Fannie Mae and Freddie Mac Fellatio!

Yesterday was not just the anniversary of the beginning of The Blitz of Britain by the Germans 70 years ago, no doubt being gleefully drooled over on the next morning by German leaders as the aerial reconnaissence photographs revealed the gruesome details of the death and destruction wrought by Germany's might, just as this morning, no doubt, a new generation in Berlin and Frankfurt relish the economic humbling of the City of London brought about by the humiliation of Britain's Chancellor of the Exchequer, George Osborne, in Brussels yesterday in an event that appears to have deliberately taken place on this hugely significant and bloody anniversary, no indeed, for it also marked the second anniversary of Fannie Mae and Freddie Mac being taken into the custody of the US Government. Does yesterday then perhaps also mark the end of the era of US moral leadership, might and world domination? Fannie and Freddie brought the pride of home ownership to many lower income Americans over many decades. They helped in pulling the country out of the Great Depression of the nineteen-thirties. Has the US Government, Congress, the Federal Reserve or any other body used the past two years to address the underlying problems of these two grossly over indebted mortgage suppliers? It appears not. In fact the very opposite has been the case. Over the past two years these now government controlled institutions have been the major supplier or underwriters of most of the new mortgages recently issued, therefore merely compounding their underlying problems, read a Bloomberg report from here, tellingly titled "Subprime 2.0 Is Coming Soon to Suburb Near You: by Edward Pinto". The housing crisis, such as that in the US and in Britain is the main underlying economic crisis on both sides of the Atlantic and it appears for the entire english speaking world, yet neither the US nor the UK Governments will face up to that fact. Solutions have been regulary suggested from this blog. Most recently David Cameron and Nick Clegg have been urged to return their property portfolios to the state from which they have indirectly been drawn. Other Cabinet Ministers would be wise to follow suit so that they can address the economic disaster in which the country now lies with clear eyes and from a sensible starting point. A man is worth more than the value of his home or the marque of his car. Economic might when misused can be overcome by ordinary people pulling together, that was the lesson of The Blitz. We can overcome this economic mess by grasping the fact that homes have values because they are secure, situated near schools and jobs priced at a wage which makes them affordable. Bricks and mortar torn down and resold with flat screen TVs or used modern kitchen gadgetry in an environment where no building is taking place have little value at all. Look round your possessions at home today, what are they really worth and if mortgaged to a typical bank, building society, or even Fannie or Freddie ------ what could these failing institutions obtain for their supposed secured assets when society has no hope?

Fannie and Freddie, the fundamental failure that has not yet been addressed.

This blog has repeatedly tried to alert its readers to the true depths of disaster represented by Fannie Mae and Freddie Mac for the US economy.

Most recently it has revealed the involvement of President Obama in fuelling the problem the causes of which lie even further in the past. So many powerful people under various administrations have had a hand in running up the horrendous debts, that politics itself has become one of the major impediments to finding a solution.

On Monday on Bloomberg Television's Charlie Rose programme, Gretchen Morgenson was interviewed about her book 'Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon' its co-author is Joshua Rosner.

Any concerned with the similar problems afflicting UK property owners, should try to find time to watch this interview, which lasts about twenty minutes. It is linked from here.

Read a review of the book from the New York Times, (which employs one of the authors,) from here.

Previous posts on Ironies Too on Fannie Mae or Freddie Mac, from here.

Fannie Mae finally de-listed from New York stock market.

The creation of Fannie Mae as part of Roosevelt's New Deal in 1938, read here, was designed to solve the problem of the Great Depression of the 1930s. Regular readers of this blog will be aware that the later mishandling of the liabilities of these companies is what I believe caused to sub-prime crisis itself leading to the the recent recession. Good news then that the pretense that they continued as viable entities up to yesterday has at last ended. More worryingly is the fact that the huge bulk of new mortgages issued in the USA this year have (in combination with various veteran associations) been issued by Fannie Mae and Freddie Mac.

Restoring economic stability

William Rees-Mogg in The Times today has an interesting article, here, on the present chaos referring back to the lessons of 1931, to which I posted the following comment with very limited space: "Fannie Mae was an attempt to cure the Great Depression and is arguably a spark for the greater one now developing. Fixed exchange rates cannot be defended following decades of incompetent governance. Restore stable monetary values against finite items such as land. That alone can offer security." I have commented often on this blog regarding Fannie Mae and more detailed thoughts on economic solutions to the present ongoing disaster in particular in the posting of 7th August, linked here, titled "Needed - A new Bretton Woods Agreement", from which comes this: Hard-working and comparatively vacation-starved US families who became used to watch their work rewards grow through their 401(k) pension schemes before the Clinton stock market bust have now watched with dismay as the alternative calculator of land and property values rapidly head south as accentuated by the plight of the formerly solid institutions of Fannie Mae and Freddie Mac. The crying need for a stable calculator for value for America's hard-working families could surely not be any clearer or yet more urgent than with the coming election. In spite of the WTO, Nixon's precedent of a temporary import surcharge will not be something to be easily ignored. George W Bush, whose Presidency already appears likely to be viewed by history as far more successful than contemporary pundits might ever have imagined now has the chance to leave a legacy of a secure and strengthened dollar as his overarching achievement for posterity. Fixing a value for the dollar requires no international agreement, it can be accomplished by the best brains and economists from across the parties, political spectrum and diverse interests of the nation. With modern vast number crunching computing power it could be as complex and regularly reviewed as any might wish or as simple and eternal as the value of gold or the wheat yield of land. Anything is possible - anything is essential. In spite of the posting's title what I was proposing was something quite different from the original Bretton Woods agreement and initially only involved the US Dollar, I quote again: Fixing a value for the dollar requires no international agreement, it can be accomplished by the best brains and economists from across the parties, political spectrum and diverse interests of the nation. With modern vast number crunching computing power it could be as complex and regularly reviewed as any might wish or as simple and eternal as the value of gold or the wheat yield of land. The same solution could be available for the Pound Sterling, but a fixed currency demands honest politicians, while the incoming Obama administration might offer Americans such a prospect, none such seem to exist in the UK!

Freddie Mac CEO Quits

After only six months of "conservatorship" the Chief Executive of the huge US mortgage lender has had enough. The CNN report of the resignation is linked here. As this blog has frequently pointed out the seeds of the present Crash may be partly found in the creation of the federally subsidised mortgage lenders for low income US families, known as Fannie Mae and Freddie Mac, which served (together with the industrialisation required to mount WWII) to drag the western world out of the Great Depression. The loans made by these organisations were never properly carried on US Government books and the situation was further compounded when greater quantities of such lending were undertaken in recent years in what has been called the sub-prime crisis. We are therefore trying to grapple with the results of decades of irresponsible lending, will the next CEO last any longer?

Fannie Mae and Freddie Mac

Hang on! AND not for the high winds. Now when we talk trillions I begin to get confused, but I believe 4.9 trillion dollars comes out as: 4,900,000,000,000,000,000 This from the Houston Chronicle:

While the government isn't obligated to assist Fannie or Freddie in a financial emergency, many on Wall Street believe it would bail them out if there is a collapse. The idea that they are "too big to fail" enables the two companies to borrow relatively cheaply by issuing top-rated securities backed by mortgages.

Fannie and Freddie hold or guarantee around $4.9 trillion in home-loan debt, though under a 1992 law they are required to hold in reserve only a fraction of what is mandated for commercial banks.

Mae, Mac and the fading magic of minus one!

Minus one was a magical invention! Mystical even Majestic and certainly magnificently beneficial. It allowed us to eat three apples when our present yield had been only two. Of course, next harvest, when the twelve we usually anticipated actually arrived only allowed us to eat eleven caused it to be viewed in not such a charitable light. Hence the danger signs! BUT! Where did the possibilities of minus one end? Minus infinity to any rational thinking, common sense person (by definition therefore - not an economist) had to be an impossibility. Yet we have passed in recent years from minus millions to minus hundreds of millions to minus billions to minus hundreds of billions! In September 2008, we have finally set a temporary bar, which according to my blog last February which predicted the nationalization of Fannie Mae and Freddie Mac then seemed set at 6 trillion. The US Government and Treasury Department have this weekend finally bit the bullet and decreed that minus 6 trillion (on last February's figures) is an impossibility! Manipulators of the dark arts of economics have always known that minus one is a convenience based on strong governance. Admitting that minus six trillion is the limit will give the world unconsidered problems! If the UK Government was tomorrow minus one at its head - things might improve! BUT Gordon Brown, an Historian as I understand things - does not understand minus one!

Five trillion increased indebtedness heads for the US

As this blog forewarned last March, here, the next Tsunami to crash against the West's economies will come with the quaint sounding names of Fannie Mae and Freddie Mac. These 'government backed'/ 'not really government backed' financial institutions holding trillions of the lower income mortgage debt of the US housing market typify the kind of murky financial practises that have now brought us to the brink of Phase II of the credit crunch. As I blogged earlier this month, here, only a restoration in the belief in the dollar can supply relief - summed up - that means "sound money" folks! Read Fannie and Freddie hit the skids from the Wall Street Journal Blogs, here. UPDATE on 22/8/08 View this interview on YouTube from Bloomberg with Harvard's Marty Feldstein from Jackson Hole, here.

Fannie Mae & Freddie Mac continued.

This blog has had much to say down the years on the housing crisis on both sides of the Atlantic. On Fannie and Freddie, this link is to a few of such postings.

It is good to see that a web site of the calibre of Acting Man has today tuened again to that issue, that posting is linked here.

"HOUSE PRICE" not "Banking" Crisis

Across the world this weekend national leaders and heads of international organisations are meeting to come up with new sticking plaster cures for a banking crisis they state has caused a stock market collapse. Unless they address the real crisis their cures are doomed to failure - for this is a financial crisis caused by the house price bubble. It started in the US with its roots in the Democratic Party inspired reckless lend by Fannie Mae, itself a creation of the supposed cure for the Great Depression. The publicly underwritten mortgage debts together with those of its sister organisation Freddie Mac were never carried as public debt. These organisations lent to low income people incapable of responsible mortgage and lifestyle management. Similar crazed lending policies were adopted in the UK under the New Labour Government and Chancellorship of Gordon Brown. Unless the artificially high house prices in these two countries are addressed the banks cannot be the source of salvation. Other countries may well have similar but not necessarily identical problems. If taxpayers money is to be liberally thrown away, aiming it to reduce house prices in the US and UK would certainly make more sense.

Obama falters

This blog wished President Obama good luck on the day of his inauguration. Today in Denver, speaking live at this moment, he will sign a huge 787 billion dollar package, no doubt full of the normal Democratic pork spending, which makes hardly a nod towards the real cause of the credit crunch - a solution for the non-financed debts, best represented by Fannie Mae and Freddie Mac, spreading their poison up through the housing market - even to those sitting in homes once valued in the millions of dollars. In that respect he joins the blindfolded British Government who have done nothing to address the credit crunch problem where it began - in the over-inflated housing market!

Ireland's Mortgage Mess - Another warning for the UK

The property price crisis remains the biggest danger§ How many times must we point this out but helplessly look on as the second government in a row does absolutely nothing to address the approaching disaster. A report in the Irish Independent this morning, linked here, details the numbers of mortgagees within the Irish Republic having their mortgage interest payments met by the state, an incredible 17,500 recipients, such policies are not sustainable and merely serve to maintain house prices at their ludicously high levels to the benefit of nobody while steadily eroding the resources of the state! In the USA such numbers appear microscopic, in the two years since the US Federal Government assumed responsibility for the mortgage providers Fannie Mae and Freddie Mac the cost to the Treasury in direct government aid was 150 Billion, that is correct 150 Billion dollars, see Reuters from this link if you do not believe me. Government Ministers who rate their own wealth in the value of their property portfolios, often obtained on the basis of capital gains accrued on mortgages funded by the taxpayer, seem unlikely to be able to grasp this nettle, hence the lack of any plan let alone rational consideration of the true awfulness of the crisis being faced. Such wealth is illusory, grasp that fact and go from there. Exchange rate depreciation and inflation will not cure the problem that exists up and down the country where professionals necessary for the provisions of community services cannot afford the properties in which their families need to live at the salary levels the local communities can afford to pay. This blog has tried to suggest sensible solutions which I have now become tired of linking. State payments to subsidise underwater homeowners is like the squillions paid to the failed banks, waste pure and simple.

Needed - A new Bretton Woods Agreement.

A year into the crisis and the FT is doing a review into what happened, linked here. All who believe in individual liberties and democracies have lived through a perilous year and while the recent 15 per cent fall in the oil and gold price with a slight recovery of the dollar might be a glimpse of light at the end of the tunnel, there seem many more and greater risks ahead. In a posting beneath this, made earlier in the week, I linked to a You Tube video of Republican President Richard Nixon's speech in 1971 when he scrapped the convertibility of the dollar to gold and imposed a ten per cent surcharge on imports. This bought a quarter a century of controlled depreciation of the dollar. Oil producers and other suppliers of basic commodities have now given notice that they will no longer accept ever greater quantities of potentially worthless paper in exchange for their precious and finite natural resources. Hard-working and comparatively vacation-starved US families who became used to watch their work rewards grow through their 401(k) pension schemes before the Clinton stock market bust have now watched with dismay as the alternative calculator of land and property values rapidly head south as accentuated by the plight of the formerly solid institutions of Fannie Mae and Freddie Mac. The crying need for a stable calculator for value for America's hard-working families could surely not be any clearer or yet more urgent than with the coming election. In spite of the WTO, Nixon's precedent of a temporary import surcharge will not be something to be easily ignored. George W Bush, whose Presidency already appears likely to be viewed by history as far more successful than contemporary pundits might ever have imagined now has the chance to leave a legacy of a secure and strengthened dollar as his overarching achievement for posterity. Fixing a value for the dollar requires no international agreement, it can be accomplished by the best brains and economists from across the parties, political spectrum and diverse interests of the nation. With modern vast number crunching computing power it could be as complex and regularly reviewed as any might wish or as simple and eternal as the value of gold or the wheat yield of land. Anything is possible - anything is essential. New Hampshire is the perfect setting in Fall for such a conclave. Lock them up in Bretton Woods if Bush might so wish, but I would suggest the recently refurbished Wentworth Hotel (golf and sailing on hand) on Newcastle Island near Portsmouth NH, there they may not just observe the splendour of natures change from green to red to gold, but also be reminded by the sea of their duty not just to the citizens of the US, but also to the world and the nearby presence of the US Navy Yard will recall the reality of US power in its nuclear submarines, aircraft carrier battle fleets and giant superiority in space technology. Restoring the power and strength of the dollar seems as nothing when recognising the true underlying power of the United States of America which, of course, is bedded in its democracy. The stunning discovery of water on Mars by US scientists just this summer surely must highlight once again the stupidity of leaving the dollar, the currency of such an innovative nation, to drift and dangle. Either or both Presidential candidates could endorse the consensus concept of this Economic Conclave, which should be compulsorily achieved by an end October deadline. Congress would then have the utmost legitimacy for implementation early next year. By the Autumn of 2010 other Central bankers could attend a second Bretton Woods Conference to fix their currencies against the new dollar bench-mark, whether they do so or not is irrelevant as the spendthrift and deceitful politicians of the world will once again have a benchmark via which they can be exposed.

Bankrupt USA now faces an army revolt!

It is now three years since the world realised that the credit crunch had arrived, although the general public generally only twigged somewhat later as Northern Rock faced collapse. Yet today our ruling elites clearly remain blissfully unaware of the depths of the disaster they have wrought. An economics Professor from Boston University has now spelt out the facts in the starkest terms for Bloomberg, as may be read in full from here, while the following quote carries the essence:

Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

Worse Than Greece

Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

The scenario for the UK remains almost identical to that which the Professor cites for the USA, yet no action is forthcoming from the Coalition Government and none is proposed bar an announcement in October of reported severe spending cuts. Meantime the next downward plunge in the property price collapse looms in the wings. On 30th August 2007 in this blog in a posting titled "Britain's economic abyss" I concluded with the following: .... An Australian hedge fund went under yesterday and even the usually cheerful local SW news 'Spotlight' had a gloomy item on the looming house price bust. Not much of any of this in the morning press, but Camilla Cavendish in The Times has a good column, , from which comes this quote: Which just goes to show, I suppose, that idiocy is no more a bar to promotion in the City than anywhere else. People who complimented themselves on their brilliance at inventing ever more complex financial instruments with which to spread risk had started to act as though risk had been abolished. The problem is that the actions of the US Federal Reserve and Britain's Treasury under Gordon Brown, effectively achieved just that- indicating they would always underpin the fantasy world which they themselves had created. Until some major casualties are allowed to reap the consequences of their profligacy the final crunch will just be that much worse. A recent gushing report on the record price of 222 million dollars for a flat in London, also reported in the US as the most expensive real estate deal ever, indicates the opposite to that being reported, namely as a sign of house price strength; rather I would suggest it is a sign of amazing dollar weakness, and as goes the dollar so too will follow the pound, the euro, the yen and even the RMB! If 222 million dollars today, why not 222 billion in three years time, everything else seems to be going that way. Surely the fact that an individual can spend such a sum on a six bedroomed flat in the middle of a city bodes ill for the value of the dollar in the ordinary worker's billfold? What price a loaf of bread in Mayfair or within a stone's throw of Central Park in New York in such a world? Indeed will there then be loaves of bread in our cities for such individuals to buy and will these elites still retain the connection between mouth and stomach to make such consumption even necessary let alone worthwhile? This blog has frequently put forward suggestions (eg here and here) as to one way to avoid the continuing house price collapse where all the misplaced wealth of the nation now rests. As ever such advice is ignored and the crazyiness continues. In March 2009 this blog suggested to avoid the depression Bernanke be dropped from a helicopter, last week he unnerved the markets where junior traders with their bosses presumably on vacation sensed the looming chaos, by dedicating virtually non-existing mortgage assets assumed from Fannie Mae and Freddie Mac to purchase long term US Treasury debt thus further depleting interest yields. Is worthless money worth paying interest on at all? Perhaps as long as fools exist to barter flats for hundreds of millions of dollars I guess the answer to that still remains (but IMO not for very much longer) yes! One small exception to this refusal to face up to facts and realities, I choose to presume, came from Britain's Defence Minister last week when he reportedly insisted that the battle over who will pay for Trident was an ongoing discussion. He said: "Ultimately, all our defence capabilities have to be paid for. Which bits are paid, over what timescale, is part of the discussions we are having and I'm not going to entertain them in public. I have enough time entertaining them in private." I will take that as all the reply I am likely to get to my open letter to Dr. Liam Fox posted on this blog last week. The complete silence on any matter of significance to the future security of the nation from the co-addressee of that latter, Foreign Secretary William Hague, can be assumed to continue to be the case unless I post to the contrary on this blog. While the economic disaster in the USA and Britain seem very similar on Defence and Afghanistan at least Cameron's stand-in mannequin Nick Clegg will not have an army revolt to face over the next couple of weeks. The gauntlet thrown down by General Petraeus to his Commander in Chief on the influential Meet the Press TV programme yesterday, portends a deeper crisis to come. Britain's depleted, under-resourced and ongoingly uselessly sacrificed service personnel regrettably seem in no state to challenge the utter dross who for so long have been negligently governing what was once the United Kingdom.