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Saturday, September 06, 2008

Hurricanes Fannie and Freddie

Rumours are leaking out now that the financial books of Freddie Mac and Fannie Mae will be completely restructured and the Treasury (that's YOU AND ME folks) will be backing their bad paper. The two entities carry a total of FIVE TRILLION DOLLARS in mortgage paper. How many bad mortgages are out there waiting to implode in that $5 trillion? A few facts:

* Freddie and Fannie traditionally resold about 50% of conforming mortgages
* in the past two years, they have absorbed nearly 70% of mortgages retailed to borrowers
* it is safe to assume EVERY home purchased in Florida and California for the past two
years is probably "under water" due to falling real-estate prices -- probably by 10-20 percent
* the total estimated exposure at Freddie and Fannie to subprime loans is $717 BILLION

The real number is probably much worse than $717 billion, though. That number doesn't count CONFORMING loans of people who legitimately COULD afford their house when they bought it but wound up getting screwed because they bought during a bubble, will lose money if they have to sell their home (if they can sell it at all in a down market glutted with inventory) and don't have the cash cushion to make payments if they lose their job. It also doesn't reflect the additional billions that will be spend by the FDIC covering failed banks as the downdraft caused by this announcement tanks other investments, exposes other frauds and renders more banks insolvent. The number is easily at least one trillion.

ONE TRILLION DOLLARS of our money bailing out Wall Street firms who profited tremendously and lavished hundreds of millions of dollars in bonuses to executives over the last six years for dumping bad loans on pseudo-independent government agencies set up to be the sucker in a vast ponzi scheme fraud.

Think of what the rest of the world holding US Treasury bills is going to think about the safety of our currency for their investment when they watch another trillion dollars instantly hit the liabilities of America, Inc. with no offsetting assets. Do we HAVE another TRILLION dollars laying around somewhere? No. Are Americans able to pay another TRILLION in taxes? Hell no.

A TRILLION dollars is another Iraq war hitting the books. Like the Iraq war, it's a giant debt load applied to a country already teetering near insolvency and like the Iraq war, it's an additional debt added with absolutely nothing to show for it. Except maybe abandoned McMansion subdivisions. Leave it to America to come up with a way to produce ghost towns equipped with Jacuzzis, "wrapping rooms" and Viking ranges.