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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (1956)	11/7/2003 4:56:31 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

Did you see this news on FNM? I missed it biz.yahoo.com Comments from the LLO on the FOOL Is it a rat I smell? No. Worse... It is the aroma of the Bush Regime preparing to loot the USA as never before...as never before even imagined! Here's the deal: "Fannie Mae" (FNM) and "Freddie Mac" (FRE) are pseudo-government agencies that fund mortgages in a big way. They are actually private companies but have the implicit backing of the US government and have parlayed that implicit backing into outstanding debts of $1.5 trillion dollars. Those debts are leveraged 50:1, by the way, meaning that FNM and FRE have 2% collateral supporting their merry business. This summer accounting "scandals" rocked Freddie and neither company is required by law to make normal corporate disclosures to the SEC -- even though their stock trades on the NYSE! It gets even worse: they are regulated by HUD! Hoho. And...their business has involved lending huge sums of money at the lowest interest rates in 40 years, with derivative wagers used to offset the risk of rising interest rates. But with 50:1 leverage, a tiny error would wipe out their balance sheets... That is where the fun really begins... You see, the US$ has been tanking, big time, thanks to the Bush Regime treating the US Treasury like its own piggy bank -- or rather, behaving like a military junta in a banana republic. Right now people aren't freaking out about the US dollar falling because foreign countries still recycle their export earnings back into US debts, such as debts of Fannie Mae and Freddie Mac. You can tell the worry factor is small because though the dollar is falling, interest rates are stable. If and when the disaster hits, the dollar will fall and the stock markets will fall but interest rates will rise. And when that day happens, a mere 2% jump in interest rates that Fannie and Freddie cannot hedge away will mean that they are technically "broke". Now, the government won't really want to allow Fannie and Freddie to stop creating mortgages, but according to the latest news, Congress isn't particularly interested in restructuring these casino-like corporations either. Better, from the Bush Regime's perspective will be to allow them to fail momentarily, and then swoop in and seize the assets -- which can then be salvaged with money from the US Treasury, and re-sold to FOB (Friends of Bush) for pennies on the dollar. Nice theory? Crazy? Well, that's basically what happened in the Savings and Loan "crisis". Pennies on the dollar baby. Hundreds of billions of dollars in free profits to connected insiders (anyone wants to correct details, send an email...) Historians will recall the name of Neil Bush in the S&L debacle. (No jail time for that, either. He's still in business, but of course will never be able to run for public office. Why? Because he is a crook? No, because he got caught. Heheh.)