Earthside Comments: What is remarkable is that after each economic 'crisis' we've gone through over the past couple of years, massive amounts of magic money appears and the bubble is re-inflated ... until the next bankruptcy or failure or scandal. In the meantime, the American people breath a sigh of relief and believe that soon everything will be just like it was in 1998.
The Bushites, the radical Republicans and the Dimocrats are all eager to enable this propaganda and debt balloon for their own political reasons -- the last thing they want to do is tell the truth about the debt they are piling upon the U.S. taxpayer.
Sadly, the average American so fervently wants to believe the lies. Americans apparently really do believe that a national government debt of nearly $10 TRILLION doesn't matter and will never have to be paid.
So, the super wealthy elite and the government insiders just keep transferring the wealth from you and me -- to themselves.
It is true, the U.S. has become an oligarchical corporate state. Profits are privatized and losses are socialized.
It is all evident in the links below.
Link: Fed Adds $6.75 Billion in Reserves Via Overnight Repo | Reuters
The U.S. Federal Reserve said on Wednesday it added $6.75 billion of temporary reserves to the banking system through an overnight repurchase agreement.
Federal funds were trading at 2.000 percent in the market after the operation amount was announced, matching the target rate the Fed sets.
A total of $32.60 billion in bids were submitted for the operation.
Link: Bush Green-Lights Housing Bill | CNNMoney.com
President Bush dropped his threat Wednesday to veto a sweeping housing bill that will offer up to $300 billion in assistance to troubled homeowners and throw government support behind mortgage finance giants Fannie Mae and Freddie Mac.
The House is expected to pass the nearly 700-page measure on Wednesday afternoon. It could then go back to the Senate for a final vote as early as this evening.
"The positive aspects of the bill are needed now to increase confidence and stability in the housing and financial markets," White House spokeswoman Dana Perino said Wednesday.
The legislation, which won the support on Tuesday night from key senators in both parties, is the centerpiece of Washington's efforts to address the nation's housing meltdown.
Home prices have fallen more than 15% nationwide over the past year, according to S&P/Case-Shiller Home Price Index. More than 340,000 have had their homes repossessed by banks during the first six months of the year, up 136% from the same period in 2007. The number of homeowners who have become delinquent in their mortgage payments during the same period has risen to 1.4 million, up 56% from a year ago.
Authorizing help for Fannie, Freddie
To help stabilize markets, which were shaken in the past few weeks by steep declines in the stock prices of Fannie Mae and Freddie Mac, Treasury Secretary Henry Paulson asked Congress to give the Treasury broad, but temporary powers intended to provide a liquidity and capital "backstop" for the two companies.
Fannie and Freddie guarantee the purchase and trade of mortgages and own or back $5.2 trillion in mortgages.
The bill allows Treasury over the next 18 months to offer Fannie and Freddie an unlimited line of credit and the authority to buy stock in the companies if necessary.
Link: Wall Street's Laughing All the Way to the Bank | Fabrice Taylor/ReportOnBusiness.com (Canada)
The credit crisis really puts the free in free market. The freest market is supposed to be the United States, and the evidence in favour of that argument is mounting. It's just not what you think. Free, in this case, means a free ride for a select group of people. Wall Street never looked so good, or bad, depending on your perspective.
From early 2004 until mid-2007, the big Wall Street investment banks made $250-billion (U.S.) in profits. (That's Bank of America, Citigroup, JPMorgan, Morgan Stanley, Goldman Sachs, Lehman Brothers and Merrill Lynch.) During the past year, they've written off $107-billion. Keep in mind as we follow the money that if you include smaller dealers and commercial banks, the profit number swells and the writeoffs are even bigger.
As fate would have it, the writedowns, mostly garbage subprime loans, equal almost perfectly the amount of money Washington will dole out in stimulus cheques to get the economy going again. The House of Representatives Speaker said last year that the stimulus package would create 500,000 jobs. She got the number more or less right, but it was actually a loss of jobs.
Meanwhile, recent figures show that of the money that's been mailed and spent, only a 10th has gone to new spending.
The rest of it has been consumed by inflation (that is, because prices have gone up, even if consumers take their money to the mall, they're not helping the economy much).
Inflation is partly a product of easy money or low interest rates. Why does the Federal Reserve keep interest rates low? To stimulate the economy, which is being ravaged by the housing recession. The housing recession, meanwhile, was fuelled by Wall Street's greed and recklessness, aided and abetted by the easy money and the fraudulence of builders, appraisers and mortgage brokers.
Back to Wall Street to start connecting the dots. According to the New York State Comptroller's Office, the big banks paid $33.2-billion in bonuses in 2007, down only slightly from 2006, an even more splendid year for subprime origination. During the past four years, bonuses closed in on $100-billion, not far off the writeoffs and the stimulus package.
Back to Washington, whose coffers are bare, meaning that $107-billion is borrowed money. Borrowed from whom? Savers, mostly foreign. Borrowed by whom? The taxpayer of course. So in effect, the stimulus package is simply a matter of the cash-strapped, highly indebted U.S. consumer borrowing to spend (or pay debts) to save the economy.
It's pretty clear what's happening. Ultimately, the people are borrowing to pay Wall Street bonuses. After all, these handsome rewards are based on the earnings of the banks, but they're not real earnings, since the assets that produced them are subsequently written off.
The bubble that created these bogus earnings was inflated with the help of low money costs and lax supervision of financial firms.
The bursting bubble is roughing up the economy so badly that the government has to borrow to stimulate spending, which it fails to do. It might also have to borrow $25-billion to bail out government-sponsored mortgage insurers, including Fannie Mae. And since the government is really just the people who are getting hurt by the slowing economy, with no bonuses to comfort them, is this not the greatest transfer of wealth in history?
And we haven't touched on other largesse the people have extended Wall Street, such as the loan guarantees that helped JPMorgan buy Bear Stearns.
Marx has nothing on these people. And you can argue that some of the losses are marked to market and might be reversed and that some of the bonuses were paid to people who had nothing to do with subprime. Probably true, but hair-splitting I say.
We Canadians can learn a lot from our friends to the south, including what not to do.
Link: Fannie, Freddie May Record More Losses | Bloomberg.com
Fannie Mae and Freddie Mac may need to record more writedowns after they expanded their purchases of non-guaranteed subprime and Alt-A mortgage securities just as other investors fled to safer investments, their regulator said.
The value of $217 billion of the so-called non-agency securities is falling as other financial firms write down their holdings, the Office of Federal Housing Enterprise Oversight said in its annual mortgage market report. Privately issued securities backed by subprime mortgages made up 9.2 percent of the companies' combined portfolio, while Alt-A represented about 5.8 percent, Ofheo said.
By investing ``heavily'' in private-label securities in 2004 and 2005, the companies ``significantly increased their exposure to fair value losses from changes in market prices,'' Ofheo said. Structured investment vehicles and securities firms, battered by $452 billion in asset writedowns and credit losses, were invested in similar securities and have contributed to the price swings that may lead to more losses at Fannie Mae and Freddie Mac under generally accepted accounting principles.
``To the extent that those institutions recognize fair value losses on their private-label portfolios under GAAP, Fannie Mae and Freddie Mac may have to do so as well,'' the Washington-based regulator wrote in the report.
Link: Fannie Mae and Freddie Mac: End of Illusions | The Economist
There is a story about a science professor giving a public lecture on the solar system. An elderly lady interrupts to claim that, contrary to his assertions about gravity, the world travels through the universe on the back of a giant turtle. “But what supports the turtle?” retorts the professor. “You can’t trick me,” says the woman. “It’s turtles all the way down.”
The American financial system has started to look as logical as “turtles all the way down” this week. Only six months ago, politicians were counting on Fannie Mae and Freddie Mac, the country’s mortgage giants, to bolster the housing market by buying more mortgages. Now the rescuers themselves have needed rescuing.
After a headlong plunge in the two firms’ share prices (see chart 1), Hank Paulson, the treasury secretary, felt obliged to make an emergency announcement on July 13th. He will seek Congress’s approval for extending the Treasury’s credit lines to the pair and even buying their shares if necessary. Separately, the Federal Reserve said Fannie and Freddie could get financing at its discount window, a privilege previously available only to banks.
The absurdity of this situation was highlighted by the way the discount window works. The Fed does not just accept any old assets as collateral; it wants assets that are “safe”. As well as Treasury bonds, it is willing to accept paper issued by “government-sponsored enterprises” (GSEs). But the two most prominent GSEs are Fannie Mae and Freddie Mac. In theory, therefore, the two companies could issue their own debt and exchange it for loans from the government—the equivalent of having access to the printing press. ...
... The GSEs are not the only liability for the government. IndyMac’s recent collapse is the latest call on the Federal Deposit Insurance Corporation (FDIC). The FDIC has some $53 billion of assets, so it is better funded than most deposit-insurance schemes. But if enough banks got into trouble, the government would be on the hook for any shortfall. The same is true of the Pension Benefit Guaranty Corporation, which insures private sector benefits, but is already $14 billion in deficit.
In the end, the turtle at the bottom of the pile is the American taxpayer. But that suggests that, if Americans are losing money on their houses, pensions or bank accounts, the right answer is to tax them to pay for it. Perhaps it is no surprise that traders in the credit-default swaps market have recently made bets on the unthinkable: that America may default on its debt. ... Read the Entire Article
Link: Swan Song for Fanny Mae | Mike Whitney/CounterPunch.org
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