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Can Freddie And Fannie Survive Monday?

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So will Freddie and Fannie survive Monday after the collapse of IndyMac?

Being taken over by the govt will wipe out the shareholders so surely all shareholders must be planning to sell now as there is no hope for these 2 institutions. Freddie has already been described as insolvent.

Is it possible for these 2 companies to survive Monday now that IndyMac has gone?

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So will Freddie and Fannie survive Monday after the collapse of IndyMac?

And if they don't......er, then what?

(Can think of several possible outcomes varying from Not Nice to Totally Bloody Calamitous)

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So Monday comes and wipes another 25%.

So what?

My guess is the government guarantees any shortfalls they have and slowly twists banking arms to take over their business. Or to close their doors to new business.

Cant see it starting a stampede.

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Let's see what our old chum Peter Schiff has to say on the issue

http://www.telegraph.co.uk/money/main.jhtm...12/cndow112.xml

"America's 'AAA' rating has become a joke," said Peter Schiff, head of EuroPacific Capital.

"I believe the losses from Fannie and Freddie alone could reach $500bn to $1 trillion dollars.

'' The US government will not be able to meet repayments on its debt once interest rates rise," he said.

Mr Schiff said a big chunk of the agency debt is held by foreigners. A collapse of confidence could set off a dollar exodus.

Elsewhere A.Nalyst goes on to say

It is unclear if Mr Paulson can delay a state bail-out for long. "There is concern that Fannie, Freddie, and Lehman will not be around on Monday.

For the record i still hold equities and i pooped when i read this

Personally i think we'll see a mass sell off.

Edited by slurms mackenzie

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Let's see what our old chum Peter Schiff has to say on the issue

http://www.telegraph.co.uk/money/main.jhtm...12/cndow112.xml

The US government will not be able to meet repayments on its debt once interest rates rise," he said.

Mr Schiff said a big chunk of the agency debt is held by foreigners. A collapse of confidence could set off a dollar exodus.

Elsewhere A.Nalyst goes on to say

For the record i still hold equities and i pooped when i read this

He is right, the western governments can't afford to raise rates, they are low for a few reasons, the reasons ive been saying for the past 3 years.

Edited by crash2006

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I can't see how the US govt any other alternative but to take control and wipe out the shareholders. The current spin from Paulson just seems to be to try and convince the little man to keep his money in whilst the big boys hit the exit doors.

(Can think of several possible outcomes varying from Not Nice to Totally Bloody Calamitous)

So what are your range of outcomes then?

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I can't see how the US govt any other alternative but to take control and wipe out the shareholders. The current spin from Paulson just seems to be to try and convince the little man to keep his money in whilst the big boys hit the exit doors.

So what are your range of outcomes then?

Too big to fail, too big to rescue safely.

My vote is on a "creative" solution where the company stays private, but administratively supported by the government. Assets and liabilities would not hit the federal log but the company would not be allowed to fail.

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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.

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How da hell can Bush intervene? He's damned if he doesn't, but even more damned if he does.

He'll just wipe out the $ if he inject the thousands of billions he'll need to in order to save Freddie and Fannie.

Sell Sell Sell the $!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

FFS, doubt the UK media f****w**s have even gotten around to looking at the currency implications yet.

This is Armageddon for the Anglo-Saxon economic model. RIP.

Edited by gruffydd

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I think I grasp the point of Fannie/Freddy - and Sally & Ginnie too...

What I'd like to know is this:

Who are the equivalent participants in the UK mortgage market?

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How? Any meaningful intervention will collapse the dollar.

like they give a shit.

As long as the peasantry continues to hand over labour and assets in exchange for paper they couldn't give two curly turds.

All they want to do is keep people banking. If they do it from burned out slums with electrified metal collars on to keep them pacified, that's fine.

Bailout, collapse the dollar, shoot a few front men, have a bit of a scuffley war or unrest, new currency and back to hidden rule by bankers will be the plan.

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The options for both Fannie Mae and Freddie Mac look bleak. It is unlikely the US government will let them "fail" (technically they already have) but the risks for the world economy have now increased dramatically. If the US government takes on the debt of these two institutions its debt will double overnight. AAA US govt bonds will not be worthy of the AAA status and therein lies a huge problem. This is before the 46 trillion of CDS and CDO's start to be marked to market and unwind. (Fact: in 2002 the CDS market was 1.46tn in size with a default rate of 9.3% since then the market has grown to $46tn and default rates dropped to less than 1.5%. Now some 40% of CDS protection is written on below investment grade companies. If the default rate reverts just to norm then some $5tn will default. I think it will be worse.) THe only way out for the USA is to devalue the USD. (Note that the pound is in no better shape) hence the flight to the Euro on Friday. THese are seriously dangerous times and cash is king. This weekends press is poor at best. There are opportunities out there though in the form of short ETF's, and currencies. Would be a brave honcho to buy anything equity related or property related now. More pain to come (No one invites me to dinner parties anymore Im so bearish any similar experiences???)

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The options for both Fannie Mae and Freddie Mac look bleak. It is unlikely the US government will let them "fail" (technically they already have) but the risks for the world economy have now increased dramatically. If the US government takes on the debt of these two institutions its debt will double overnight. AAA US govt bonds will not be worthy of the AAA status and therein lies a huge problem. This is before the 46 trillion of CDS and CDO's start to be marked to market and unwind. (Fact: in 2002 the CDS market was 1.46tn in size with a default rate of 9.3% since then the market has grown to $46tn and default rates dropped to less than 1.5%. Now some 40% of CDS protection is written on below investment grade companies. If the default rate reverts just to norm then some $5tn will default. I think it will be worse.) THe only way out for the USA is to devalue the USD. (Note that the pound is in no better shape) hence the flight to the Euro on Friday. THese are seriously dangerous times and cash is king. This weekends press is poor at best. There are opportunities out there though in the form of short ETF's, and currencies. Would be a brave honcho to buy anything equity related or property related now. More pain to come (No one invites me to dinner parties anymore Im so bearish any similar experiences???)

Welcome aboard.

I've been a well known property bear in my social circle for some time - and some are "slowly" coming around to my idea.

I was even told last night by a mate "it looks like you are timing things just right".

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Fact: in 2002 the CDS market was 1.46tn in size with a default rate of 9.3% since then the market has grown to $46tn and default rates dropped to less than 1.5%.

Do you have a reference for those statistics?

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The options for both Fannie Mae and Freddie Mac look bleak. It is unlikely the US government will let them "fail" (technically they already have) but the risks for the world economy have now increased dramatically. If the US government takes on the debt of these two institutions its debt will double overnight. AAA US govt bonds will not be worthy of the AAA status and therein lies a huge problem. This is before the 46 trillion of CDS and CDO's start to be marked to market and unwind. (Fact: in 2002 the CDS market was 1.46tn in size with a default rate of 9.3% since then the market has grown to $46tn and default rates dropped to less than 1.5%. Now some 40% of CDS protection is written on below investment grade companies. If the default rate reverts just to norm then some $5tn will default. I think it will be worse.) THe only way out for the USA is to devalue the USD. (Note that the pound is in no better shape) hence the flight to the Euro on Friday. THese are seriously dangerous times and cash is king. This weekends press is poor at best. There are opportunities out there though in the form of short ETF's, and currencies. Would be a brave honcho to buy anything equity related or property related now. More pain to come (No one invites me to dinner parties anymore Im so bearish any similar experiences???)

Ohh ??

Is that why my social life has taken a downturn - thought it was my eating habits !!!!!!!!!!

:P

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Do you have a reference for those statistics?

They appeared on Bloomberg about 5 months ago but the reference originally comes from Sanford Bernstein, the broker/ investment manager in the USA who are a good source on credit markets

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Fact: in 2002 the CDS market was 1.46tn in size with a default rate of 9.3% since then the market has grown to $46tn and default rates dropped to less than 1.5%.
They appeared on Bloomberg about 5 months ago but the reference originally comes from Sanford Bernstein, the broker/ investment manager in the USA who are a good source on credit markets

:-S Thanks for the hint... I suppose I'd better say why I asked. I'm aware that CDS issuance has grown rapidly, but I thought the figure of the order of $4n trillion was a recent count of all derivatives - of which CDS was only a proportion (all be it a very important proportion).

Also of significant interest is the idea that there was a 9.3% default on $1.46tn and, later 1.5% on $46tn equates to an annual default of $136bn having risen to $690bn - or a five-fold increase in default. It has been discussed here at great length how the total notional value of CDS contracts holds little analytical information (because CDS contracts may be used to hedge CDS contracts - and, in doing so, reduce dramatically the risk per contract even if the systemic risk increases by some unquantifiable margin).

The idea your figures give me is this:

If we assume that the vast majority of CDS contracts are bought to hedge risk (from loans or from CDS contracts) - and that speculation in CDS contracts is not statistically significant (this is a pure assumption, and would have to be acknowledged in any tentative conclusion) and we can establish figures for the default rates on real loans... then we can accurately estimate the ratio of CDS contracts purchased to offset the risk of CDS contracts against CDS contracts purchased to protect against defaults on loans. If we can do that, then we can establish meaningful information about the perception of risk inherent in loans.... the graph of which, I'm sure, would be enlightening.

Of course, if any such calculations were to be undertaken, we'd need accurate figures (with no unknown caveats) on an annual basis (or, preferably, more frequently than that...)

N.B. The 'maths' above is only a sketch to suggest relevance... A lot depends upon how, exactly, I interpret the figures you posted.

Edited by A.steve

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For the record i still hold equities and i pooped when i read this

Personally i think we'll see a mass sell off.

Hmmm.....I'm far from convinced. The pattern of sell-offs on panic days has been maybe 500 points down followed by a vertical climb closing much higher over the coming weeks. If there is a sell-off I think it would be exactly the wrong time to join in.

I'm also very sceptical that there is any requirement for Paulson to nationalise their debts. At worst I believe there will be some workaround involving the injection of relatively modest amounts of capital from time to time. I simply don't get the hysteria. Volatility yes, but nothing new there. We'll end the week higher imo.

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  • 399 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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