Good bye Dollar????
The below is making the rounds in the MBS community.
blogs.reuters.com
-from-obama/
An August Surprise from Obama?
Aug 5, 2010 00:26 EDT
Main Street may be about to get its own gigantic bailout. Rumors are
running wild from Washington to Wall Street that the Obama
administration is about to order government-controlled lenders Fannie
Mae and Freddie Mac to forgive a portion of the mortgage debt of
millions of Americans who owe more than what their homes are worth. An
estimated 15 million U.S. mortgages - one in five - are underwater with
negative equity of some $800 billion. Recall that on Christmas Eve 2009,
the Treasury Department waived a $400 billion limit on financial
assistance to Fannie and Freddie, pledging unlimited help. The actual
vehicle for the bailout could be the Bush-era Home Affordable Refinance
Program, or HARP, a sister program to Obama's loan modification effort.
HARP was just extended through June 30, 2011.
The move, if it happens, would be a stunning political and economic
bombshell less than 100 days before a midterm election in which
Democrats are currently expected to suffer massive, if not historic
losses. The key date to watch is August 17 when the Treasury Department
holds a much-hyped meeting on the future of Fannie and Freddie. A few
key points:
1) Republican leaders believe this is going to happen since GOPers and
Democratic moderates in the Senate are unwilling to spend more taxpayer
money on more stimulus. But such a housing plan would allow the White
House to sidestep congressional objections and show voters it is doing
something tangible about an economy that seems to be weakening.
2) Wall Street banks are alerting their clients privately to this
possibility. Here is what some are cautiously saying publicly. This from
Goldman Sachs:
GSE policies are one of a dwindling number of policy levers the
administration has left to pull, so it is conceivable that changes could
be made, though there is no sign that a policy change is imminent. The
Treasury's essentially unlimited ability to provide financial support to
the GSEs creates an interesting situation over the next twelve months:
the GSEs could potentially be used to provide additional support for the
housing market and, to a lesser extent, the broader economy in 2H 2001.
And this from Mizuho Securities:
As policy makers ponder their next move the data suggests that they face
not only a stalling recovery but a growing risk of deflation taking root
in the economy. As a result, the Administration has turned back to
industrial policies by approving the purchase of a sub-prime auto lender
by GM as a means for pumping up domestic sales, especially since the
latest auto sales data indicates that consumers are still responsive to
incentives. This precedent increases the risk that the government will
use its control of Fannie and Freddie to increase consumer cash flow and
juice the economy again.
Moreover, Morgan Stanley is pushing a mortgage relief plan directly to
Congress. On August 3, a top Morgan Stanley economist recommended to the
Senate Budget Committee that Fannie and Freddie ease their lending
standards to allow millions of Americans to refinance their mortgages.
3) Keep in mind the political and economic context. The nascent recovery
is already running out of steam. Wall Street economists just downgraded
the government's second-quarter GDP estimate of 2.4 percent to around
1.7 percent. And as even Treasury Secretary Timothy Geithner is warning,
the unemployment rate may well begin to rise back toward the politically
toxic 10 percent level given such sluggish growth. Many in the White
House thought the unemployment rate would be dropping sharply by this
point in the recovery.
But that is not happening. What is happening is that the president's
approval ratings are continuing to erode, as are Democratic election
polls. Democrats are in real danger of losing the House and almost
losing the Senate. The mortgage Hail Mary would be a last-gasp effort to
prevent this from happening and to save the Obama agenda. The political
calculation is that the number of grateful Americans would be greater
than those offended that they - and their children and their
grandchildren - would be paying for someone else's mortgage woes.
4) And don't think the White House is worried about financial market
reaction. If they thought it would pass Congress, they would be
submitting a $200 billion Stimulus 2.0 (3.0?, 4.0?) right now.
August is supposed to be a slow month for Washington politics. But maybe
not this one. |
