http://seekingalpha.com/article/210704-the-5-trillion-bet I'm not sure if this guy is right, didn't fanny and freddie really have most of the risk anyway? Well now we seem to be bag holders for sure. Another $5T of shitty loans we could end up backing up. What the hell is happening in Washington? It feels like either desperate politicians or cunning leftists. Seeking Alpha is a very bearish site, but I'm starting to think most of what they are saying is going to bear out (pardon the pun) in the next 20 years. Things are changing fast, history tells me that not for the better.
Yes this is a HUGE HUGE HUGE stealth bailout. Essentially the big banks got the GSEs buy up their non performing loan assets, to the tune of 5T in Q1 of 2010. Very little to no reporting has been done on this issue. The numbers don't lie, however. This is a bigger bailout than the TARP. Take a look at the "Government-sponsored enterprises credit and equity market instruments asset" column. Especially between Q4 2009 and Q1 2010. MASSIVE BAILOUT. http://www.federalreserve.gov/releases/z1/current/accessible/l1.htm
That's the bail out of "Main Street" that so many were asking for. Without doing that, mortgage markets freeze up and home prices free fall.
But were are talking a lot of new loans here, this is new FHA loans being done at subprime. Some 95% of all new loans are backed by the feds, banks won't do them. Some 90% of the people who were helped by Obama's mortgage rescue plan are back into trouble. This still reeks of desperation. Can anyone give any plausable scenario where this reflating the bubble idea is going to come out looking good?
I would agree with this. The "natural" level for housing price is perhaps as low as 30% of where it currently sit. This is a huge problem, and simply backing away from the mortgage markets and letting them settle on their own would very quickly devastate tens of millions of American voters, many of them armed. The knock-on effects would be...stunning and unpredictable.
By keeping housing loans available, those who are credit worthy can still buy houses. The task then becomes getting these people to buy, when there are still many clouds over the housing market. Everybody knows banks have huge unsold inventory which they have hardly begun to liquidate. Banks were holding bad notes in hopes they could sell them to the Government at above-market prices. That is what has happened starting in the beginning of this year. Most likely the government will be unaggressive liquidating the houses secured by these loans. If they were, it would be against the stated policy of keeping housing values up. This will precipitate losses in the large loan portfolio of the GSEs. Perhaps Obama has a grandiose plan to let defaulted borrowers stay in their homes if a GSE is in possession of the note. That would be a double bailout. The thing about bailouts is they make there here and now look good, by taking from the future. Nobody wants to have the system stop on their watch so the will try to save it all costs, even if it means delaying the inevitable only by a political cycle.
I nailed down a home loan in October 2008, had no problems at all. I'm skeptical that the prime market really froze, it seems that everyone is afraid to let subprime die. Of course an economic boom cures all, but absent that I wonder how many more crisis we can absorb before some sort of chaos lets loose. This is like trying to live on a volcano and plugging the holes.