Taxpayers Bailing Out Freddie And Fannie?

Every now and again someone brings up discussion about the Federal Government owning stocks outright.

Usually people lose they minds within seconds of the subject being breached.

The usual way this enters conversation is when people try to figure out a way to save Social Security.

You see, there are some pretty huge pension funds in this country - CalPERS, TIAA-CREF, and so on, who DO own pretty signifcant equity positions (stocks) and arguably do a better job providing for their retirees than Social Security ever will.

However, there's word floating around just today that the Federal Government just might buy stock in Fannie Mae (FNM.N) and Freddie Mac (FRE.N) to keep them from COLLAPSING.

Yes, boys and girls - pretty much what has happened is that the collapse of the housing market has finally taken ol' Fannie and Freddie by the throat. Sometime Wednesday going into Thursday various anlayst comments started making the rounds that these two are completely, utterly, and absolutely INSOLVENT. There's a particular Barron's article that seems to be the commentary of record on this topic - Failure Is Not an Option For Fannie and Freddie". It, in turn, appears to be based on commentary from former St. Louis Federal Reserve President William Poole who calculated that Freddie and Fannie owe $5.2 billion more than their assets are worth under fair value accounting rules.

There was pretty much NOTHING else on CNBC all day Friday.

Now, there's been an implied, although certainly not statutory, guarantee that if these two ever did start to go under that the Federal Government would bail them out and it looks like that's exactly what's going to happen.

But, let's consider precisely what this means.

Now, in the event of what's looking to be an unprecedented financial storm where people are losing their houses at a faster clip than they were in the Depression, you'd think the Federal Government would respond at least to the extent that they did at Katrina - at least provide some trailers or something of the sort.

Oh, NO - this bail-out is not about HOME owners, it's about BOND owners.

You see, with the explicit support of the Federal Government, Freddie and Fannie have been selling bonds based on mortgages that have very little remaining value at this point. For starters, alot of people don't have work to pay their mortgages. If people can't pay their mortgages, Freddie and Fannie can't pay their bond holders.

Now, is the Federal Government going to set up a program to help people pay their mortgages so that Freddie and Fannie can, in-turn, pay their bond holders?

HELL no.

They're going to pay these mainly super-rich bond holders DIRECTLY to keep them from going into an uncontrollable panic and completely seizing up the economy.

Of course there's only one way to do that - pretty much by printing money.

You think $4/gallon gas is bad?

You think $2.50/loaf of bread is bad?

You think $3/gallon milk is bad?

You ain't seen NOTHING yet.

I'm betting we see $10/gallon at the pump by July 4, 2009.

We may very well be headed for a Germany/Yugoslavia style hyperinflation.

This government has sent the undeniable signal they're going to keep pumping money into this system as fast as the fat-cat investors can waste it.

If we had the slightest bit of guts, we'd cut them ALL off. Get someone's hopes up that they can afford a nice house when they really can't? These investors DESERVE to be ruined and standing in the bread lines with the people they tricked.

Every last one of them.

Related:
Feds Open Credit Window to Fannie, Freddie - CNBC
Treasury, Fed to help prop up mortgage giants - MSNBC
Fannie and Freddie Update! Judgement Day Tomorrow - The Housign Time Bomb

“Stands Ready To Take Additional Actions As Needed”

"Mr. Bernanke avoided any specific promise to lower the central bank’s benchmark federal funds rate ..."

We need a half-point cut.

We need it NOW.

I'm not KIDDING here, people ...

However, apparently Fed Chair Ben Bernanke did add that conditions are changing quickly enough that the Fed might act even before the next policy meeting on September 18th if the next batch of economic data still looks unfavorable.

You don't need to look at the next batch of economic data.

There are people out there that don't just have ARM's that adjust every couple of years.

There are people out there with mortgages that index to prime EVERY FLIPPING MONTH and prime is usually tied DIRECTLY to the Fed Funds Rate.

Not the flipping "discount rate".

Not "LIBOR".

Not a number you randomly pulled out your kazoo.

Fed f*ck*ng Funds.

For all intents an purposes, Mr. Bernanke, your agency, the Federal Reserve, is lending money to millions of people for their ONLY SHELTER, and, until the President and the Congress and the mortgage industry can straighten out this unholy MESS they have gotten all of us into, quite frankly only YOU can prevent a STAGGERING number of people from missing payments, leading to the inevitable credit score reductions, leading to the inevitable foreclosures and people becomming unemployable because, yes, more and more employers are checking credit ratings.

The President was quoted yesterday as saying, “It’s not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford.”

No, the BANKS and MORTGAGE COMPANIES let people buy homes they could never afford.

How could some of the products that were being offered a few years ago even be LEGAL??

Of course, in an ideal world, you'd hang the speculators out to dry. These rich S.O.B.'s who were investing heavily in hedge funds that were buying up variable rate mortgages like there was no tomorrow deserve to lose their shirts. They deserve to be incarcerated and executed. It's like giving a four-year-old a toy and then yanking it back from him.

However, in this case, the results of the hedge fund investors' poor decisions is that certain people left REALLY f*ck*ng nice apartments where EVERYTHING was taken care of and invested in sh*tty g*dd*mn real estate that needed SO f*ck*ng much work that they had to both tap out home equity lines of credit AND credit cards just to make the f*ck*ng place LIVEABLE.

I tell you what - if we're going to have a Federal Reserve that is constantly d*ck*ng with the market anyway, they need to set MULTIPLE rates.

If the economy is overheating, they need to cut back on money going into COMMERCIAL PAPER and that sort off stuff.

However, at the same time, if you clearly have a mortgage crisis going on due to STUPIDITY and people FALLING ASLEEP AT THE SWITCH, the LEAST you could do is pump enough money DIRECTLY into mortgages in order to get them into a manageable level.

Yes, Mr. Bernanke, you need to directly lend ME enough to pay off my second mortage.

You need to lend me that money at 6% amortized over 40 years.

I'm straight up serious.

Bypass the banks. Bypass the mortgage companies. *I* am the one who needs the money.

Because, believe you me, you do NOT want me getting put out on the street becasue I may have to come bunk with YOU for a number of YEARS and I can assure you I make a lousy house guest ... :)



Related:
Bush’s FHA Plan May Only Reach 10 Percent of At-Risk Subprime Borrowers - Housingwire
Treasury Three-Month Bill Yields Fall Most Since 2001 on Credit - Bloomberg