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  1. Oh, I've been saying for around eight years that Fannie and Freddie would be Ground Zero in the credit bust. The most common reaction was "Who?" A couple years back I was skiing in Vail and shared a hot tub with a couple of hospital Consultants. The conversation came around to comparing the the UK and US economies. He mentioned that he had his pension cash invested in Fannie Mae as a "safe haven". I gave him the "Ground Zero" warning and suggested he "run rather than walk" to jis broker when he got back and sell Fannie Mae. He checked that it wasn't insider dealing or anything and I told him I was just an interested amateur. Nevertheless, he emailed a couple of weeks later to say he'd sold them. They were just under 80 Dollars per at that point IIRC and the start of their considerable decline was about six weeks later. He may be the only guy in the world who ever paid attention to me.
  2. A piece on why they're crucial to mortgage markets: http://www.iamone.co.uk/2007/12/01/when-mo...s-buy-the-farm/ Whether it's now or later, they're going to be insolvent because they're 60 to 1 levered on that 5,2 trillion of mortgage guarantees and even prime mortgages are going to see default rates hiyt 2% They'll also have to be bailed out in some way because the world financial system is at risk otherwise. Also the 50% of US mortgage markets which was subprime, Alt-A and Jumbo has already largely shut down. The 50% that's still functioning securitises 90% of it's business through Fannie and Freddie. FHA, which has liquidity problems of its own, relies on Fannie and Freddie for cash under the latest deal in Congress to try to prevent over 2 million foreclosures in the next year. So if they go down, only a smidgin of US mortgage outlets will still be in business and houses will be trading for cash if they can be sold at all. The competition for remaining cash would mean much more restriction on who can get a mortgage and much higher interest charges on mortgages worldwide. Make no mistake. These guys were always going to be Ground Zero of the debt-deflation (I've outlined why in previous posts over the last six years) and the response right now will probably decide whether the world is going into a recession or a depression. Meanwhile, welcome to Phase Two of the debt-deflation.
  3. Some good analysis here. What's missing is the current state of US ortgage markets. The half that was subprime, Alt-A and Jumbo has effectively shut down. The half which is still functioning is 90% run through securitisation by either Fannie or Freddie. If they shut down, then the US ortgage markets will be over 90% closed to business. Securitisation would effectively be dead and only the banks left to lend. The banks are hurting for cash, and they're not going to be so keen. The end result would be a gigantic hit to available mortgage cash, meaning far fewer mortgages and far higher interest payments for any mortgages which are made. That would be another ratchet down for house prices and thus yet more writedowns on mortgage-backed bonds by the banks. I've had Fannie and Freddie marked as Ground Zero for the bust since 2000. it looks like now we get to see what a real debt implosion looks like. Even with any sort of bailout they'll still be injured and it's bound to affect availability and pricing of mortgages the world over. This is likely to be the single biggest incident in the credit crisis and the effectiveness of the response will most likely decide whether the world faces a recession or a depression.
  4. In the end, credit bubbles and their collapse lead us to the point where credit is neither offered nor sought. Houses will eventually become affordable. For cash buyers. The deposit will become the price.
  5. OK, I managed to finish a draft article for One magazine. It's massively too long, but I guess that's the editor's problem until he tells me what further work he wants done. So: now I owe you guys an article. I never know how to start these things and generally need a kick to get moving anyway, so why don't you kind folks suggest which topics you'd like me to cover? Obviously I could update on anything I'd touched on in the original post, but I'd be willing to have a go on other stuff if I happen to know anything about it. As I've said, my main interest has been in the history of previous credit bubbles, but I've been reading between 50 and 100 finance articles a day for many years and so I'm up to date on some aspects of the current crisis too. Over to you, and I'll do what I can with your suggestions...
  6. Someone just alerted me by email. Where's the further discussion. I do apologise for extreme tardiness and I'm aware that I do owe you guys an article. Unfortunately (or fortunately?) One magazine have contacted me and asked for an update to "When Mortgages Buy the Farm" (see link earlier in this thread). I really have to do that one first. If anyone really is hungry for more of my ranting (and I find that surprising myself), there's stuff on the uk.finance newsgroup in the thread "Housing Market Collapse".
  7. There's a story out there that the Fed moves this week has caused these problems. The basic idea goes that the Fed offered the option to swap AAA mortgage-backs for Treasuries (the subtext was that Fannie Mae is in trouble and this is a way to bail them out since most such bonds will be theirs or guaranteed by them). However only banks can go to the helicopter and make these trades. So suppose you're a creditor of Bear Stearns or Carlyle and you're scared witless about their exposure to mortgage-backs. You don't want to call them in on a default, grab the MBS's and sell 'em yourself because you know that the market in them is already toast and you'll only make it worse dumping more crap. Then the Fed offers you a chance to swap 'em for US Treasuries? What's a poor investor to do but call a default, grab armfuls and run, not walk, to Chopper Ben's helicopter to make the trades and walk off with all those lovely US treasuries? Before you can say "perverse incentive" they'll all be doing it. Remember those pictures of folks haning from the helicopter at the Fall of Saigon? How many folks does it take to hang to a helicopter before it won't fly?
  8. I'm in Utah at the moment and have been following the fun on yank TV. The Bear Stearns thing was looking likely evn two days ago, though of course they were denying it as hard as the Hillary camp denying theyre racist. What's really interesting is that it's all been accompanied by rumours that Fannie Mae is in trouble too. Fannie dropped 11% two days ago and then recovered. There was clear panic that the half of the US`mortgage market that is still operational was about to shut down. I'd be amazed if Chopper Ben hasn't hasn't been working behind the scenes to bail out Fannie too. I've thought for ten years that when Fannie goes under, the game is up. Today's the day the teddy bears are having a picnic....
  9. I'm in Utah at the moment getting high on the white stuff. Today though there's so much of it I'm pretty much trapped in the hotel. Still, as a student of bubbles and crashes, the television here is unusually exciting. I've been watching CNBC (known affectionately as "Bubblevision" over on prudentbear.com, one of our comrades in arms). There's been a slew of angry capitalists frothing at the mouth about Bernanke's bailout of Bear Stearns and apparent favours to JPM Chase. The President has been on TV to tell everyone that everything is hunky dory. He looked like a deer caught in headlights. My long-held theory that Bush junior will go down in history as Herbert Hoover II is looking more like a sure bet by the second. Chopper Ben is due to make a speech to the nation about housing soon. That's going to look like a guy with a foot on each side of the San Andreas fault during an earthquake shouting that it's OK, he's gonna hold it together personally. Larry Kudlow is going to interview the Presient tonight. My impression is that the word has now gone out that they've got to do absolutely anything anyone can think of to reassure the public, keep thm going to the malls, and prevent a depression. Indeed comparisons with 1929 are now being opnly discussed on news features. Erstwhile freemarket capitalists are more or less calling for the entire housing industry to be nationalised. The Fear is evident. The newspapers here are chock full of stories of economic doom. Brazilian hawkers won't accept Dollars from American visitors there any more because they drop in value too fast. That's seen as pretty shocking. Housing in Utah hasn't ben hit as hard as other states, but there's no optiomism to be had here either. Projections are that house prices will be down 17% by the end of 2008. Meanwhile I picked up Bill Fleckenstein's book on Greenspan and why he's to blame for the mess. I'll post a review when I've finished it.
  10. Oh yeah. Friends of Fernando Poo : arguing in newsgroups since 1987 ;-)
  11. We must be. The FT said last week that the average yield on NR's 25 billion mortgage portfolio was around 6% So they're going to pay 6.9% plus something to compensate the government for the bond insurance (after the EU orders it). Call that somewhere between 1% and 2% (which is generous given NR's dodgy finances). This means that NR would have to shell out about 1.5 billion per annum in losses just on that 25 billion, never mind whatever interest they've racked up at penalty rates in the meantime at the BofE. Remember the adage "When in a hole, stop digging"? Brown and Darling are in a very deep hole and going at it like steam shovels. Still, why should they care? It's our money.
  12. It's beginning to percolate people's thinking that a recession was already written in and that the 750 basis points cut and the raining down of 800 Dollars cheques is about trying to stop a US depression. I've said for years that Greenspan would go down in history as the man who saved a recession at the cost of a depression. Now that gets put to the test...
  13. Trading now suspended on Shanghai stock exchange. US liquidity was largely supplied from China and Japan. Inasmuch as the debt cycle involved the US going into hock to buy Chinese imports and then the Chinese recycled the Dollars as US debt in bonds and mortgage-backs, both wheels have now come off the bicycle. No doubt now: first global credit crash. The largest credit bubble in history is now fatally punctured.
  14. We may as well get used to calling it "Buy to Lose"
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