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Geithner To Bailout FHA?

Bruce Krasting's picture




 

 

 

So two days ago the WSJ runs the story that the FHA is soon to be in default due to a shortfall in its reserve fund. Sure enough, it's now official:

 

The government's finances are creating a three-ring-circus of events. I'm thinking to myself, "Where's the tent?"

Just a quick thought on the timing of FHA's bad news. This was "known" two months ago (or more). The leak, and the announcement, came a comfortable two weeks past election day. If you believe that's just a coincidence, well, I guess I have nothing to say.

The FHA says the shortfall in the books comes to a modest $16.3Bn. As bailouts go, that's chump change. It's small beer today, but next quarter there will be another shortfall as the "book" of nutty mortgage's works its way through (and steam rolls) the FHA. The losses being booked today (and next month) result from mortgage guarantees made back in the dark days of 2008 -09. These loans were programed to make losses. The chickens are coming home to die roost. I think FHA will need a line of credit for at least $50Bn.

Given that we are already on the brink of warfare in Washington over a bunch of money issues, the timing for FHA to go into the red is terrible. The Republicans must be peeing in their pants with glee over this affair. After all, FHA, is a child of the Democratic Senate. In the end, elder statesmen and learned stewards like Chuck Schumer (D-NY) were supposed to be keeping an eye out for FHA. Oh, well.

 

If you have an worries about FHA, and its ability to keep grinding out those ultra cheap 97.5% LTV mortgages, let me assure you that this will not be a problem at all. You can keep buying those high flying builder stocks, and maybe even buy a home of your own. The bottom of the RE market was a year ago already, right?

 

 

 

The problems at FHA are going to be swept under the carpet with no problems at all. In an ironic twist of history, Tim Geithner will put a pen to the FHA bailout before the end of the year. It will be his last act as Treasury Secretary. Our boy Tim came in bailing, he is going out bailing. He is, and always will be, the Bailout King.

Here's how it will work:

- Geithner will use his own bank, The Federal Financing Bank (FFB). This bank is owned by the US Treasury, and Geithner is the the Chairman of the Board.

- No Congressional legislation is required for Geithner/FFB to make loans to, or guaranteed by, government agencies. Geithner doesn't even have to take a call from a Senate Republican. Tim has the only signature required.

- FHA will get a $50Bn line of credit from FFB. It will immediately draw $20Bn in order to replenish the reserve accounts. FFB will book the advance as a loan. FHA will book it as a subordinated capital note, and therefore treat it as tier one equity. Of course this is all accounting rubbish. Just what's necessary to maintain the charade.

- Speaking of charades and accounting rubbish, the loan from FFB will not be reflected in America's debt profile. The FHA loans are not part of the Debt Subject to Limit. That's just the rules of this game. Loans to Solyndra were guaranteed by DOE, so the money Treasury borrowed to make the bad loans to Soly never showed up on the books. Talk about a neat trick!

- Treasury will issue a few more notes to the public to come up with the cash that FHA needs to honor its guarantees. That's not a problem at all. Maybe Bernanke will buy some of the paper, just to keep a necessary balance.

- With Ben B Zirping, the Vig for the FHA will come in at a very low rate. The FHA will borrow $30-40Bn and not pay a dime over 3/4 percent. Can you say "magic?

 

The foregoing is well more than a guess on my part. There is a road map for this type of problem. The FDIC was down to nickels back in 1991. It got a line of credit from the FFB for $30Bn. Later the FDIC line was increased to $100Bn. When the SHTF in 2009 the line went to a cool half trillion. When it comes to providing credit to government agencies that have outstanding guarantees to the public, the FFB is the way to go when in need of some cheap/fast cash.

 

 

There is a lot of talk going around that reads, "The debt doesn't matter". Maybe that's true. That, or the whole thing is smoke and mirrors. The FFB bailout of FHA will be of the smoke and mirrors variety.

 

 

 

 

 

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Fri, 11/16/2012 - 10:24 | 2987504 IAmNotMark
IAmNotMark's picture

How about an American North Korea?  A prison from sea to shining sea.  That would be a true bottom.

Or US Zimbabwe?  People picking corn out of cow poop for food while the police watch, protecting a government store.  That would be a bottom.

Maybe something from the pages of Stalin or Mao or Hitler?  I'm sure there's some excess population that could be disposed of...  That would mark a low for our country...wouldn't it?

Or a scene out of 'The Walking Dead', without the zombies?  Desolated cities, roving gangs in a lawless wasteland...

Yea...I've given some thought to how bad a bottom can be...hopefully we don't see any of those.

Sat, 11/17/2012 - 21:18 | 2992658 Zero Govt
Zero Govt's picture

America has most certainly become a tyrant (anarchist) State already with the powers the executive have awarded the executive (see the incest/power problem here?).

Not only an anarchist State in terms of a few running riot across its own citizens but waging muderous false wars across the globe. The Law prevents nothing because it is weilded by the State. The Law as matter of fact in all tyrannical elites is the tool of oppression 

On a good note the US cannot control its borders as say the USSR tried constructing the Berlin Wall or North Korea and Communist China has with fences. If you want to get out of the United States Banana Republic there are many ways, including banana boats

On a negative note the nation State has become more globalised and adept at chasing you across borders. Take for example the truly repulsive and undemocratic (no public mandate) policies of the IRS where Americans can no longer hold or open foreign bank accounts on their abusive, arrogant and paranoid false presumptions you must be either dodging tax or have some drug/terrorist motive 

the State was never 'By the People' or 'For the People'. It has always been a State of Anarchy, for an elite to enrich and empower the elite over the people 

Fri, 11/16/2012 - 00:11 | 2986754 JR
JR's picture

In spite of the smoke and mirrors and the accounting tricks, the true aspect of this transaction remains: it is the people’s money. Through the fingers of the Secretary of the Treasury the hard-earned value of the citizen-produced GDP continues to flow into the coffers of the International bankers as the Leviathan government buys elections and the masses deliver their vote.

This is the route to slavery; the chains of debt that would encircle every citizen, and those frugal taxpayers and savers who resist the offer will be indebted anyway…by the mob indebted to the FHAs.

Ellen Brown on Global Research today recaps Why Bankers Rule the World thusly: In the 2012 edition of Occupy Money released this month, Professor Margrit Kennedy writes that a stunning 35% to 40% of everything we buy goes to interest. This interest goes to bankers, financiers, and bondholders, who take a 35% to 40% cut of our gross domestic product.

She begins: “That helps explain how wealth is systematically transferred from Main Street to Wall Street. The rich get progressively richer at the expense of the poor, not just because of ‘Wall Street greed’ but because of the inexorable mathematics of our private banking system.

“This hidden tribute to the banks will come as a surprise to most people, who think that if they pay their credit card bills on time and don’t take out loans, they aren’t paying interest. This, says Kennedy, is not true. Tradesmen, suppliers, wholesalers and retailers all along the chain of production rely on credit to pay their bills. They must pay for labor and materials before they have a product to sell and before the end buyer pays for the product 90 days later. Each supplier in the chain adds interest to its production costs, which are passed on to the ultimate consumer. Kennedy cites interest charges ranging from 12% for garbage collection, to 38% for drinking water to, 77% for rent in public housing in her native Germany.

“Her figures are drawn from the research of economist Helmut Creutz, writing in German and interpreting Bundesbank publications. They apply to the expenditures of German households for everyday goods and services in 2006; but similar figures are seen in financial sector profits in the United States, where they composed a whopping 40% of US business profits in 2006. That was five times the 7% made by the banking sector in 1980. Bank assets, financial profits, interest, and debt have all been growing exponentially.”

But, relates Brown, an attorney and president of the Public Banking Institute, “Exponential growth is unsustainable. In nature, sustainable growth progresses in a logarithmic curve that grows increasingly more slowly until it levels off. Exponential growth does the reverse: it begins slowly and increases over time, until the curve shoots up vertically.. Exponential growth is seen in parasites, cancers… and compound interest. When the parasite runs out of its food source, the growth curve suddenly collapses….”

http://www.globalresearch.ca/why-bankers-rule-the-world/5311833

IOW, the debt will continue until the system collapses. And by the rush of post-2012 election frenzy, it looks like its on its way.

Thu, 11/15/2012 - 23:40 | 2986695 Orly
Orly's picture

No checks and balances.  Executive Orders.  The stroke of a pen.

Something tells me even Alexander Hamilton would blush at this.

:/

Fri, 11/16/2012 - 09:04 | 2987173 falak pema
falak pema's picture

Aaron Burr made him blush deep red even more!

How did you like the Panda in peking zoo?

Fri, 11/16/2012 - 09:10 | 2987202 Orly
Orly's picture

You should know that pandas are more closely related to raccoons thaan to bears!

Fri, 11/16/2012 - 10:31 | 2987530 otto skorzeny
otto skorzeny's picture

what about honey badgers?

Fri, 11/16/2012 - 09:17 | 2987240 old naughty
old naughty's picture

All three have large claws.

As to Timmah, it is his last deed (eh, claw) !

Fri, 11/16/2012 - 10:38 | 2987554 metastar
metastar's picture

No Bail!

Send big bankers to jail!

Fri, 11/16/2012 - 09:16 | 2987233 falak pema
falak pema's picture

I'll remember that next time when I offer that Panda "a honey pot". If he falls for it I'll know you're wrong on that! 

Why should those Tampa Pandas have all the fun!

Fri, 11/16/2012 - 08:25 | 2987070 disabledvet
disabledvet's picture

You've been on a roll for some time Orly. Look forward to your comments everyday now. Great stuff.

Fri, 11/16/2012 - 08:07 | 2987049 Popo
Popo's picture

So much for the Congressional power of the purse. The executive now declares war, controls spending and even judges and incarcerates. All hail King Obama and his land of obedient serfs.

Also note the founding date of this "bank": 1973. Right at the start of the fiat ponzi.

Fri, 11/16/2012 - 11:00 | 2987655 Joe Davola
Joe Davola's picture

The executive now declares war, controls spending and even judges and incarcerates.

Don't forget executes. 

 

Congess is more than happy with this situation.  I never voted for such-and-such is a viable reelection motto.

Fri, 11/16/2012 - 13:06 | 2988367 SafelyGraze
SafelyGraze's picture

bailout would be no surprise now that FHA-approved ingestible sensors are transmitting all your financials 

real-time HFT adds liquidity to sickcare-backed securities. "we know you're sick long before you do!"

 

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