gspn (Greenspan) believes that the most essential feature of the American dream, that cutting out its heart would be good for the economy and the future stability of the American economic system. His constant tirades, rants, raves and testimonies regarding how they should appoint a Federal Monitor / Secretary / Cabinet Minister over these "defacto pseudo governmental private sector liabilities" so that they would be accountable to someone other than themselves -- threatens the free and smooth flow of mortgage monies that we have all become accustomed to expecting will be available when we purchase, refinance or acquire properties. That was a whole lot to say. Let me dissect it: 1) the contention is that these private firms (FNE, FRE, SLE, and similar pseudo governmental agencies) represents an unfunded potential liability to the Federal Reserve, Interest rate policies and a potential cause of a true 1929 style Depression 2) that these firms do not represent themselves correctly 3) that the implicit relationship between them and the market's perception that the Gov't will step in to bail them out in cases of default is not based upon reality, and would cause further devaluation to the US Currency as a world currency, in cases of default 4) that the policies of the previous administration to make sure that more citizens own homes no longer should be supported, by challenging the manner in which those loans are remarketed and hence more monies made available for loans Listen, there are some serious issues being challenged, especially since Howard Dean took a major swipe at GSPN's political involvement in the policies of government as an unelected official. Dean contended that GSPN's policy making speeches were way beyond his authority and charter to be concerned with just the Currency, Interest Rates, Monetary policy and the Federal Reserve. Gspn took a major blow to his 71 year old pride, and has been angry in attacking anything he can get at. Did you notice these changes in the markets?, economic policy and their impact upon interest rates and such?
"threatens the free and smooth flow of mortgage monies that we have all become accustomed to expecting will be available when we purchase, refinance or acquire properties." With this kind of statement, you can guarantee that change is on the way - to catch the greatest amount of people off guard when they "feel/accustomed" that they are "owed" the status quo. Full article here: http://www.astrogirl.com/blog/WebPageArchive/20031229_Barrons_HughHendry.html Q: Today, liquidity is being pumped in by Greenspan, then? A: Yes. The mechanism is the government-sponsored enterprise sector in America, the Fannie Maes and the Freddie Macs. The U.S. has nationalized the credit-creating process, previously the preserve of the banking sector. Freddie and Fannie can borrow money at almost the risk-free rate. At times of anxiety, they are profit-motivated to expand their balance sheets because government bond yields, the risk-free rate, fall during times of risk aversion. The spread widens between riskier assets like mortgage-backed securities, which Fannie and Freddie buy, and Treasury bonds. The combined balance sheet of Fannie and Freddie is $3 trillion, 30% of the U.S. economy. The annualized growth rate in September and October of their balance sheets was 50%. Now when people talk about M2 or the old monetarism, it hasn't kept pace with the disintermediation, which has gone on in the economy. It doesn't include agency paper. The money supply looks as if it's waning. It's not. There's enormous dollar creation. You can control the domestic price of money. Short-term interest rates have not gone up in America because of this economic Frankenstein. But you can't control the external price: The dollar is weakening versus everything, even versus the ruble.
I happen to agree with Greenspan on this. These entities, particularly FNM, are out of control and have been for years. They are abusing significant advantages conferred on them by the government to line the pockets of the top execs, mainly Franklin Raines. The top execs are for the most part political hacks who know little or nothing about finance. The dirty deal is that both parties get to rotate their out of work hacks through these extremely highpaying jobs and in return, they keep hands off. Predictably, this situation has gone from tolerable to questionable to risky to posing a huge threat to our entire financial system. If you remember what one hedge fund, LTCM, did, multiply it by a large number, no one knows how large because of the secrecy and bad accounting, and imagine the impact of FNM blowing up. Apparently it came close to doing that already. FNM and FRE have become kind of a shadow Fed Reserve by virtue of their ability to create vast amounts of credit. Unlike the Fed however, they are accountable to no one, and run their business to generate huge options windfalls for their execs. They spend a fortune on ads that basically claim that no one could get a mortgage but for them, which is nonsense. The private sector is more than able to handle this without government interference. I think it is very appropriate for Greenspan to weigh in on this subject. They represent a serious threat to our financial system, and it is only going to get worse.
nice comments.....very nice... Hey, if these are political hacks, then why did F. Raines remain with the change in winds by Bush and not be shown the door in favor of some other cronie? Hey, if these unfunded mandates are such a liability, then why did they simply go back, restate their earnings, pay penalties and interest and principal on taxes owed and avoided, and still no major disruption to the economy? Hey, why compare something that almost every mortgage that's underwritten (private mortgages remain in private portfolios, hence not subject to the financing requirements, and hence much harder to obtain) is based upon, and almost every mortgagee owes their competitive low rates to with that horrid example of fiscal irresponsibility and academic abuse by those responsible for Long Term Capital Mgmt (LTCM)? Every time you make a mortgage payment, check a loan rate on the internet through so many sites (most banks, Quicken Money, Ditech, etc.); every transaction owes their smooth flowing nature to these very same institutions.... Agreed, that these highly powerful, influential companies that have an Agency Directive are highly political and sought after. GPSN would be far better suited towards reigning in the process by which the multi-trillion dollar surplus has disappeared in under 4 years and replaced with a multi-trillion dollar deficit, c/o your's Truly GB. Instead, through subterfuge, deflection and misdirection (all tools of the magician's trade) he's attacking one of the only profitable, functioning avenues of government that we all salute, each time we close the doors on our own homes, estates, mansions, driveways and so forth.
Are you seriously contending that the top exec's of FNM and FRE are not political hacks? Do you maybe believe that they are topnotch professionals who are in big demand to run, maybe Goldman or Merrill? I suggest you look into their backgrounds. Of course, these companies have professionals who do the actual work. I'm reserving my comments for the obscenely compensated hacks who owe their jobs to politics not merit. And Mr. Raines is right at the top of that list. As to why Raines was not canned, the administration does not control that job. In fact, it is one of DC's big mysteries how those slots are filled, except that every few years they turn over and magically some out of work political retainer is placed there. Do you have any conception of what would happen if FNM blew up, as it almost did? If you believe that the entire housing industry is dependent on it, then maybe that will give you a clue. I'm not against housing, affordable mortages or smooth markets. I agree that these institutions have helped grow this industry, although I have no reason to believe that the private sector wouldn't have done just as good a job. The problem now is they are so big, they function as kind of a private Fed, only without the usual controls. With the kind of weak leadership they have, who are incentived towards manipulating earnings so they can cash in options, it scares me. At some point, it is just inevitable that the taxpayers will be asked to write a big check to cover a disaster.
quite right. LTCM was massivley leveraged (they didn't even have to put up the normal margin other funds did so they were basically able to trade with unlimited leverage). Surely Fannie mae and Freddie Mac couldn't be leveraged to the same extent. At the same time I do think that they have been lending rather too freely and have created a bubble in the housing market and pose a systemic risk. Just not as big a risk as AAA suggests. Then again, who really knows. Certainly a big of transparence would ally some fears.
I'm not suggesting they are as massively leveraged as LTCM was or that their portfolio is anywhere near as risky, although no one knows for sure. They are much more leveraged than any commercial bank however in terms of their cap/asset ratio. What I am saying is they have a potentially large but unknown exposure to rate swings and it does not take a genius to foresee them blowing up. The consequences of them blowing up would be far more serious than LTCM.
wow.... one thing that I know is when topics are vigourously debated on these threads more details that are not as transparent surface. many times, I have been able to convert these revelations into profitable trading positions or defensive scenarios... I can only hope that you understood, as well as others, that behind these complex discussions, that remains the objective... happy trades to you..... cheers