Friday, July 11, 2008

Fannie Mae and Freddie Mac Show Thin Ice US Banking System is On

In the process of buying french doors and a outside deck for the den overhaul. Things are not cheap! Home a bit late tonight, but how can I not post on the wild day today? I told you it was going to be a LONG summer, and of course, I was spot on!

"The FDIC Is In Control"- Get Used to that Line
Indymac bank is has officially screwed the pooch as of about 6pm. Shocker for all but the kind of well read folks that read this blog and others like it. IMB was a huge player in the Alt-A loan market, and contrary to what Mr. Bernanke and Mr. Paulson would like to be thr truth, Alt-A is subprime only much, much bigger.

IMB is the second largest bank failure EVER in the USA. This is meaningful. This is the bigtime. If the mainstream media wants to get some credibility back, there should be serious coverage on this event all weekend. When banks close it is not funny. Treat it as such.

Get very used to the "FDIC has taken control of...(fill in the blank)". Many more banks (large and small) will not survive this summer.

Fannie Mae and Freddie Mac Show Thin Ice US Banking System is On
There is so much crazy talk going on regarding the Fannie and Freddie situation that almost anything I write tonight may be shown to be wrong tomorrow. I will not let that stop me from spreading more bad information though!

Summary: FNM and FRE were targeted in a tough piece in the NY Times that called into question the solvency of those institutions. This came on the back of former FED official Poole's comments to the same effect. Now certainly FNM and FRE are insolvent. We know this. The problem now is that other people are stopping the pretend game where they are "well capitalized". The US government through some kind of structured thingy, will have to take over the GSE's in short order. This effectively makes the common stock of both companies worthless.

What is most interesting to me was the wild, all over the place comments and reactions across many fronts during the day. Between the stock market, the FED, the GSE's, the talking heads, and the treasury you could not make heads or tails of what was going on today. I saw the headline that the FED would allow FNM/FRE borrow form the discount window. I then saw a FED comment not 5 minutes ago that read "We never agreed to that!" Which is it? (Note: it does not matter; the FED is about out of cash anyway!) The point is that there is no control of a dangerous situation.

My take on the whole thing, at this point, is this:
FNM and FRE will have a restructuring where they are taken in by the US government. I really cannot see anyway they survive on their own. This terrible reality will smack the US taxpayer and middle class twice, through higher taxes to support these stupid firms and through a devalued dollar which will further erode buying power. I do not care that the dollar did not fully reflect this today, the operative word is TODAY. There is simply no way this will not impact the dollar harshly. Does anyone else see it any other way?

Another take is that FNM and FRE stock is widely held. I mean widely held. These two clowns have lost about 90% of their stock value over the past year. That is huge. Your 401k certainly has some of this stock. Big institutions hold tons of it. Losses should start showing up next quarter in investor reports. Remember that.

My final quick take (I will try for more this weekend) is that if FNM and FRE are in as good of shape as they say, if over 98% of their loans are performing wonderful, if there is no problem at all, then they should both be barred from any help in the future. The lies must stop. present the CEO's with a form that say "I ascertain that my company will not need ant government help, and thus we are barred from any taxpayer funds" and make it a binding agreement. Then we might hear a different tune.

I will wait for things to settle out and try a more detailed post. Try Minyanville, Mish, and Calculated Risk for much more.

Musical Interlude
A little music as we watch the collapse of our Financial System!

Especially for IndyMac, one of my favorite bands Alice in Chains with "Down in a Hole":


For Ben Bernanke and Hank Paulson, get used to drinking this weekend with George Thorogood's "One Bourbon, One Scotch, and One Beer":


To Fannie Mae and Freddie Mac, from the US government, listen to Jewel's "You Were Meant for Me":


Have a good night.

3 comments:

Anonymous said...

GYSC

"Your 401k certainly has some of this stock."

Wrong!

Kevin

watchtower said...

GYSC said:
"I do not care that the dollar did not fully reflect this today, the operative word is TODAY. There is simply no way this will not impact the dollar harshly. Does anyone else see it any other way?"

Nope, not me.

$5 gasoline anyone?

getyourselfconnected said...

wow, sure you two are not clone posters? Check the tim stamps!

make sure you see the addendum post, I fell it is relevant.

Kevin,
If I had a choise my 401k would not hold crap, but I have very limited choices by the company. that is why I do not contiribute much to it. My 401k year to date is down 2%, but the cash I put in play on the market is up 300% so who cares!
Take care.