Fannie Mae

As A Reminder, The President's Mortgage Plan Is "Dead On Arrival"

Obama's latest attempt to stimulate the housing sector and inflate home prices "before waiting for them to hit bottom" (which they never will as long as central planning tries to define what clearing prices are) is a noble reincarnation of now an annual, and completely ineffectual, theatrical gambit. There is, unfortunately, one major snag. It is Dead on Arrival (just like every single iteration of the Greek bailout), for the simple reason that it has to get congressional approval. Which it won't. And that's not just the view of biased political pundits. Wall Street agrees.

Obama Lays Out His Latest "Mortgage Plan"

Listen to the Landlord in Chief lay out his REO to LBO plan live and in stereo. Since everyone will end up paying for it, directly or indirectly, sooner or later it probably is relevant.

¥1,086,000,000,000,000 (Quadrillion) In Debt And Rising, And WhyThe ¥ Will Soon Be A $: "A Lost Decade... Or Two"

Yesterday the Japanese Finance Ministry made a whopper of an announcement: in the year ending March 2013, total Japanese debt will surpass one quadrillion yen, or ¥1,086,000,000,000,000. This is roughly in line with the Zero Hedge expectations that by this March total Japanese debt would surpass one quadrillion yen. In USD terms, at today's exchange rate, this is precisely $14 trillion. And while smaller than America's $15.4 trillion (net of all post debt ceiling breach auctions), which was $14 trillion about a year ago, the GDP backing this notional amount of debt, which just so happens is greater than the GDP of the entire Euro area, is a modest ¥481 trillion, so by the end of the next fiscal year, Japan will have a Debt to GDP ratio of 225%. And that's not counting all the household and financial debt. So prepare to add quadrillion to the vernacular. At this exponential rate of increase quintillion will appear some time in 2015 and so on. Yet the scariest conclusion is that as Bloomberg economist Joseph Brusuelas points out, America is not only next, it already is Japan. Actually scratch that, America is worse than Japan, which at least generated a real housing bubble in the years just preceding the onset of its multi-decade credit crunch, something not even America could do in comparable terms. More importantly, "the debt-to-GDP ratio of the U.S. recently surpassed 100 percent, and it did so in the four years after the onset of the recession, compared with the six years it took the Japanese debt-to-GDP ratio to do so." The Japanese may be better than America in most things, but when it comes to destroying its economy, the US has no equal. Brusuelas' conclusion: "If below trend growth is the most probable scenario in the U.S., the most likely alternative is that the U.S. economy is headed for a lost decade… or two." So... go all in?

Guest Post: Bailouts + Downgrades = Austerity And Pain

Nowhere in S&P’s statement about “global economic and financial crisis”, did it clarify that sovereigns were hit due to backing their largest national banks (and international, US ones) which engaged in half a decade of leveraged speculation. But here’s how it worked: 1) Big banks funneled speculative capital, and their own, into local areas, using real estate and other collateral as fodder for securitized deals with derivative touches. 2) They lost money on these bets, and on the borrowing incurred to leverage them. 3) The losses ate their capital. 4) The capital markets soured against them in mutual bank distrust so they couldn’t raise more money to cover their bets as before. 5) So, their borrowing costs rose which made it more difficult for them to back their bets or purchase their own government’s debt. 6) This decreased demand for government debt, which drove up the cost of that debt, which transformed into additional country expenses. 7) Countries had to turn to bailouts to keep banks happy and plush with enough capital. 8) In return for bailouts and cheap lending, governments sacrificed citizens. 9) As citizens lost jobs and countries lost assets to subsidize the international speculation wave, their economies weakened further. 10) S&P (and every political leader) downplayed this chain of events.... The die has been cast. Central entities like the Fed, ECB, and IMF perpetuate strategies that further undermine economies, through emergency loan facilities and  bailouts, with rating agency downgrades spurring them on. Governments attempt to raise money at harsher terms PLUS repay the bailouts that caused those terms to be higher. Banks hoard cheap money which doesn’t help populations, exacerbating the damaging economic effects. Unfortunately, this won't end any time soon.

Frontrunning: January 11

  • Europe’s $39T Pension Threat Grows as Economy Sputters (Bloomberg)
  • Monti Warns of Italy Protests as He Meets Merkel (Bloomberg)
  • Bernanke Doubling Down on Housing Bet Asks Government to Help: Mortgages (Bloomberg)
  • Europe Banks Resist Draghi Bid to Avoid Crunch by Hoarding Cash (Bloomberg)
  • Europe Fears Rising Greek Cost (WSJ)
  • ECB’s Nowotny Sees Risk of Mild Recession in Euro Region (Bloomberg)
  • Republican Senators Criticize Fed Recommendations on Housing (Bloomberg)
  • Spanish Banks Try to Build Their Way Out of Home Glut (WSJ)
  • Europe Stocks Fluctuate After German Auction (Bloomberg)

Fannie CEO Michael Williams To Quit After 2 Years, Pockets Millions After Receiving $60 Billion In Bail Out Cash

A few months ago we learned that outgoing Freddie CEO Ed Haldeman quit Freddie after just two years of work, pocketing over $4 million primarily to collect over $21 billion in bailout funds from the US government. Now, it is the turn of the other broke GSE: according to a just filed 8K, Fannie Mae CEO Michael Williams is also stepping down without a replacement, so obviously the decision was made in haste and is an indication that nobody at the helm of the two largest mortgageholders want to do anything with what Obama and the Chairsatan have in store for the two behemoths holdings over $6 trillion in mortgages in their books. Incidentally, according to Forbes, Williams made $4.84 million in comp last year. His claim to fame: receiving a total of $60 billion in Treasury bailout cash (net of $17.2 billion in dividend payments) - hard job that one.

Embattled Former Fannie CEO Takes Leave Of Absence From Fortress

When we first presented the surprising news of the SEC's stunning lawsuit against former Fannie Mae CEO Daniel Mudd, we said, "Incidentally, any and all LPs of Fortress Group may want to ask themselves what else  (if anything) the current CEO of the company, who just happens to be Dan Mudd, is misrepresenting these days." Sure enough, it was only a matter of time before we got this:

  • DAN MUDD TO TAKE LEAVE OF ABSENCE AS FORTRESS CEO

Luckily, he is certainly the only legacy CEO who had been (allegedly) fraudulently misrepresenting material information. Because as we all know all the other legacy CEOs got the boot in the transition from the pre-bubble to post-bubble years. Oh wait...

Guest Post: The Corruption Of America

The numbers tell us America is in decline... if not outright collapse. I say "the numbers tell us" because I've become very sensitive to the impact this kind of statement has on people. When I warned about the impending bankruptcy of General Motors in 2006 and 2007, readers actually blamed me for the company's problems – as if my warnings to the public were the real problem, rather than GM's $400 billion in debt. The claim was absurd. But the resentment my work engendered was real. So please... before you read this issue, which makes several arresting claims about the future of our country... understand I am only writing about the facts as I find them today. I am only drawing conclusions based on the situation as it stands. I am not saying that these conditions can't improve. Or that they won't improve. The truth is, I am optimistic. I believe our country is heading into a crisis. But I also believe that... sooner or later... Americans will make the right choices and put our country back on sound footing.

rcwhalen's picture

Latest from Ed Pinto, who piles on the blame the GSEs argument with some new data and analysis in The American, AEI's online magazine. This will not help the cognitive illusion being so skillfully maintained by our friends Ritholtz and Nocera, who still cannot bring themselves to admit that Wall Street runs the GSEs just like a private SIV. Lawyers and first loss exposure is the only difference.