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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: ild who wrote (23030)	12/7/2004 6:37:55 PM
From: russwinter	Read Replies (1) of 110194

Ron Pebbles excerpt: prudentbear.com American retirees recently scored a 2.7% Cost of Living Adjustment in their social security payments, which is great news if the only drugs you take are Flintstone vitamins. Curiously, the retirees’ COLA is much less than the 7.8% COBA (Cost of Bubble Allowance) bestowed upon Fannie and Freddie recently. The problem for poor Fannie and Freddie is that they’ve made mortgage money so plentiful that buyers keep driving up housing prices with all that borrowed money. Since Fannie and Freddie are only allowed to buy mortgages below a certain dollar amount, as housing prices go up, the GSEs lose potential customers. Realizing that it's not fair for Fannie and Freddie to work themselves out of a job, the government keeps raising the upper limit on complying mortgages - which drives up home prices further. Thanks to the latest adjustment, Fannie and Freddie can now buy mortgages as large as $359,650--up from $333,700 last year--which comes to a 7.8% COBA. That doesn’t sound like much unless you're a retiree or Wal-Mart executive.

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