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Treasury Secretary Henry Paulson told Congress today (July 10) that government-sponsored housing behemoths Fannie Mae and Freddie Mac are "adequately capitalized." Paulson's nose immediately became as long as a broomstick. At the time, the stock market was knocking Fannie down 13 percent and Freddie 23 percent on the day. Over the last 12 months, Fannie stock has plunged 80 percent and Freddie 90 percent. Former St. Louis Federal Reserve President William Poole was honest: he said both Fannie and Freddie are insolvent. Between them, Fannie and Freddie own or guarantee $5 trillion of U.S. mortgages, nearly half the amount outstanding. Not only that, Fannie and Freddie securities are in portfolios all over the world. The government will back them. Poole thinks they will be nationalized. (They are quasi-governmental now.) This will be the second big bailout of the year. In March, the Federal Reserve forced a merger of Wall Street gambling den Bear Stearns and JP Morgan Chase on the ground that the stock market would plunge 2,000 points if Bear had gone into bankruptcy. (Nobody knew that; officials just kept repeating it. Actually, Bear should have been put into bankruptcy.) However, letting Fannie and Freddie go under is unthinkable. Expect a rescue. You'll be paying for it.

Comments
30

Big surprise here.

Student loans are non dichargeable in bankruptcy, have huge fees added onto them, no statute of limitations and the poor and indigent get their wages and bank accounts GARNISHED without a court order-but America can still bail out millionaire and billionaire investment banks and their brokers, and now upper middle class America and others who jumped into a housing bubble with no money or skin in the game.

Way to go.

July 10, 2008

Response to post #1: Yes, the bailout of Wall Street via the Fed's subsidization of the Bear Stearns/JP Morgan shotgun marriage was quintessential corporate welfare. Ditto the Fed's new policy of loaning to investment banks. Ditto the Fed buying smelly subprime paper from financial institutions and replacing it with gilt-edged Treasury paper. Ditto legislation now moving through Congress that would purportedly bail out people facing foreclosure. Balderdash. The proposed bills were written by banks, who would be the real beneficiaries. All this is done in the name of establishing capital market stability. Re-balderdash. It's done to bail out the top 1 percent in wealth and income. I have never been convinced that the Fed had to bail out Wall Street through the Bear Stearns subsidized buyout. Bear Stearns should have filed for bankruptcy. If the stock market had taken a hit, so be it. The Fed keeps saying that rescuing the stock market is not its objective, then it pulls off something like the Bear Stearns swindle to keep the Dow from losing 2,000 points (doubtful in any case). However, I believe Fannie and Freddie must be saved. I agree that their loss would be utter calamity, and not just in the U.S. A bailout would only be partially corporate welfare. Best, Don Bauder

July 10, 2008

Response to post #3: There is more about Fannie and Freddie this morning (Friday, July 11). More people are admitting there may have to be a bailout. I should read David Cay Johnston's book. I have heard much about it. Best, Don Bauder

July 11, 2008

Bailing out Freddie and Fannie is basically taking bad loans off of the banks that underwrote them (with no standards) and making the taxpayer pick up the tab.

Freddie and Fannie's ONLY purpose is to buy mortgages so the market is liquid. If bad loans are covered then it is a corporate subsidy of the banking industry, nothing more because that is all the two firms are there for-the banks.

BTW, I am reading David Cay Johnston's new book "Free Lunch" right now, goes over many similar things as this, and pretty much on the same page as you Don (and me).

July 10, 2008

The basic economic problem of our age is a dangerous meme that has permiated our society, repeated every day by the media, so that it has become an unquestioned assumption.

Price Rise = Good Price Drop = Bad

The only way to get some rationality is to stop treating markets like horse races, and focus on their role in finding prices that reflect their value.

I'm not holding my breath. As long as the media and corporate swindlers convince investors and the general public that they should ignore underlying truth and be overjoyed to turn a quick buck we'll continue this mistake.

That Freddie (no relation) and Fannie are failing is no surprise really. What else could happen with so much bull***t in our financial dealings.

It's actually good that the house prices are falling, and I suspect they've got a long way to go yet. This means that todays renters will have an opportunity in the future to buy a house.

Same with stocks or any other item that can be bought and sold. Up or down is irrelevant. That's just price correction based on better information.

What matters is the quality of information we have to make our value decisions and set prices.

When we're fed a bunch of happy hoo-hah as prices are going up, we're just setting ourselves up for these kind of falls. If so-called financial journalists and talking-heads would stop cheerleading irrational exuberance of all kinds, maybe we can avoid ugly corrections.

For now, we have to figure out how to deal with the hangover from our stupid binges of enthusiasm. This correction is going to be wide and deep.

July 11, 2008

Errrr.... I meant to say: Burwell has a POINT, not print....

July 11, 2008

There will be no rescue of Fannie Mae and Freddie Mac by the US Government. The US Government does not have the financial ability to borrow the funds needed to bail these entities out. What will happen is the Federal Reserve will simply print money to fund the bailout, just as it did with Bear Stearns and Bank of America. Bank of America went broke in August 2007 and had to borrow $16 billion from the Federal Reserve to keep the checks drawn against its accounts from bouncing. This action will drastically increase the money supply leading to rampant inflation. I think the situation has reached the point where the Constitution should be suspended and the US military should step.

July 11, 2008

Burwell, I agree with you that inflating the currency is the most likely response of our government to the economic problems we face. Indeed, our dollar's loss against other currencies over the last few years shows we've already been doing that.

But please don't invoke the suspension of the Constitution and martial-law just yet.

I haven't had my lunch.

Bush has already been ignoring the Constitution. Isn't that enough?

And since we've already allowed too many of our police to become steroid-popping storm troopers in service of the so-called "War on Drugs", we're sometimes not very far away from martial law either.

http://www.theagitator.com/category/paramilitary-police-raids/

Best,

Fred

July 11, 2008

Burwell has a print (not about the Consitution or martial law), America cannot keep shipping all the middle class jobs overseas and then print money like it is toilet paper with capital markets crashing from speculation, heavy leverage and outright fraud.

Bear Stearns should have gone BK, home loans should have been following quality underwriting standards, Mr. Bubble should have raised interest rates in 2000, 2001 or 2002, we should be paying for the stupid war or get the hell out instead of having China finance it thru T Bills and we should not be selling off ALL of OUR assets to the middle east and China (bridges, interstates, ports, Chrysler Building) for one time fixes.

July 11, 2008

China's financing a lot by buying our T-Bills, and not just the war.

It's quite scary.

Mr. Bubble, and his bubbleheaded followers, bubbled-up in the late-nineties, and have been bubbling over with bubblishous pop talk for too long.

We're in serious economic trouble,and it's just started.

If China chooses, it can make it worse still.

Congratulations to all our dear leaders. Good job, you pantywastes!

Fred

July 11, 2008

Response to post #5: Bernanke admitted this week that the credit crisis will go well into 2009. I would say that recessionary conditions as well as the credit crisis will last well into 2010. The U.S. has been overconsuming and underproducing for decades. Consumer spending is more than 70 percent of our economy. Yet average incomes adjusted for inflation have been flat for a decade (except for the top 1 or 2 percent). The savings rate is at zero. Consumer debt as a percentage of income is at an all-time high. Government debt at all levels is excessive. The Chinese hold almost half of our federal debt. We buy their products and they loan us the money to do so. Is it any surprise the dollar has gone down 50 percent against other currencies? Corporate profits as a percentage of total economic output is at a 55-year high. One reason is that our companies maximize profits by sending jobs overseas to low wage nations. We are overdue for a wrenching correction in our profligate way of life and we are well into the first wave now. Best, Don Bauder

July 11, 2008

Response to post #6: The U.S. government could nationalize Fannie and Freddie, but you are correct that it really doesn't have the money. I agree it is more likely that the Fed will open its lending window to Fannie and Freddie. This was discussed today (Friday, July 11). If it happens, this will mean the Fed since March has opened its money window to the Wall Street investment banks and also to Fannie and Freddie. Yes, it will print money. Yes, that will be inflationary. Best, Don Bauder

July 11, 2008

Response to post #7: I would agree with you: Burwell's notion (probably tongue in cheek) to have the military take over is repugnant indeed. The military is a colossal bureaucracy. Just think what would happen if it took over. Best, Don Bauder

July 11, 2008

Response to point #8: America selling off her assets is a symptom, not the cause of our malaise. ("Malaise" is too mild a word. Make it "disease.") The dollar is cheap: of course these countries will snap up our crown jewels. Remember the late 1980s, however. The yen was very strong against the dollar. The Japanese came in and bought our real estate. We sold them our dogs at inflated prices. It's lucky it didn't precipitate World War III. Best, Don Bauder

July 11, 2008

Response to point #9: That's an easy typo to make. You were thinking about the word "print" for its use later in the sentence. You just got ahead of yourself. I do it all the time. Best, Don Bauder

July 11, 2008

Response to post #10: China has problems, too. It's growing too fast. Its inflation is too high. It has ignored the environment completely -- hence its quality of life is not so desirable. Best, Don Bauder

July 11, 2008

The US is about to lose another crown jewel, Budweiser. If the Budweiser sale goes through, John McCain's wife, Cindy, who owns the Budweiser beer distributorship in Arizona, which is reportedly worth $100 million, is going to lose big time. In my opinion, InBev will be forced to severely cut the profit margins of the independent beer distributors like Cindy McCain, or eliminate them entirely, in order to recoup the staggering amount it offered for Budweiser. I also believe that InBev intends to jack up sales and profits by cutting out the distributors and selling Budweiser directly to Wal-Mart. By selling Bud directly to Wal-Mart InBev could pocket the distributors profit margins and make a killing. After InBev takes over the resale value of Cindy McCain's $100 million distributorship will likely sharply decline in value.

July 11, 2008

If Bud distributed directly thru Wal Mart-I would think that would wipe out the local liquor store owner. In David Cay Johnston's book "Free Lunch" he documents extensively the "subsidies" that big box retailers are getting through local governments-allowing them to not pay property taxes and keep sales taxes-and it is mind boggling how much they get-no other business can compete against that kind of free lunch (President Bush made the only money inhis life on these free lunches with the TX Rangers).

America has problems, big problems, and they have been getting worse since the late 70's.

We can and need to turn it around-but that will only come with new leadership-and better representation in the Congress.

Right now there are 40,000 lobbyists for the 535 member Congress (75 to 1 ratio), and not one of those 40K lobbyists are working on behalf of the middle class-the backbone of the country.

We need more guys like Mike Aguirre, who stands up for the everyday Joe, and stops special interests from fleecing everyone else.

July 11, 2008

Wal-Mart could sell the beer at the same prices the local liquor store does. InBev would win because it would sell the beer directly to Wal-Mart, and pocket the mark-up (economic waste)that was formerly shared with the local Bud distributors. InBev would also realize a major financial windfall by cutting distribution costs. It would ship the beer directly to Wal-Mart distribution centers where Wal-Mart would ship the beer through its normal in-house distribution system at far less cost. InBev could cut transportation costs even further by closing down the existing breweries in Kansas City and moving them closer to Wal-Mart's distribution centers.

July 11, 2008

Response to post #17: The press should look into that beer distributorship of Cindy's, and particularly the background and associations of her father and uncle. Actually, reporters did look into it several decades ago. It should not be concealed. Best, Don Bauder

July 11, 2008

Response to post #18: Does David Cay Johnston get into how much corporate money is sequestered offshore in tax and secrecy havens? And how many moguls dodge taxes through offshore maneuvers? Best, Don Bauder

July 11, 2008

Response to post #19: The Busch family has dominated Anheuser-Busch for generations, but today has only 5 percent of the stock. I am not sure it could thwart any raider. Best, Don Bauder

July 11, 2008

Beer distributors should be eliminated. COmpanies like Costco, Walmart and other should be allowed to purchase direct. They are more efficient than local distributors. Local beer distributors are a remnant of a good ol boys network that should be dismantled. They don't do any pre or post sale work, just provide trucks and refrigeration. Walmart and other big retailers can cut them all out and lower the price and end the price fixing.

July 11, 2008

Response to post #18: Does David Cay Johnston get into how much corporate money is sequestered offshore in tax and secrecy havens?

Oh yeah, the PO boxes in Bermuda and other places........big scam.

July 11, 2008

Response to post #23: Your point is worth investigating. Here's another: what changes hands when a restaurant or tap room consistently has one brand of beer on tap? Who makes the arrangement? The distributor or the brewer? How is it effectuated? The same is true with soft drinks. One restaurant will feature soft drinks by Pepsi, another by Coke. How are these arrangements made and through whom? Best, Don Bauder

July 12, 2008

Response to post #24: The fifth largest money center in the world is the Cayman Islands. Companies merely have small offices there, but hundreds of millions of dollars reportedly run through those offices. Individuals' money reposes there. Why? You know why. Best, Don Bauder

July 12, 2008

Re: #20

Don, there is also the story of how Cindy used her medical charity to hide her 20 pill a day prescription drug habit.

She used her employees' names to fill bogus prescriptions.

She took drugs donated to sick refugees.

Then, of course, Senator John McCain, law and order drug warrior, demanded this slimeball drug addict be thrown in the slammer for a decade like anyone else who committed such squalid crimes and tried to cover them up through fraud and theft...

No.

She got "rehab" and a press conference carefully orchestrated to make her look heroic.

http://www.salon.com/news/feature/1999/10/18/drugs/

I guess this is how multi-millionaires stay multi-millionaires and get their husbands elected into high office.

Compare this with Obama's wife.

She doesn't seem to have a pill-popping problem, though she's received far more scrutiny than Cindy.

She worked hard for her position, coming from very little to make the most of herself. While Cindy, well, let's just say the former Junior Rodeo Queen of Arizona 1968 had a little help along the way.

Cindy and her interesting family background deserves every bit as much examination as Michelle Obama, if not more so.

Best,

Fred

July 12, 2008

Compare this with Obama's wife.

She doesn't seem to have a pill-popping problem, though she's received far more scrutiny than Cindy.

=======================================

Obama is in the drivers seat for this election, he has so much going in his favor that the only way McCain can catch up in 3.5 months is if he shoots himself in the foot (and this is done many ways-inlcuding NOT responding to negative ads).

Will Barack Obama get elected??? Dukakis had a 17 point lead in 88, far larger than Obama's lead today, and lost convincingly.

July 12, 2008

Response to post #27: That beer business is what deserves scrutiny. Best, Don Bauder

July 12, 2008

Response to post #28: Yes, the Dukakis experience is a little disquieting. I'm not sure that pollsters pick up racial prejudice. The good thing is that McCain shoots himself in the foot every time he opens his mouth. Best, Don Bauder

July 12, 2008

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