Americans Being Kicked in the Fannie Once Again

Bloomberg.com reports on the apologists for fiscal insanity surrounding the Fannie/Freddie bailouts in Fannie-Freddie Fix at $160 Billion With $1 Trillion Worst Case:

“Republicans and Democrats love putting Americans in houses, and there’s no getting around that,” Holtz-Eakin said.

‘Safest Place’

With no solution in sight, the companies may need billions of dollars from the Treasury Department each quarter. The alternative -- cutting the federal lifeline and letting the companies default on their debts -- would produce global economic tremors akin to the U.S. decision to go off the gold standard in the 1930s, said Robert J. Shiller, a professor of economics at Yale University in New Haven, Connecticut, who helped create the S&P/Case-Shiller indexes of property values.

“People all over the world think, ‘Where is the safest place I could possibly put my money?’ and that’s the U.S.,” Shiller said in an interview. “We can’t let Fannie and Freddie go. We have to stand up for them.”

To Dr. Holtz-Eakin, my response is that there is a way around it. It's called leadership and avoidance of money-printing. To Dr. Shiller, I would point out that any investor who is not yet aware that Fannie/Freddie obligations are not full faith and credit obligations of the Federal Government deserve losses. No, taxpayers don't have to "stand up" for these badly-run behemoths.

It's all about the inflation game (or, anti-deflation, which eventually amounts to something very similar though probably not identical). Dr. Shiller, who actually praises the money illusion in the book he co-authored titled "Animal Spirits", believes that rising prices and rising wages are good things for psychological reasons. So the U. S. government (with the Fed's assistance) writes off/monetizes the losses, thus eradicating the debt and converting debt-based finance into helicoptering money onto the people.

Until the debt is canceled or monetized, it is not inflationary. By "standing up" for Fannie and Freddie, bad debts all through the chain can be cancelled or written down, but the credit money issued by banks, such as to mortgagees, has been spent, and more is on the way to justify current prices.

It is a cynical game in which Republicrats and Demopublicans work hand in glove with the financial/building interests to put people into houses they cannot afford, that produce no foreign exchange revenue, that cost money to maintain, and that are backed by the misperception that the U. S. is a safe place to invest. No matter that over the past 25 years, the U. S. may have had more bank failures than any country anywhere, that the U. S. is the obvious home of global Ponzi finance, and that the housing scheme is at the root of it all.

What makes the U. S. "safe"? Broad oceans, militarily unaggressive neighbors, and its global military presence. Fundamentally, the Fannie/Freddie/AIG/Lehman month late August to beginning of October 2008 has never had official explanation or serious action at reform.

With Establishment stalwarts such as Drs. Holtz-Eakin and Shiller banging the gong loudly for ongoing Fannie/Freddie bailouts, you can expect more of the same-old same-old going forward.

Copyright (C) Long Lake LLC 2010

Snow Business

Deep in Fantasyland: White House touts GM loan repayment:

. . . the White House is trumpeting the news. Here's a blog post by chief White House economic adviser Larry Summers:

What a difference a year makes. Just about a year ago, the American auto industry was on the brink of collapse. Today, General Motors announced that it has repaid its $6.7 billion loan to the U.S. government in full five years ahead of schedule . . .

However, a more independent opinion comes from the man the Democrats appointed to oversee TARP, Neil Barofsky. A Google search of the topic brought me to Grassley Slams GM, Administration Over Loans Repaid With Bailout Money. Leaving the politics out of it, here is the meat:

But Barofsky told Fox News that while it's "somewhat good news," there's a big catch.

"I think the one thing that a lot of people overlook with this is where they got the money to pay back the loan. And it isn't from earnings. ... It's actually from another pool of TARP money that they've already received," he said Wednesday. "I don't think we should exaggerate it too much. Remember that the source of this money is just other TARP money."

Barofsky told the Senate Finance Committee the same thing Tuesday, and said the main way for the federal government to earn money out of GM would be through "a liquidation of its ownership interest."

A financial adviser named Nick Massey has a long, more thorough shredding of the Summers point of view in Don’t believe the hype on GM’s loan. repayment.

As with the heroic takeover of the alleged "city" of Marja, Afghanistan (really a collection of mud compounds), the shell game with Fannie/Freddie losses magically being transmuted like lead into gold of economic recovery, and the almost uncountable number of false statements made attendant to health care "reform", so with GM. As Hitler sings in "The Producers", with this administration (and a number of predecessors):

All you need to know is,
Everything is show biz.

But to paraphrase an even greater American than Melvin Kaminsky (AKA Mel Brooks), you can't snow all of the people all of the time.

After the disgraceful misdeeds and non-deeds of the Bush administration and the Fed attendant to the Great Financial Crisis, the public expected that the sober-sounding Barack Obama would immediately institute sound financial policies and make the perps pay. Instead we got the Bushbama Continuity of bailouts and money-printing and over a year after inauguration, a speculative stock market fueled by zero interest rates to savers, the return of leverage and omigosh, a sop to the peasants- a civil action against the whipping boy du jour by the Sex and Exchange Commission. Said civil action coincidentally announced on an options expiration Friday at the same time the news that the SEC under Presidents Clinton and Bush had ignored the Allen Stanford matter until post-Madoff it could ignore it no longer.

Don't believe anything anymore unless you read it in an independent blog.

Copyright (C) Long Lake LLC 2010

SIGTARP on Housing: Exposing the "One-Off" Shell Game

The special inspector general for TARP, appointed by Democrats, is reported in "The Hill" as saying:

The administration program, "risks being remembered not for catalyzing a recovery from our current housing crisis, but rather for bold announcements, modest goals, and meager results," the report said.

Last month, "The Hill" also reported that Mr. Barofsky said:

The Obama administration's $75 billion program to help homeowners risks failure by, "merely spreading out the foreclosure crisis," a top government watchdog said Tuesday.

The profits and economic recovery is happening in part simply from the government bailouts of Fannie and Freddie, abetted to an unmeasurable degree by people walking away from debts in favor of spending money elsewhere. Just as corporations claim "one-time" non-recurring expenses that nonetheless hit the assets statement, the government wants us to believe that these socialized housing expenses are one-off expenses, but the private sector's performance is the real deal. A "sustainable" recovery is the MSM's current buzzword. Believe all this one-time stuff if it you will. I don't.

Copyright (C) Long Lake LLC 2010

Unwarranted Praise of Bailouts by Bubblevision

I have to remember to eliminate CNBC from even casual viewing.

Today, I was looking for some channels to toggle between while exercising indoors on a cold day today, when I got to CNBC.

It certainly is hard to tell what is advertising and what is information on Bubblevision.

One of the "reporters" was just gushing about what a great deal the 2008/9 bailout of BofA (and its confreres) was for the Treasury. Just look: $1.5 B profit to Treasury from stock warrants. The deal of the century!

This sort of cheerleading can only be done to newbies to the investment field. Anyone who knows anything would mentally gag at this tripe.

For the newbies:

Were it not for the hundreds of billions of aid so far to Fannie/Freddie/housing/AIG, and the trillion-plus additional dollars "printed" and added to the Fed's balance sheet to purchase mortgage-backed securities and Treasuries, the continuation of a zero interest-rate policy (ZIRP), the huge FASB change on recognition of impaired assets, etc., BofA warrants would be worthless. And Citi, even more worthless.

The ads for gold on CNBC are perhaps as objective as some of its "reporters".

Not to mention the commentator Larry Kudlow, who was forced in late 2008 to finally admit that not everything about the American economy is wonderful.

We are Japan. With nukes. And with unreformed, possibly worthless large complex financial institutions that run the show in concert with the Fed and the Feds.

Love those warrants!

Time for the bailout cheer. Give me a B, give me an A, give me a I . . .

Copyright (C) Long Lake LLC 2010

In Memoriam William Seidman

William Seidman, former Chairman of the FDIC and first chairman of the Resolution Trust Corp, has passed away at age 88.

My enduring memory of him was during the crisis last year when he was on CNBC along with Larry Kudlow. Kudlow suddenly floated, for more or less the first time to the public, the idea of the Federal Government bailing out Big Finance with TARP.

Seidman, obviously not in on the plan, exploded with anger. The idea that big companies, with shareholders and bondholders, would not suffer the first losses, seemed alien to him. In his capacity as chair of RTC, after all, he was dealing with the assets of companies that had been allowed to fail. The idea that he and other taxpayers would subsidize the stakeholders in large financial companies drove him crazy. I hope it did not contribute to his death.


Copyright (C) Long Lake LLC 2009