Go to PDF Version | Go to Recent Issues
To save time in the future, you may select one of the preferences below. You may update your eIBD preferences at any time by going into My IBD and selecting Update Your eIBD Preferences.
Set Web-Based Version as Default Set PDF Version as Default Set Recent Issues as Default
Get QuoteSearch Site
Daily Graphs Online
All the debate of the last several weeks on changes to the financial regulatory system has omitted any discussion over reforming the entities at the center of the housing bubble and financial meltdown: Fannie Mae and Freddie Mac.
Total losses from the bailout of Fannie and Freddie are likely to exceed $250 billion — as much as the cost to the taxpayer of all bank failures in American history combined.
Fannie and Freddie infected capital markets and spread through every sector of the banking system. Before the bursting of the housing bubble, holdings of government-sponsored enterprise (GSE) securities — bonds and mortgage-backed securities as well as preferred stock — constituted more than 150% of core capital for insured banks.
It was not only the commercial banking system that was stuffed with toxic GSE holdings; it was also many of the investment banks. More than 50% of Maiden Lane One, the toxic assets that the Federal Reserve guaranteed in order to persuade JPMorgan to buy Bear Stearns, are GSE securities.
Additionally, more than 40% of money market mutual fund holdings were in the form of GSE securities.
The threats to the stability of the mutual fund industry were not simply a result of Lehman's failure. Had the government not bailed out Fannie and Freddie, many funds would have "broke the buck."
Save A Chinese Bank
Quite simply, Washington fostered an environment where if Fannie and Freddie caught a cold, the banking system would catch a fever.
Fannie and Freddie were the weak links in our domestic financial system. They were also the vehicles that carried excess world savings into America's housing market.
At the height of the bubble, almost 60% of newly issued GSE debt was purchased outside the U.S. One of the largest purchases of that debt was the Chinese Central Bank.
What did Fannie and Freddie do with their foreign borrowings? They invested in the subprime mortgage market.
At the height of the bubble, Fannie and Freddie purchased more than 40% of the private-label subprime mortgage-backed securities. Between the two of them, they were the largest single source of liquidity for the subprime market.
Interestingly enough, the very vintages of subprime loans that performed the worst — 2006 and 2007 — were the years in which Fannie and Freddie entered the market in force.
With their massive leverage, Fannie and Freddie were levered more than 100-to-1 — a disaster waiting to happen.
About two weeks ago, we discussed the chart of Orion Marine Group (ORN), pointing out that it was building a base but hadn't formed the right side at that time. The midpoint of the base then was the same as it is now: 21.83 (found by adding the peak and low of the pattern and dividing by 2). The ...
Tyranny: In his latest absurdity, Venezuela's Hugo Chavez is dictating three-minute showers and no singing. Claiming it's to save water, his act is nothing but a "green" fig leaf to cover his socialist mismanagement. ...
Just one year ago, would you have believed that an unelected government official, not even a Cabinet member confirmed by the Senate but simply one of the many "czars" appointed by the president, could arbitrarily cut the pay of executives in private businesses by 50% or 90%? Did you think that ...
War On Terror: Sen. John Kerry, who was so wrong about Iraq, now says our commander in Afghanistan is "reaching too far, too fast" and that a "good enough" policy should suffice. It won't. ...
The high cost of medical care has been a recurrent theme in countries around the world. In the United States, medical expenses absorb about one-sixth of the total annual output of the economy. Medical care is one of many goods and services that can be provided in a wide variety of ways. At one ...
Posted By: OzzieinPDX(5) on 10/27/2009 | 11:45 PM ET
No mention of the largest root cause of toxic assets. The Community Reinvestment Act is the silent killer of mortgages and social poison bearing the label of home ownership as a right. We are to believe the actuarial data around climate change but disregard the actuarial data of a persons work and credit history, debt to income ratio and the amount of debt they seek to be leveraged by? First the CRA, now health care, could it get any better?
To participate in Community areas, please Sign In or Register
Register
Ignore analyst's predictions, the best indicator of the general market is the price and volume action of the main indexes themselves.
Get QuoteSearch Site
Read Full Article »