just in in-tray
player 1: yrah53.wordpress.com
Notes From Underground: Markets awash with a rumor about an Obama August surprise
By Yra
There is a Reuters blog making the rounds that the Obama administration is planning a surprise for the 15 million homeowners who are undergoing severe stress on their mortgages. It is surmised that Fannie and Freddie are going to absorb the mortgage losses by writing new mortgages based on the depreciated value of the homes in foreclosure. This will be a major act of forebearance on the part of the two NATIONALIZED mortgage lenders.
Back in December we warned that the takeover of Fannie and Freddie created a major slush fund for the Obama administration because they removed the caps on losses for the two lending giants.The congressional Democrats are in serious trouble and the Obama team is trying to help them in any way they can. Forget the economics; this is all about politics. We have warned that the Obama administration was going to panic as the polls disintegrated. The question we have: Is the FED, the holder of more than one trillion dollars in MBSs, going to be the biggest loser, or will it be foreign central banks with a huge pile of GSEs? We are having a hard time thinking how this could be good for the DOLLAR? As Professor Backwards would say: PLEH, PLEH, PLEH!
player 2: other than gold and the dollar, i cannot imagine what social bomb that will unleash, but surely it is one last chance to buy the election in november.......
two birds with one purchase.... does that mean fannie will guarantee all the mbs written on those 15 million worthless mortgages?
player 3: a major problem for the Fed is that its vast MBS portfolio is in reality a huge dud - inasmuch as the issuers of the bonds are de facto, if not de iure, bankrupt. up until now the Fed has assumed it will one day be able to either sell these securities back into the marketplace or get paid as they mature, but what if the government's guarantee for GSE debt - which officially runs out in 2012 - is withdrawn? then the Fed would have issued $1,15 in bank reserves (i.e. cash assets, or 'money') in return for paper that actually deserves a 60 or 70% haircut (if not more...who knows what can be recovered if the GSE's are wound up?).
it would be a case of instant inflation on a pretty large scale, since these MBS are not subject to repurchase agreements.
So this means the tax payer will likely remain on the hook, no matter what, otherwise the monetary system itself could come to be doubted (this will eventually happen anyway, but this is a factor that could accelerate the process markedly). |
