Sunday, September 7, 2008

Take-over update from the US

Treasury Outline Fan-Fred Plan

"The Federal Housing Finance Agency, Fannie and Freddie's regulator, is to use its legal powers to put the companies under conservatorship. Those powers allow the FHFA to run the companies indefinitely, under certain conditions, such as when the regulator finds that they are likely to be unable to meet their financial obligations. Fannie and Freddie have run up combined losses totaling about $14 billion over the past four quarters and face heavy additional losses amid the worst surge in U.S. home-mortgage foreclosures since the 1930s".

Posted by alan @ 12:39 PM (947 views)
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19 thoughts on “Take-over update from the US

  • $14 billion over twelve months is no doubt a lot of money and I would not deny for a second the US housing market looks as though it has a way to go but $14 billion is really a drop in the ocean when you consider that the US estimated budget on the military for 2008 is greater than $700 billion and some estimates put the figure closer to $900 billion.

    It would be an understatement to say that the US is in a mess but I think our mess (UK), is going to be harder to recover from.

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  • gardeniadotnet says:

    > $14 billion is really a drop in the ocean….

    Yes, but this is the start of something, not the end of something.

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  • gardeniadotnet says:

    Alaska Governor Sarah Palin, the Republican nominee for vice president, said during a rally Saturday afternoon in Colorado Springs, Colo., that Fannie and Freddie have “gotten too big and too expensive to the taxpayers.”

    Hmmm… Right. Thanks for that. Yes.

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  • “Yes, but this is the start of something, not the end of something.”

    The pooh that is the US housing market is about a year ahead of us. Call it what you like. It’s still a drop in the ocean and akin to a mosquito, i.e. irritating but not life threatening.

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  • Letsgetreadytotumble says:

    “the US estimated budget on the military for 2008 is greater than $700 billion and some estimates put the figure closer to $900 billion”
    Tends to put into perspective the magnitude of our governments loans to the banks. £200 billion???
    That means a population of 20% of the America’s population could support something like 50% of their military costs.
    Or are my figures fugged up?
    Of course, we are supposed to get the money back, although I think the risk of losing it gets bigger by the day.

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  • gardeniadotnet says:

    >irritating but not life threatening.

    Denzil,

    All I can do is see and say the obvious, and it is obvious to me that you are still in denial. Let me explain it another way….

    A financial ripple is now washing around the world’s ankles, BUT a 618 trillion dollar tsunami is on its way.

    That, I think you’ll agree, is no mere ‘irritant.’

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  • “Call it what you like. It’s still a drop in the ocean and akin to a mosquito, i.e. irritating but not life threatening”

    Unless of course the mosquito is carrying Malaria.. 😉

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  • I’d stick to cloning!

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  • gardeniadotnet says:

    C’mon Denzil, you can do better than that.

    What are you going to do about the 618 trillion dollars?

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  • The banks and mortgage companies’ problems are well publicised. There are lots of other industries which are currently starting to slash & burn in the USA. This is just the start, a “drop in the ocesn”. When the defaults add up, there will be much bigger bills to pay. Bond insurance is another painful area. Following on; the US Automakers want to borrow £25bn, and so on.

    Yes, the UK is behind the curve, maybe by 6 months, but we will have the same problems. The difference is that the UK has exported much of it’s basic industry to E.Europe and India. The UK is more indebted, per head. The UK buys in more things from Europe and our exchange rate slips by the day…we are due for deeper trouble, no mistake

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  • So we have magically gone from $18 billion to a 618 trillion dollar tsunami. That kind of logic could really only happen on this hpc blog.

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  • Denzil… $18 billion is only acknowledged losses over the last year. The actual losses if marked to market are actually much larger, accounting is being used to obfuscate.

    Secondly, the companies are currently $36 billion market cap, down from $300 billion – that’s a massive loss so far, and this takeover is an acknowledgement that these companies are insolvent. That means that these shareholders may all be wiped out completely – either that or the fed uses taxpayer money. Either option will havea huge impact.

    Thirdly, why has this happened now? Because foreign investors are not buying FM & FM debt at the same rates as before. This is pushing up the cost of their debt, making mortgage funding more expensive. This is counter to the fed fund rate, and exposes the weaknesses at the core of theUS housing market. Consequently stepping in reassures the foreign investors their debt won’t be lost – FM & FM have $200-300 billion debt rolling over in just the next 6 months. The costs of a failure on those debt rollovers would be the end of theUS housing market; that cannot be risked.

    So what else, after the mere $500-600 billion discussed? Well if FM& FM have to acknowledge their losses that could be a few more $100 billion.

    Finally, wait until the foreign buyers of US government debt get a load of this news… could be a big week!

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  • Thanks for the explanation beartil2010.
    It’s nice to have some rationale to the figures you quote.

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  • yep it’s pretty scary. Could be fine – but it shouldn’t be. It shouldbe a signal of systemic weakness, batter the dollar’s rally, andcause foreign investors to stop buying so much US debt. The US stock market should crash or at least continue a rapid downward movement.

    But none of that may happen. The ECB and BoE will keep buying dollars.

    The huge numbers the guys are talking about are the total of US debt provision as well as the bond and other markets. That’s higher level stuff and may never happen. However if people stop buying different types of US debt (corporate bonds as well as govt.) on top of the market forcing crystallisation of the losses on mortgage securities, it could be in the trillions.

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  • In memory of Don LaFontaine (film voice-over artist, departed this world 1-9-08) to be read in the deepest growliest american drawl.

    In a world far far away, the people were governed by an imbecile who loved to go to war, so obsessed with kicking the butts of innocent muslims and arabs the ruler failed to realise that the money lenders, instead of lending money to the just and the good, were lending money to the unwashed and workshy. The loaned incredible amounts of money to rednecks and junkies, to the unemployed and the winos, in fact as long as breath could be proven to eminate from your body they would lend you money to buy houses, apartments and condos that you had no realistic way of really paying for, the “american” dreams of millions appeared to have finally come true, property prices rose, and rose, and rose.

    Eventually the people grew tired of the “american” dream, just about the same time they discovered they could no longer afford pizza and their mortgage repayments! So, by their hordes and their millions they stopped paying the banks and started paying for pizza again, and so the credit crunch was born.

    Over the weeks and over the months, the banks and money lenders started to feel the horrible effect of the hordes defaulting on their home repayments and moving from their houses, apartments and condos by the hundred of thousands, and moving back into the trailer homes in trailer parks from whence they came. Eventually even the great ugly giants “Fanny Mae” and “Freddie Mac” could no longer survive and the imbecile who ruled their world declared

    “THE CREDIT CRUNCH part 2” The sequal

    In a cinema near you from the 7th September 2008 certificate XXX

    Be afraid, be very afraid, be even more afraid than you were before you were very afraid, in fact you have permission to soil yourself uncontrollably….. there, doesn’t that feel better !

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  • beartil2010 said:
    “yep it’s pretty scary. Could be fine – but it shouldn’t be.”

    Yes, that’s kind of where I am but I have strong connections with the US and I’m certainly not underestimating their collective resolve and optimism coupled with some fantastically creative accounting practices in helping them pull through this.

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  • gardeniadotnet says:

    Can’t claim the following as my own work, but until it is convincingly challenged, I’ll continue to commend it.

    Perhaps you’ll be the first to pull it apart, Denzil?

    Derivative exposure: This is the real cause of the freezing of the financial system – not sub-prime, that’s just a convenient label to feed the confused and disinterested masses.

    Check out the figures in this table –

    http://www.bis.org/publ/qtrpdf/r_qa0712.pdf#page=108

    $618 TRILLION of derivatives outstanding as of Q3 2007 (add the ‘all markets’ futures and options totals), created by the worldwide banking system to finance ever-growing bonuses for the banking elite… and now the same banks that created them don’t want to touch them. These derivatives have been sold into our houses, pensions and stock market.

    Our financial system is in a mess so profoundly deep and complicated that no one can get a good handle on what needs to be done.
    In fact, there is very little that can be done. Our fractional reserve system does not allow for a contraction of money in the economy. New debt has to be created to continue the cycle, but it appears we have reached the pinnacle, and now we must face the consequences of the greed that has ruled our lives for the last few decades

    Gardenidiot

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  • gardeniadotnet says:

    @denzil> I have strong connections with the US and I’m certainly not underestimating their collective resolve and optimism coupled with some fantastically creative accounting practices in helping them pull through this.

    I read this as “If they concentrate really hard and look on the bright side, they can cheat our way out of this mess.”

    Hmmm….. do you really believe in what you’ve written?

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