and tax you. This stupid congress has just let them steal 5 trillion dollars of real property assets.  

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#6) On September 07, 2008 at 6:26 AM, Lordrobot (89.80) wrote:

This is a truly stupid move by the Government. First off Fannie and Freddie were the idiocy of FDR and the underlying assumption is the same as national flood insurance for the buyers of beachfront property that build in the hurricane and flood zones. It is an sssumption that life can be made safe if you steal money from the taxpayers when home buyers do stupid things, like buy in a bubble or buy in a flood zone.

The backstop prevents the marketplace from disgorging stupidity out of the marketplace. It props up  home prices artificially and encourages waste. There is nothing about a home that is leveraged at 90% and consumes 75% of one's annual income. By proping up such idiocy it guarantees inflated prices not only in housing but wage price inflation which is the economy killer.  The result of this absurd tinkering, and this is much worse than tinkering, will be a severe inflation.  Reality tells you that private equity would take over the whole mess at say 30 cents on the dollar. That is essentially the real value of the property as set by the marketplace. But the Washington idiots with the blessing of McCain and Obama, two more idiots, and Barney Frank that stuffed couch, are creating the dream of FDR, to nationalize real estate allowing the gov to print money and launder it through this scheme. 

Fact: Idiot buys home for 400K on income of 40K a year. Replacement value of the home is 80K. The rest is presumably land and markup. Gov takes over asset when Marketplace devalues property to 200K. Mortgagor is insolvent. Gov takes over mortgage, prints more money because it has NO productive capacity and inflates the 200K to 400K dollars. Mortgagor has been fleeced by the gov for 200K and doesn't even know it. But his pride feels better because he thinks the FMV of his home is the same as the purchase price. This gives the government the capacity to tinker with a highly leveraged 5 trillion dollars. This is a total abrogation of the Constitution and property. This is a fifth Amendment Taking with no compensation, and no indexing. It is unlawful.

I want to give you some numbers. In 1955 my dad bought a three bedroom two bath home for 15K, brand new. He bought a top of the line buick for 2800. While he did get a mortgage and car loan, his salary was 16K a year.  Now lets move forward to 2005. The same house was sold for 310K, a top line buick of 2005 was 35K. Total 345K. That is how much a person would have to make annually to equal the buyiing power of 1955!  That is 50 freaking years. Money is measured by what it can buy, not by the sound of the number.

This government idiocy is preventing a natural real estate deflation from occuring. It is a disaster. We have four billion hands in Asia and India that represent an inexhaustable supply of new labor. It will be impossible to compete with them when housing inflation ravages. It triggers wage price inflation and the untimate price is not recession but depression. The policies of this absurd taking were the work of the dumbest congress in history with two nodding imbiciles running for President, and another imbicile presently in the White House.

Our country, our buying power, and investment are being destroyed by a handfull of nonelected political appointees. This is a bigger power grab than Al Gore's global warming farce. At least with Gore, you knew he was out of his mind but the presumption with Treasury and the Fed and the SEC is that they are protecting the public instead of skinning them alive.

The SEC and FED has robbed the banks from seeking and obtaining abundant privite equity. SEC did this by stupidly allowing naked short selling which spread to naked short selling of bank portfolios. The markets otherwise would have properly valued the assets and they could have sold them instead of being picked apart by the hedge funds engaged in this tort of economic duress. The Fed and its bank regulators refused to allow private equity to save the banks even though money was available. So the natural unwinding process was disallowed.

Financial stocks and housing stocks will surely roar on Monday and short sellers will run for their lives and the home inflation bubble will reinflate and every shortsighted clown in America will cheer as the Government steals five trillion dollars of assets and prints cheap money to cover their recklessness. Bottom line... the government doesn't produce anything, they can only steal from you and tax you. This stupid congress has just let them steal 5 trillion dollars of real property assets.  

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