Time to Get Political Folks…Massive Bailouts Front and Center

Posted on July 23rd, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

They are on the move guys.  I have always kept my political affiliations and actions a private matter, but what is going on with the Fannie/Freddie, housing, mortgage, Treasury, Fed, Wall St, Washington, rich investor and foreign Gov’t bailout plan could turn out to be nothing short of the largest fraud ever perpetrated on the American people. At least in my lifetime.  I feel compelled to use whatever soapbox I have here to get this message out to as many as I can.

Paulson, Frank and even Dodd are about to get their money, and it will come at a great expense to you, me, our children and perhaps our grandchildren decades down the road. A retroactive bailout of Fannie Mae, Freddie Mac, Wall St, Banks, Investment Banks, Foreign Govt’s and many more by the tax payer is being voted on as early as today. We simply cannot calculate the negative repercussions of this. 

Many think we are in the early innings of the housing, mortgage and credit crisis, and if they are right, which all the evidence points to, this massive backing will cost an unfathomable amount.

From Bloomberg: “provisions to legislation that would create a stronger regulator for Fannie Mae and Freddie Mac and expand federal efforts to stem mortgage defaults. Frank introduced the bill to reduce foreclosures in April.

Bush administration officials are reviewing the 694-page bill. Frank told reporters in Washington the House will vote today, with the Senate expected to take it up tomorrow. “

The package:

  • raises the Federal debt ceiling to $10.6 TRILLION from the current $9.815 TRILLION!;
  • makes unlimited equity purchases in the firms;
  • makes “unspecified” increases in their lines of credit, from $2.25B each. (He spoke of $300B.);
  • gives $3.9B to communities for the purchase of foreclosed properties. Rather than assisting struggling home owners, officials have said the package will aid lenders who now own vacated properties. (In the state of CA alone last month, banks took back $10.2B, so this is just a waste of money.);
  • has provisions for the Federal Reserve to consult on Fannie Mae and Freddie Mac finances;
  • strives to help an estimated 400,000 Americans with subprime home loans refinance into 30-year, fixed-rate mortgages backed by the government (a larger subprime dumping ground);
  • gives a new, higher cap on the size of mortgages they may purchase. The new limit would be $625,000, or the median home price plus 15 percent, whichever is lower (artificially supports pricing, making it take longer for the market to clear);
  • gives states the ability to offer an additional $11B of mortgage-revenue bonds to refinance subprime loans;
  • creates a version of Europe’s market for covered bonds in the U.S. (sales of this same debt have fallen to a six-month low, and prices have dropped 2.5% this year);

And then there’s my favorite!  Why would a ‘toxic’ mortgage holder perhaps paying 1% on a Pay Option ARM or 5.95% interest only on a 3/27, want to refi into a 6.5% 30-year fixed where their payments may rise even with a principal reduction?

Even so, this is just another example of FHA acting as a subprime dumping grounds. As a matter of fact, there is a great market out there for private money buying distressed subprime mortgage paper for pennies, reducing the principal balance and refinancing them into an FHA loan. 

The wild part is FHA just came out and said how they were losing billions too! 

  • Under language agreed to by lawmakers, the bill would also give the Federal Housing Administration (FHA) a role in helping thousands of troubled homeowners refinance from costly, exotic mortgages into more affordable, government-backed loans. ( you must be kidding me)

The CBO says this will ‘probably’ cost tax payers only around $25B, but they obviously have no clue.  This ‘guess’ was only for the duration of the program and we all know that once Fannie and Freddie are ‘nationalized,’ they are never coming back. Naked Capitalism has a good piece on it this morning:

“Readers may have seen that we cast aspersions on the CBO’s estimate that the Fannie and Freddie rescue program would “probably” cost taxpayers $25 billion. We had noted that the estimate was only through 2009 because that’s how far the authorization extends, but there is no way that Fannie and Freddie will ever be cut loose. Thus an estimate the looked at the liability that was really being taken on, which is open-ended, would come up with considerably higher numbers. A couple of readers stressed that that is how the game is played and the CBO can only opine on bills as written. Hence, legislation is drafted with sunset provisions that everyone knows are a fiction.”

Nevertheless. Our original view that the CBO lacks the expertise and resources to estimate the downside for Fannie and Freddie was confirmed by the New York Times:

The proposed Government rescue of the nation’s two mortgage finance giants should appear on the federal budget as a $25 billion expense, the independent Congressional Budget Office said on Tuesday, but officials conceded that there was no way to really know what, if anything, a bailout might cost taxpayers.

The budget office said the chances were better than even that a rescue would not be needed before the end of 2009 and would not cost any money. But the office also said there was a 5% chance that the mortgage giants, Fannie Mae and Freddie Mac, could lose $100B…

The budget office, while acknowledging that the $25B was at best a rough estimate, did not explain fully how it came up with the figure. The office said it analyzed the companies’ financial statements and consulted with regulators, analysts, market participants and the companies themselves to estimate possible future losses and the amount of any cash injection that might be needed from the Treasury….

Senator Jim DeMint, Republican of South Carolina, said lawmakers were generally supportive of the overall rescue plan, but he added that he had doubts about the $25B estimate. “Everyone knows it’s just a wild guess,” Mr. DeMint said. “We are either going to spend zero or we’re going to spend a whole lot more than they are talking about.”

Judging by what officials have told us for the past year and a half and the stock market action recently, it does not seem that the broader market situation is this dire. Is this finally the truth or just more arm twisting like the investment banks did to Bernanke last year when he decided to cut rates to bail out the companies who created this mess? Or is it like when he was told that if the Fed didn’t bail out Bear Stearns, the world would come to an end.

“Failing to provide such authority at this point could trigger turmoil in the nation’s financial and housing markets, with potentially serious adverse consequences,” the CBO said, noting that markets are anticipating the measure’s passage. (what, you don’t call what we have in the housing market now, turmoil? I would hate to see what you consider turmoil)

The best yet…

WaMu Shows Paulson Mortgage Rescue Plan Is Perilous (Update1) By Shelley Smith and John Glover

July 22 (Bloomberg) — Treasury Secretary Henry Paulson‘s plan to revive U.S. mortgage financing depends on investors buying the same kind of bonds they’re shunning in Europe.

Paulson wants to create a version of Europe’s market for covered bonds in the U.S. just as sales of the debt have fallen to a six-month low and prices have dropped 2.5 percent this year. While the securities are backed by loans and bank assets to get AAA ratings, most are valued, on average, as if they were three levels lower.

The extra yield on covered bonds sold in Europe by Seattle- based Washington Mutual Inc., the biggest U.S. savings and loan, has jumped 13-fold since the sale two years ago to 3.16 percentage points over government notes. The premium for debt of Bank of America Corp., the largest home lender, has quadrupled since June 2007.

“This is absolutely not going to be an instant fix for the U.S. mortgage market if you see how tough it is and how expensive covered-bond funding currently is for established markets in Europe,” said Florian Hillenbrand, an analyst who follows the securities in Munich for UniCredit SpA, Italy’s largest bank.

Paulson says the $3.3 trillion covered-bond market, which dates back to 18th-century Prussia, is a remedy for the worst housing crash since the Great Depression. It offers “new sources of mortgage funding” that will cut costs for home buyers, he said at a forum in Washington on July 8.

If you have not already done so, you may want to click the link below and email the Senators on the list and voice your opinion (thanks for maintaining ‘the list’ Patrick). Remember, they work for you.  The American tax payer bailing out this entire situation never needed to happen.

If this goes through, it will not be a fix. Rather it will be just the first of the many fleecings.  The mortgage and housing crisis cannot be resolved with a massive bailout. It will only prolong the pain. The market has to work through this, which it is doing. It has been and will be painful, but it is much better than the alternative. –Best, Mr Mortgage  <>

US Senators email addresses

http://patrick.net/housing/contrib/senators.html

Great Sample Letter from RGE Monitor by Joshua Rosner

An Open Letter to Our Readers

 Joshua Rosner | Jul 22, 2008

Dear Sir (or Madam),

I am writing this letter with all due respects. I have a few items that our Treasury and,
subsequently, legislators may have failed to consider:

– If the GSEs borrow from either the Fed or from the Treasury lines without a
requirement they first eliminate their dividends won’t taxpayers be forced to
subsidize shareholder returns?

– Given the real possibility of future shareholder suits against the GSEs, for alleged
misrepresentations and/or alleged fraud, would the Government be on the hook for
any settlement or damages? Does a Government backstop preclude shareholder suits?
Is this either a prudent or free-market approach? Is this a precedent our leaders want
to set?

– If the GSEs have access to the Treasury and Fed then it is likely there could not be a
scenario in which they could end up in “receivership” because their access to capital
is theoretically unlimited. Although this scenario may well mean the U.S. and its
taxpayers can become “critically undercapitalized” the GSEs would not be easily
classified as such. Thus, this plan and the legislation will likely have the effect of
tying the new regulator’s hands from using many of the most meaningful regulatory
powers in the bill.

– It appears irrational to require homeowner’s with negative equity, who take advantage
of the FHA refinancing provided for in the pending legislation, to give up to 50% of
the future appreciation of their homes to the Government yet not require a similar
profit sharing demand on the GSEs in return for the Federal assistance?

– Language in the legislation, which tithes the GSEs to provide funding for an
affordable housing fund, seems either to be a direct transfer of taxpayer resources
toward that end or already outdated and meaningless language that seems destined to
pass in this legislation. This is a prime example of the reasons our citizenry has voted
“no confidence” in legislative leadership on both sides of the aisle and in the
executive branch.

– If the GSEs are being bailed out, by definition, will we either end up bailing out
private mortgage insurers or, alternatively, providing a new business opportunity to
reward the GSEs? They will have the US cost of funds advantage in developing new
credit enhancement programs to circumvent their 80+ LTV risk limits.

I am somewhat amazed by the holes in this plan. Furthermore, I am beginning to question whether the GSEs, in their ongoing and masterful game of political check-mate, have orchestrated this ‘panic’ in an effort to garner assistance precisely during the short window before recess. Perhaps in doing so they would have understood that the Hill and the White House wouldn’t even have time to consider or understand what they are about to do or the dreadful and historic implications of their actions.

Given the April 14th S&P report about the risks posed by the GSEs to the US’ sovereign rating1 I am wondering why anyone would seek to rush and move this before August 3rd recess.

This poorly planned, ill considered and one-off approach is especially troubling given how early we almost certainly are in this crisis. Airlines, autos, regional banks, private mortgage insurers and bond insurers may also look to the Treasury for help. Should we accept the United States an economy where shareholders receive all of the gains from management’s good decisions while the public is forced to accept all of the losses of imprudent decisions?

Respectfully,


  • Footnote:
  • (1) Standard & Poor’s, “For The U.S. ‘AAA’ Rating, Government-Sponsored Enterprises Pose Greater Fiscal Risks Than Brokers”, April 14 2008 (See: “We believe they (the GSEs) pose large contingent fiscal risks that recent policy decisions aimed at supporting the U.S. mortgage market have made even larger. If these risks were to translate into increased government debt, they could even hurt the U.S.’s credit standing).”

80 Responses to “Time to Get Political Folks…Massive Bailouts Front and Center”

  1. In the future we will all be renting from the “Fannie Mae Home Rental Pool”. Thanks to: “Herr Bauer” (the red shield gang “Roth Schild”) better known as JP Morgan Chase,, better known as “JP Morgan Rockefeller”,, better known as the Federal Reserve. “give me control of a nations money and I care not who makes the laws” (Republican or Democrat).

  2. Where are those elusive ‘Gnomes of Zion’ hiding? Oooops…..they’re from Zurich, right? Hmmmm….I wonder???

  3. Every once-in-a-while, MA comes up with a pearl, while mucking around in Gross things! 😉

  4. Bush has called in (“your country needs you”) another Goldman “sack em” soilder that had worked with Paulson before and are teaming up now to make sure all back doors covered.

  5. Gold is getting a merciless hammering today! The PPT is plunging from both ends!

  6. it probably ain’t gonna matter much. eventually interest rates on Treasuries will rise and the U.S. Government itself will default. In the meantime, I’m looking for alternative candidates to vote for this fall. Both Dems and Republicans are crooks. I won’t vote for them. At least my conscience will be clear.

  7. America: where profits are privatized and losses are nationalized.

    this sucks. I feel so helpless. I’ve written the letters I can write, but I just dont feel they’ll do any good.

  8. OK – I feel a little bit better about Bunning. I don’t know if he will come through on his threats, but he did have this to say.

    He said that the Paulson plan “smacks of socialism.”

    He said that Paulson was trying to “ram down his fix on Fannie and Freddie.” & “To me, that smacks of socialism, and I don’t want my free markets to be socialized,” & “… I don’t think it works real well, and I don’t think the American people want that at all.”

    He added from his schooling at Xavier “I was always taught that this was a free-market economy in the United States, not one that was controlled by the government,” & “And that the government shouldn’t insure free-market risk, and that’s what we’re talking about.”

    Now this is not to say he can or will stop or slow down this bill from passing, but it does show me that someone is smart enough to know better on the hill… that is encouraging.

    Better than the rest of the lackeys!!!

  9. Someone (we, us) needs to “FLUSH THE TOILET”. Hey remember this little diddy “BY THE PEOPLE FOR THE PEOPLE”

  10. No Bloomberg sound like a Nazi propaganda channel. I was joking etenal optimist. Anyways you will be paying the bill for your shit bankers. Your poticians are real shit bags. I have no word. Obama is shitbag and McCain is shitbag. Boy ! Are you gone a get it after the elections ! 35 % inflation rate here we come.

  11. Stu, when will you realize that it is Paulson & buddies at the Fed that are in control? The politicians are puppets!

    Follow the money!

  12. New Reality…Renting is for idiots

    – If anyone out there sat out the bubble and is currently renting, now is the time to buy YOU HAVE NO DOWNSIDE….

    Taking advantage of the new reality for FHA financing, you can stretch your purchase to the upper end of affordabliity(buy a bigger/better house) – 45% DTI(maybe up to 50% with an exception), and put nothing(3%) down(financing the 1.5 mtg ins premium). If your house goes underwater, you can either get your loan modified to a more affordable payment, or walk….Or you can also decide to slow pay your mortgage(pay 8-9 payments per year, pocketing the cash and putting it to better use)…in this environment you will not get foreclosed on(and you still get the interest deduction improving whatever ROI you’re getting on the skipped payments)…..Your FICO will suck but you’ll have more cash at your disposal and may not need credit…Additionally, housing at some point will recover so all you need to do is just hang on…..

    If you rent and run into difficult times, more than likely, your landlord will kick you out in a heartbeat.

  13. Sean that is the stupidest thing I have read in a long, long time. While I realize that our government is making really bad errors in judgment, and in fact they are probably the reason you feel this way, that is not the way things work. These plans “Bail Out” the banks and lenders and not the average homeowner. Look around you and you will quickly realize people are not being helped to stay in there homes. We don’t have over 4 million foreclosures over the past 2 ½ years because homeowners are being helped out. Where did you get this idea anyway? Whoever told you this is an idiot and you will lose your home, ruin your credit which you will need more than ever now, and depending which state you live in, you may also be on the hook for some of the money you are advocating stealing.

    Part of the problem with the socialist agenda we are now seeing unfold in Congress is that it makes people feel entitled. Well your not and you may think that big brother will be there for you, but that will not be the case. They will hold their hand out alright, but not to pick you up when you fall, but rather to ask for more money in taxes to pay for the “Bail Out” plan and to give to the rich who will be getting richer. Socialist societies do not benefit the people in the actual society, but rather the leaders of said society. The participants only get trampled on as pawns in a ruthless game of back door deals and hidden agendas. You my friend will not be included in those meetings and certainly will not get anything out of it but more rules and higher taxes.

    This is only adding to the demise of our free market society. They will have to print massive amounts of money which will inflate the hell out of everything in order to pull this off. Our currency will fall further and our debt will soar on increased cost of borrowing from our foreign friends. Interest rates will sky rocket as the risk on long term debt explodes due to people doing what you are advocating. The dollar will no longer be the currency other countries peg too as they move over to the Euro. Once this happens we will see massive amounts of destruction in our financial sectors and all of this will be for not.

    Things will not end pretty if this bill passes and we will all pay the piper then. Prudent folks will be able to eat while others that are massively over extended will starve. Seriously… this is where we are heading and I am not kidding. Have you seen the tent cities popping up all over the place in this country? Reminds me of a third world nation…

  14. EternalOptimist:

    Cool it with the anti-semitism or anti-Zionism or whatever the hell you want to call it.

    The elite power networks know no national or ethnic boundaries. In fact these delineations are convenient to confuse, distract, and discredit useful idiots like yourself.

    Recent tapes leaked show that LBJ ordered the attack on the Liberty. Either LBJ is a Zionist or Israel/the Israeli military was compromised. So you’re talking about the tail wagging the dog.

  15. WoW Sean… you know rhetoric like that got us in this mess to begin with.

    House prices have not dropped far enough to be affordable in most areas. In some area’s (The heavily hit ones like CA) they have dropped significantly) but are still on a downward trend.

    I personally don’t want to throw away my money at this point and be stuck upside down in another 6 months. I will wait another year or two for the market to fully adjust.

    But I understand you want the good ole golden days of Smoke & Mirrors to continue to line your pocket.

  16. Aaron, Aaron, Aaron….what’s in a name, huh?
    Aron, based on your comments, I would say that you are a Talmudic Jewish Zionist. Mind you, this is merely a hunch – and I could be wrong. But you’re right about one thing: TPTB know no national or internationsl boundaries. In fact, they think the world is theirs for the taking – by whatever means necessary, preferably violence (SEE! the genocide of Palestinians by Israeli Zionists). And you’re right about another thing: There are MANY ‘Goy’ Zionists out there. Bush, Cheney, Paulson, Rice, Rumsfeld, Powell, Obama….heck, I wouldn’t be in the least surprised if LBJ was one of those! 😉

    Israel is the tail – and it’s wagging it in the big, dumb dog’s (America) face – and rubbing it in, to boot!

    Israeli Military ‘intelligence’ is usually compromised in these ‘false-flag’ Ops (SEE! also Mossad) – as in 9/11!

  17. Aaron is right on that. Scumbags of ALL nations bailing out each other. You are right. It’s about the elite and ruling class bailing out themselves with the taxpayer’s money, and doing it on the back of the poor and the middle class. Marxist class warfare at its best. A special kind of socialism by the rich and for the rich. In reality it’s about the purest form of hitlerian national-socialism facism that I have seen in many years.

  18. […] Gov’t bailout plan” is bad news. The numbers don’t work, the CBO is lying, and read this to learn […]

  19. The seats where moral hazzard holds the most sway in this country are at 1600 Pensylvania Avenue, the Capitol, the Department of the Treasury, and the Fed. It’s been located those places my entire lifetime. And my parents’. And most of my grandparents’.

    Where it holds sway is between the ears of those in power. But “those in power” are about to get the lesson of their lives about its limits. Finding out that — just like hurricanes, earthquakes, tornados, moutain ranges, deserts, and wars — markets have orders of magnitude more of it than mere governments.

    So the United States government thinks that it can decide which enterprises are and are not “too big to fail?” My rosy red *ss it can. “But don’t you understand, all you Chicken Littles? It’s because the US government itself is ‘too big to fail.'”

    Right. Tell that to the Roman Empire.

    Actually, this proposed bill may merely be a sign that Washington has begun to wake up to the desperate straits the economy is really in. Sorry bubs. This time, your net is too full holes. So get ready to wave, for like Proverbs says, “riches certainly make themselves wings; they fly…” and kiss ’em good-bye, Mordecai.

    I expect the whole scam to unravel on some particular Tuesday this October. After people in New York, Los Angeles, Peking, Riyadh, Tokyo, and Moscow have had time to run the numbers four or five times. And act, for an election year, in an ever so impolite way.

    Speaking of runs …. “Any one up for a nice little game of musical chairs?”

  20. Weapons of Monetary Destruction at work.
    Amon,
    your obedient serf.

  21. “On the road to serfdom.” Ludwig Von Misses.
    Save the bankers by killing the taxpayers and inflating to death. It’s one great idea. Stange behaviour in the markets indeed. In classical economics, it’s called monetization of the debt. You take from the godamn shitbag pigs called bankers, all their worhless pieces of shit, and in exchange you print barrels and barrels of freshly printed crispy bills in exchange.

    This correspond to A LOT of inflation. Why is oil, gold going down and the godamn dollar going up ? I smell rats here. My nose is saying foreign central bankers. Let the assholes have fun. It won’t last. 6 months from now, inflation will be out of control everywhere.

  22. Till debt does us apart. 🙂

    It’s great. There is a problem with the “bailout”.

    Will it put money, in the pockets of average american ?
    Will it allow him to pay lower prices on homes ?
    Will it increase revenues ?
    Will it lower inflation ?
    Will it lower interest rates ?
    Will it lower taxes and income tax ?

    See what I mean. How the hell can these bastards in Washington justify such a stupid bailout, that bails out NOBODY except the bankers. THIS BAILOUT IS SHIT. Paulson is a fascist. It’s the strongest word I could find. He looks like one.

  23. I guess we know why the financials have been going though the roof for the past few daya even though WaMu and Wachovia reported disasters today. Smart money already knew “The fix is in”.
    I watched the “debate” (?) on C-SPAN. Both sides stood up and said this bill “stinks” and then passed it. When that happens you know the taxpayer is going to eat it big time.

  24. You can say it.The taxpayer is going to eat shit for a long long time.Nice. The Iraq war costed 3 trillion dollars and now this. Sorry but I really think that the best way to protest is to leave the country. The Democrats are as rotten and corrupt as the Republicans. They are all scumbags Obama, Mister Change is full of shit. This type of bailout happens in a banana republic.

  25. Battle of the Mikes!

    I think this Captain Morgan (Mike) has even outdone Mish Mike with his post today. Anyone still ‘In the Dark’ about the seriousness of our economic MESS and coming Grand Depression should read Mike’s post (link below) – and get seriously depressed! As usual, the real culprits remain UFOs (Unidentified Fiscal Ogres – aka Zionists).

    http://tinyurl.com/6g465v

    Like I said (and Mike agrees) there is NO EXIT from the Grand Depression – and NO PLACE TO RUN!

  26. The Iraq war costed 3 trillion dollars and now this

    Um, check your numbers there, guy. Not even close.

    Paulson is a fascist…He looks like one.

    Thanks for the laugh, by the way.

  27. I saw housing prices start to rise as I entered my 20s.
    I sat out; I worked shit jobs during school.

    I got a better paying job, saved a little.
    I sat out; prices had risen even more.

    My siblings, parents and friends bought houses they couldn’t afford, panicking at the skyrocketing cost.
    I sat out; ill health wiped out my savings.

    I got an even better job and went gung-ho at saving.
    I sat out; things were so expensive that it seemed insane to buy.

    Prices go down, family and friends are losing their homes.
    I sat out; my savings increased and my back hurt from helping people move.

    Financial problems plague our nation, and rows of houses are fore sale.
    I sit out; inflation is eating my paychecks, my savings is next to get hit.
    I sit out; prices are still too high to be reasonable, banks turn you away without 20% down.

    Only in such strange times are you punished for being prudent, and rewarded for recklessness.

  28. Let the chips fall where they may.

  29. Ok, enough with the howling at the wind. What are we going to do about it, how are we going to stop it!

  30. >> Only in such strange times are you punished for being prudent, and rewarded for recklessness.

    In Germany during the 1930’s there where two brothers, one was frugal and responsible and the other was a drunk. During the depression the responsible one lost everything he had. The drunk brother kept a collection of beer bottles and many of those companies went out of business. As a result his bottle collection became expensive collection of collectibles and he got rich.

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