It’s one thing when CNBC’s Jim Cramer says Fannie Mae and Freddie Mac are "technically insolvent", "over-the-top" comments are his trademark. Now however, we are hearing the same thing from a noted and less flamboyant source– former St. Louis Federal Reserve President William Poole:
Chances are increasing that the U.S. may need to bail out Fannie Mae and the smaller Freddie Mac, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules, he said. The fair value of Fannie Mae’s assets fell 66 percent to $12.2 billion, data provided by the Washington-based company show, and may be negative next quarter, Poole said.
“Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,” Poole, 71, who left the Fed in March, said in an interview.
Ouch.
I do believe this will make a “home buying experience” amaz-za-zing(pronounced like ath-a-lete). Housing bubble? What’s the trouble? Don’t you know it appraised for double?
Hi all,
I’m listening to Frank now (he says the “overflow room” is in use — no kidding)
Frank Committee hearing (streaming link at this site) just opened up. Whoa Nelly!
Bill Poole is SHAMEFUL, SHAMEFUL.
My people have been in this game for 25 years . . . They are losing their jobs — these firms are going out business
Lovely Couldn’t have happened to a nicer bunch of people.
“Fannie, Freddie Tumble on Bailout Concern, UBS Cut”, by Dawn Kopecki and Shannon D. Harrington, Bloomberg, July 10, 2008.
Sounds like that was pretty good advice.
Still waiting word on the size of the taxpayer sh*t sandwich to be eaten – I wouldn’t own FRE or FNM at any price.
Separately, I watched Ron Paul with Paulson this morning. Maybe RP should be President (disclaimer – I am not an RP disciple). I feel bad for Hank, having to jawbone this administration’s policies. (Once again: Kevin Bacon in Animal House, “Remain calm! All is well!”)
Anybody think there’s not another leg down in housing prices?
Agnostic-
I’m not a disciple either, but I thought Paul was making more sense this morning than anyone else.
I found it kind of creepy how Paulson and Bernanke keep pushing for more power to fix things, but they seem to be short on details on how they plan to do this.
As I was saying to L, things fell apart while these clowns were in charge. We are supposed to believe that if they are given more power, it will be less of a circus?
They are trying to regulate the closing of the barn door when the horses have already been delivered to the glue factory.
Seriously, Bernanke and Paulson know the economy is just a matter of confidence, and confidence in the servce-based economy is about gone. Nouriel Roubini yesterday on CNBC talked again about how the impact on the real economy hasn’t even begun to be felt.
My associate at the county recorders office here in Phoenix, (Maricopa County) Recorders office, says simply, “You should see what’s coming,” and a friend at a title company says, there is a whole lot more coming, it’s unreal.”
After hearing that news, Igor says “UGLY.”
This is a must-read for all Doomers.
“The Price of Fannie Mae”, Editorial, Wall Street Journal, July 10, 2008.
You know you’re having a bad day when the neo-con dominated WSJ editorial board starts advocating socialism
John -
“This would help prevent a U.S. balance sheet debacle…” The WSJ has got to be kidding. The liabilities/loans are either backed by the U.S. Government (taxpayers) or they are not. Say the U.S. treasury receives subordinated (NB Why should it be subordinated? Last in, first out in my mind) debt. Where does the infusion money come from anyway? Just dismantle both of them and make the (difference in) liabilities general obligations of the government, or back the h*ll off. The problem doesn’t get solved through the layer of bureaucracy. This is just another example of trying to stretch the pain out over time instead of ripping the band-aid off now.
Igor sez Fannie and Freddie are “unneeded.” Indeed.
agnostic -
The whole point is that the obfuscation arising out of the implicit guarantee is what’s financing the war. The moment America has to really answer the question about whether the Treasury is on the hook for the GSEs’ senior debt is the moment they have to face the serious possibility of the total collapse of their currency.
With that sword hanging over their heads, the Administration might just decide that it is a convenient time to cancel the tanker project, end the US military occupations of Japan and Germany, close most or all of their 700+ bases and stations outside the 48, and consolidate the country. The empire is gone, but few states at a time like this can come up with the necessary Atatürk or Gorbachev to orchestrate a smooth transition.
John –
I agree with the idea of closing the overseas bases. Just keep the military happy by letting them invade Nova Scotia.
Seriously, though, I’m failing to see the downside in base closure. Keep Diego Garcia, maybe Keflavik. The savings would be enormous. The only downside is that we would have a bunch of unemployable illiterate testosterone-heads running around the 48 with their Saws, AR15s, or whatever.
Twist,
Thanks for the previous post concerning my inquiry and your insight on Fannie and Freddie.
I was also thinking that this will further accelerate the housing price decline. Even if the government (aka the american taxpayer) bails them out (5 trillion). That will cause credit to further tighten and increase supply causing quicker and deeper housing price declines.