9/8/8 Special Weekly Report - Freddie/Fannie Aftermath

Brought to you by Karl Denninger.

The Aftermath

Understand what happened and what the repercussions are. It's not pretty!

There is a short and sweet video in the ticker. It's worth a listen.

Now, just a handfull of some of the truths that lies ahead:

The Truth is that until this happens everything you do in Congress to "try to stabilize the housing market" is instead causing household costs to rise precipitously and destroy Americans' personal balance sheets, and if you don't stop it soon, our economy will be forced not into Recession, but Depression, as there is simply no more credit capacity possible.

The Truth is that this whole scheme of bailout after bailout is escalating at warp speed in terms of its cost, and yet it is doing exactly one thing - preventing the stock market from correcting to a sustainable earnings level with financials making honest money instead of swindling municipalities on swaps (as has recently been uncovered in regards to Alabama and elsewhere) and similar "structured products" that are in fact nothing but a gigantic scam. Yet the first of these, Bear Stearns, was $29 billion and created a ramp job in the futures and stock market for a couple of months. This one has a price tag of at least $100 billion and perhaps as much as $1 trillion according to Standard and Poors, yet you were told (and told us!) that this was a $25 billion expense, according to the CBO. You lied to us again and the price of these repeated "stick save" attempts for the markets is increasing at an exponential rate.

The Truth is that Hank Paulson just spent in five minutes half of what it took us four years to spend in Iraq! Further, he spent it to bail out the Chinese and Japanese central banks and investors in foreign lands. You folks kvetch about the war and its cost, well, how about economic warfare waged by these people where we don't even bother to fight back - we just give them all our damn money! How in the hell do you justify such an outrageous transfer of our wealth?

What really needs to happen:

Repeal Paulson's "Bazooka" or force these firms into receivership. Do not allow him to blow the $300 billion we do not have.
As I have noted, split off the current book of business and let it run down; what happens to those debtholders and shareholders happens. Underwrite NEW loans at 30 years fixed, 36% DTI and 20% cash down payments. Guarantee these new MBS with the full faith and credit of the government.
Tell Bernanke to drain the damn swamp and force the other banks, both investment and commercial, to take their marks. Tell Sheila Bair to do the same damn thing with the banks under her control at the FDIC. The FDIC is losing, on average, more than 30% of the asset base in each bank it closes right now. This is a historic high and THE FDIC IS GOING TO RUN OUT OF MONEY IN A FEW MONTHS IF YOU DON'T STOMP ON THIS RIGHT NOW. There are literally DOZENS of banks, including some big ones, that need to be closed TODAY while there is still value in them. Proof of this is found at IndyMac that should have been closed last FALL. There are SEVERAL other institutions, including a couple LARGER than IndyMac, that have even more booked "capitalized interest" from Option ARMs that will never be collected, yet is on their books. THESE BANKS WILL ULTIMATELY GO UNDER, IT IS SIMPLY A MATTER OF WHEN, NOT IF. The longer the FDIC waits the worse the cost will be and THAT promise - the $100,000 deposit insurance - is one you MUST keep. THERE IS LITERALLY A TRILLION DOLLARS OR MORE OF EXPOSURE HERE IF YOU DON'T PUT A STOP TO THIS IMMEDIATELY

And finally, there seems to be a real danger at this point that the FDIC itself can fail.

We watched the Democratic convention in dismay at the fiscal crisis being all but ignored. Then we watched the Repubican Convention where it was actually adopted in their platform that they were against bailouts. (clearly a flat out lie). While both candidates claim to be oppossed to this one, it happens anyway.

The instability our your financial future is now snowballing (and it's probably going to come down fast and hard). If you play the markets, hopefully you will watch the video because it it explains where the little guy is about to get blown out of the water after this move, which essentially shored up foreign investors more than our own County.

How many people lied to you? Read the ticker

How many repercussions of past moves and lies were warned of already have come true? (Why you need to read this and protect yourself accordingly).


Brought to you with permission of market-ticker.denninger.net...

While I think there is definitely trouble ahead, I always have a mental block against believing anyone that needs to type whole sentences in capital letters.. sort of screams insanity to me.

This is a major action!

&dist=hppr]Pre-market Trading Halted on F & F

After consultation with the FHFA, Treasury and the Securities and Exchange Commission, we feel that this decision will allow investors to digest the news that has been disseminated over the weekend, to interpret the news and the analysis that will be generated on Monday morning and to evaluate the resulting aggregate supply and demand.

Well, how about those that have already digested this and wanted to position themselves out of this exposure. Ya can't! The Market will open with Freddie and Fannie priced way above where it should be, and we can only wait and see what comes next.

reply to post by Inannamute


How about screaming about insanity? Take off your blinders if your mental blocks are preventing you from reading important material. Some things need to be shouted.

I do it all the time

Yes I agree this is part of there market manipulation.
Just shows there corruptness.
They shut it off only for there select buddies to take advantage.

I think my man Jim Rogers said it quite well on an interview from CNBC.

www.cnbc.com...

Check it out. America is more communist than China. I mean think about this people, when you make your mortgage payments it will be to the government now. I mean this is what the Soviet Union did people. On top of this WE the taxpayer are paying for this out of our pockets. WOW!!!! People really are stupid and this is why I feel people need to be led. There cant be a free people because people really are to stupid. I used to not think this way but wow we the American people were given a great opportunity at freedom and through the generations we have squandered it. Make no mistake people this power grab will be done in the name of "financial security" similar to all the wars and fear mongering and rights taken away in the name of "homeland security" Catch my drift?

[edit on 8-9-2008 by mybigunit]

[edit on 8-9-2008 by mybigunit]

Cramer also said that the executives got severance packages.

Always socialism for the wealthy elite and taxes for the middle class. I think it's possible that the U.S. Government will declare bankruptcy at the end of the fiscal year, September 30th. As we say in the south...you can't just cr@p money...it has to come from somewhere.

Remember that e-mail that was going around last spring about the closed door session of Congress? Well, the alleged time frame for the SHTF was September/October.

On socialism for the rich, paid for by the middle class:

www.iht.com...

Mortgage crisis has Washington putting aside free-market ideology.

Despite decades of free-market rhetoric from Republican and Democratic lawmakers, Washington has a long history of providing financial help to the private sector when the economic or political risk of a corporate collapse appeared too high.

The effort to save Fannie Mae and Freddie Mac is only the latest in a series of financial maneuvers by the government that stretch back to the rescue of the military contractor Lockheed Aircraft and the Penn Central Railroad under President Richard Nixon, the shoring up of Chrysler in the waning days of the Carter administration and the salvage of the U.S. savings and loan system in the late 1980s.

More recently, after airplanes were grounded because of the terrorist attacks of Sept. 11, 2001, Congress approved $15 billion in subsidies and loan guarantees to the faltering airlines.

Now, with the U.S. government preparing to save Fannie and Freddie only six months after the Federal Reserve Board orchestrated the rescue of Bear Stearns, it appears that the mortgage crisis has forced the government to once again shove ideology aside and get into the bailout business.

"If anybody thought we had a pure free-market financial system, they should think again," said Robert Bruner, dean of the Darden School of Business at the University of Virginia.

CNBC interviewed Warren Buffet this morning, he said: "If Bear Stearns was an 8.5 on the Richter scale, then Fannie/Freddie is a 9.9."


[edit on 8/9/2008 by kosmicjack]

reply to post by mybigunit


OMG MBU ...... are you saying what I THINK your saying? Have you just meandered over to the Monarchist with me?

I have said it for years, people need to be led, they don't need freedoms, or choices, they don't understand any of it anyways. They need to have someone make decisions for them, because when we have a system where the most corrupt beat all the other corrupted individuals for a tax-payed job to further corruption and personal goals. Well that's not called Government. Called a Mafia. Give someone absolute corruption and there is no need for more. Perhaps that's why Monarchies worked for so many thousands of years.

Any ways, glad I sold my Fannie Mae stock last week for profit, the government essentially took the giant proverbial duce on the Common Share Holders.

China's happy though. Did you see their rally?

Only thing I can think to do honestly, is move out of the country.. I certainly don't see a polar change in ideology when it comes to Obamamama and McBush.

reply to post by Rockpuck


I am Rock Iam. In fact you and I discussed this and I disagreed. Now I agree. I see it totally. People are sheep (well most are) and need to be led. The principals this country was founded on was truly the greatest of all time and we squandered it. Its not going to get better this is just the beginning. Im contemplating leaving also. But really where do you go? I thought of Canada in the mountains in the middle of no where but I dont know. Im just so frustrated as a business owner that I see bailout after bailout for wall street but my business is struggling big and cant even get a screw you.







Mod Edit: Full quote of directly preceding post removed. Reply To function used. Please see ABOUT ATS: Warnings for excessive quoting, and how to quote. Thank you - Jak

[edit on 9/9/08 by JAK]

oh boy oh boy!!!

i've been following this for a while and now it's getting exciting!!!

business.scotsman.com... 4.jp

mark my words, the government is attending it's agenda of seizing everything...

So if I read this all correctly, trading was suspended on Freddie and Fannie, the price was set high, and the option is that we will pay the Foreign Investors based on that price?

What next? Depression and then Dictatorship?

[edit on 8-9-2008 by 2stepsfromtop]

I am reading and misunderstanding all of this or have we just sold 50% of the mortgages in America to other countries?

It is a bit complicated for me, but it seems very wrong and more displacement of the money of the taxpayers and consumers of this country.

Trading was suspended on the two companies over the weekend, or before hours trading. However once the markets opened trading began once more.. currently the price on Friday was $7 something a share, today it is somewhere around .90cents a share.

The investments that the Gov are talking about in regards to China and Japan (the biggest debt holders) where bonds. The idea was that by threatening the markets that the Gov will take over the two companies it would secure more bonds (debt) to foreign investors, relying on the power of the Government. However, China and other countries wanted no part in it, and did not buy the bonds. This meant that Frannie and Freddie could not recapitalizes and recoup some losses while they where "changing procedures" ..

So the Gov takes over the two companies, secures all risky debts from foreign countries like China, and told common share holders to take a hike. The objective is that this will alleviate concerns in foreign funds that debts are secured by the power of the Government, encouraging more risky investment into American companies.

Fore, without the money of dictators, the American economy cannot, and will not, run. It will collapse. So the fire sale continues, the reason the stocks bounce back this morning is quite simply because foreign funds are buying cheap stock and securing more bonds, adding capital to the economy and thus averting any form of "political disaster" this could have on November.

Corruption. Fascism. Any other word in the English language to describe the deplorable actions taking place, add them in. Understand also, this is not a "Republican thing" this is a "Controller thing" .. bi-partisan corruption at it's best.

That was a good explanation, thanks Rock.

Signature is nice, too.

reply to post by interestedalways


The notion of "who own this, and that, and that over there, and what about these?" is what caused the financial crisis.

Fraudulant investing of Mortgages that they would or would not fail is so confusing, twisted, and displaced that when a mortgage fails it effects ALOT of people. From mutual funds investing in ultra high risk securities to countries who backed shoddy mortgages to the day trader trying to find a new high risk investment.

Basically you take out a mortgage and a bank can sell your mortgage to another bank. Frannie and Freddie are sort of depositories of bad mortgages.. the idea is that the companies can borrow at ultra low rates from the Federal Reserve Bank to back their mortgages they buy from other banks. They then sell various investment vehicles around these mortgages, and also every mortgage without 20% equity has insurance.

So a wave of foreclosures come in and the depository banks write down their expected profits due to those funds not coming in, the securities sold around these mortgages drop to nothing because the mortgage is defaulted, the insurance companies then pay the mortgage companies a small amount of compensation. The depositories take money from the Federal Reserve to offset daily losses in over-night loans. They sell preferred and common stock to raise capital, but the real money comes from foreign markets buying Bonds.. When someone buys a bond it's an IOU paid with interest, all bonds mature and have to be repaid. If you feel the institution you invest in at the time of maturity cannot pay the bond + interest, then you don't buy any. This is what happened to the big F's. Everyone at the bottom got screwed, the investors got screwed, the people who manipulated these mortgages, got screwed. The big dictatorships who invest in bonds? .. They got saved. Go figure.

And yet, the market rallied today! People haven't got a clue.

Nice contributions folks! It's so nice to see some people who "get it".

Where we go from here, I believe will become clear in the next six months if not sooner, and there is no way it's going to be good.

reply to post by Relentless



It rallied but I would be surprised to see it hold. The fact is our economy is in shambles and anyone with intelligence knows that our only "bullet" that is left in our gun is to print money. Thats it we are out of options. So we will further kill the dollar and pay higher taxes. I hope you people like slavery because that is right where we are going.










Mod Edit: Full quote of directly preceding post removed. Reply To function used. Please see ABOUT ATS: Warnings for excessive quoting, and how to quote. Thank you - Jak

[edit on 9/9/08 by JAK]

This is literally the most important thread o ATS today and not even a full page of attention has been given to it. Whether members realize or not, this will effect everyone in the long run...the bill will come due.

reply to post by Rockpuck[/url]

Rock, you know I come to value your judgment highly. I fear however the notion that 'people must be led.'

Who gets to lead, and why?

I haven't the economic theory background to completely comprehend the evident charlatanry that has occurred (seemingly yet again) in what we are taught to call "the market". So I have a layman's understanding that may be flawed. Please, if you have the time, correct me if I am misunderstanding it:

Investors: Here is our money. Make it grow, safeguard it.

Financial Industry: Thank you, we'll take our part for the service.

Investors: Fine.

[[[time passes]]]

Financial Industry: You're money is gone, give us more.

Investor: OK, take it from the taxpayers.

Financial Industry: Thank you, we'll take our part for the service.

[repeat]

And all this with fiat money that is little more than 'make believe'?