The Standard-Examiner Opines on the Fannie/Freddie Bailout Dilemma

Added bonus: an instructive supplementary article and a revealing video piece

The Standard-Examiner this morning finally weighs in on the Fannie-Freddie bailout situation, which has dominated world financial news since the past weekend. And the editorial board gets it mostly right, with savvy observations such as these:

America, you just bought giant ownership stakes in two privately held companies that hold and/or guarantee half of all U.S. home mortgages. How does it make you feel?
Over-extended? Sick to your stomach?
Us, too. This home-foreclosure crisis was getting scary long ago. Now it’s getting worse. [...]
The Freddie and Fannie watchers are growing nervous because it is suspected the companies don’t have adequate cash reserves to weather this housing trough. According to a report by The Providence Journal newspaper, the $83 billion Freddie and Fannie hold in reserve is a pittance of a rainy day fund when stacked against the companies’ combined $5 trillion in debts.
So, the federal government — the White House is taking the lead, but the movie is supported by congressional Democrats — is stepping in to buttress Freddie and Fannie against anything like a collapse. Congressional Republicans have so far been reluctant to go along, calling the plan “socialism” and worse.

So far, so good; but then the Std-Ex goes "soft in the knees":

We wonder, though. Allowing Freddie and Fannie too close to default could damage financial markets around the world, not to mention perhaps a cascading smashup of the U.S. markets.
In a situation that could potentially be so grave, we wonder: What other option is there?

The other option, of course, would be to allow market forces to solve the problem, which is what's supposed to happen in a so-called "free market economy."

And granted, the failure and market liquidation of Freddy and Fanny would cause serious short-term disruption, as these entities moved through bankruptcy court, where viable assets would be efficiently identified and liquidated, and the nonviable ones written off. And yes, this would be a severe blow to G.E.S. stockholders and other financial institutions who hold all these entities' hokey $5 trillion in debt paper.

The aftermath of the mortgage market meltdown will however be painful, regardless of which approach becomes public policy.

So once again we ask the question: Is turning the American taxpayer into what's known in investment circles as "the bagholder" the better of the solutions?

Just for kicks, we'll segue into another solution offered by one of our favorite financial sites, "The Onion": Recession-Plagued Nation Demands New Bubble To Invest In

As an added bonus we provide this humorous and topical video clip, which was contributed by Gentle Curmudgeon in one of our lower comments sections last night:


We thought it would be useful to launch into the coming weekend with something light.

Consider this an open topic thread, if you like.

The Federal Reserve Crosses the Rubicon

US taxpayers to increase their stake in the 2008 banking industry meltdown

As the world economy continues its inexorable slide into recession, we receive news this morning which, once the situation plays out, will likely make the March 2008 Bear Sterns bailout look like small potatoes. In this connection, we'll spotlight a couple of news items from bloomberg.com this morning.

First, from Paulson Puts Treasury's Weight Behind Fannie, Freddie:

July 14 (Bloomberg) -- Treasury Secretary Henry Paulson put the weight of the federal government behind Fannie Mae and Freddie Mac, the beleaguered companies that buy or finance almost half of the $12 trillion of U.S. mortgages.
Paulson, speaking yesterday on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in the companies and lend to them, aiming to stem a collapse in confidence. The Federal Reserve separately authorized the firms to borrow directly from the central bank. Fannie and Freddie shares rose in New York trading.
The steps would bring the U.S. closer to giving an explicit guarantee for the debt sold by the shareholder-owned, federally chartered companies. That reflects a need for the government to bail out an economy that's been rocked by the worst housing recession in 25 years, the credit crisis, and soaring energy costs.
"They appear to be crossing the Rubicon," Sean Egan, president of Egan-Jones Ratings Co., a credit-rating company based in Haverford, Pennsylvania, said, referring to Caesar's invasion of Rome to set up a dictatorship.

Next, we get something from commodities investment hawk Jim Rogers: Fannie Mae, Freddie Rescue a `Disaster,' Rogers Says:

July 14 (Bloomberg) -- The U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac is an "unmitigated disaster'' and the largest U.S. mortgage lenders are "basically insolvent,'' according to investor Jim Rogers.
Taxpayers will be saddled with debt if Congress approves U.S. Treasury Secretary Henry Paulson's request for the authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac, Rogers said in a Bloomberg Television interview. Goldman Sachs Group Inc. analyst Daniel Zimmerman predicted the mortgage finance companies' shares may fall another 35 percent.
"I don't know where these guys get the audacity to take our money, taxpayer money, and buy stock in Fannie Mae,'' Rogers, 65, said in an interview from Singapore. "So we're going to bail out everybody else in the world. And it ruins the Federal Reserve's balance sheet and it makes the dollar more vulnerable and it increases inflation.''
The chairman of Rogers Holdings, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, also said the commodities bull market has a "long way to go'' and advised buying agricultural commodities. [...]
"These companies were going to go bankrupt if they hadn't stepped in to do something, and they should've gone bankrupt with all of the mistakes they've made,'' Rogers said. "What's going to happen when you Band-Aid and put some Band-Aids on it for another year or two or three? What's going to happen three years from now when the situation's much, much, much worse?'' [...]
The U.S. economy is in a recession, possibly the worst since World War II, Rogers said.
"They're ruining what has been one of the greatest economies in the world,'' Rogers said. Bernanke and Paulson "are bailing out their friends on Wall Street but there are 300 million Americans that are going to have to pay for this."

US taxpayers can surely thank their lucky stars that the kindly folks at the FED and the US Treasury Department have the foresight to rescue the banking industry from the results of their own recklessness and perfidy. And as continuing infusions of hundreds of billions of US dollars continue to stream into our already inflationary economy, and the purchasing power of the our currency continues to descend into the realm of "play money," remember... they're doing it all for us.

Comments???

More Thoughtful Commentary on the Fred/Fan Mess

Fannie and Freddie: Bail 'em out, then bust 'em up

Thoughtful well-crafted guest commentary in yesterday's Salt Lake Tribune, by the Heritage Foundation's J.D. Foster. Mr. Foster offers a proposed solution to the impending Fannie/Freddie bailout mess, and frames his opinion piece like this:

News that the Treasury is preparing plans to bail out housing finance giants Fannie Mae and Freddie Mac (FM2) has infuriated the American people. And rightly so: It's their money, after all, on the line. If they understood the whole truth, they'd be even angrier - but they should vent their fury at the guilty parties.

Foster then launches into a nice mid-article rant about entities which are deemed "too big to fail," and the all too obvious "seeds of trouble" (enormous size, inadequate capitalization, single industry focus, heavy political involvement) which were blindly ignored by the one governmental body which had the political power to have prevented the Fan/Fred problem from descending into its current crisis condition. Anger's OK, says Mr Foster, so long as it's properly directed:

Americans should direct their anger at Congress, which for years refused to heed the warnings, even as it worked to protect its gravy train of political contributions.

And finally Foster arrives at his proposed solution:

Anger isn't enough, however. As Congress readies a bloated housing bill, Americans should demand Congress ensure this kind of financial threat never looms again. Strengthening the federal regulator for FM2 is fine, but we really need to break these financial goliaths into many, much smaller and truly private companies. Unfortunately, there isn't time now to scheme the breakup of FM2 properly. Instead, Congress should separately task the General Accountability Office and the Federal Reserve with producing a study with its recommendations on how FM2 might be restructured into a variety of private, separate companies. Once cut down to size and properly regulated, these new companies would pose little risk in and of themselves, would never become too big to fail, and so would lose their implicit guarantee of a future bailout. It's not enough to call in the ambulance. We need to catch the mugger who perpetrated this crime-and make sure he never haunts the neighborhood again.

Not a bad editorial all in all; and definitely worth a read. This is the kind of mental exercise recommended to shake out the weekend cobwebs on a Monday morning, we think.

And what think our gentle readers about all this?

Why The Fannie-Freddie Bailout Will Fail

The federal government buys a pig in a poke

By: Martin D. Weiss, Ph.D.
Via: Money and Markets

With yesterday's announcement of the most massive federal bailout of all time, it's now official: Fannie Mae and Freddie Mac, the two largest mortgage lenders on Earth, are bankrupt.

Some Washington bigwigs and bureaucrats will inevitably try to spin it. They'll avoid the "b" word with vengeance. They'll push the "c" word (conservatorship) with passion. And in the newspeak of 21st century bailouts, they'll tell you "it all depends on what the definition of solvency is."

The truth: Without their accounting smoke and mirrors, Fannie and Freddie have no capital. The government is seizing control of their operations. Their chief executives are getting fired. Common shareholders will be virtually wiped out. Preferred shareholders will get pennies. If that's not wholesale bankruptcy, what is?

Some Wall Street pundits and pros will also try to twist the facts to their own liking. They'll treat the bailout like long-awaited manna from heaven. They'll declare that the "credit crisis is now behind us." They may even jump in to buy select financial stocks. And then they'll try to persuade you to do the same.

The reality: This was the same pitch we heard in August of last year when the world's central banks made a coordinated attempt to rescue credit markets with massive injections of fresh cash. It was also the same pitch we heard in March when the Fed bailed out Bear Stearns. But each time, the crisis got progressively worse. Each time, investors lost fortunes.

Together, both Washington and Wall Street are trying to persuade you that, "no matter what, the government will save us from financial disaster." But the real lessons already learned from these events are another matter entirely...

Read the rest of Dr. Weiss's article here. (It's a mite slow loading, but well worth the wait.)

Comments are invited, as always.

The Big Bailout: America as a Full-Spectrum Kleptocracy

First class Fannie/Freddie Bailout rant from LewRockwell.Com

Last week, Congress went on record regarding its priorities: With a handful of noble exceptions (conspicuous among them the stalwart Rep. Ron Paul of Texas), they demonstrated a willingness to ruin what remains of the dollar and destroy the Middle Class in order to rescue – temporarily – the über-rich Robber Class

LewRockwell.Com
The Big Bailout: America as a Full-Spectrum Kleptocracy
July 29, 2008

First class rant this morning on the Fannie/Freddie bailout topic from William Norman Grigg, of LewRockwell.Com. This is one our readers surely won't want to miss:

The Big Bailout: America as a Full-Spectrum Kleptocracy

Reader comments are invited, as per usual.

The G.S.E. Bailout Plan Redux

More blowback from the U.S. mortgage industry meltdown

On Monday we commented about the proposed G.S.E. bailout plan, which was hastily cobbled together over the the last weekend by officials of the Federal Reserve and U.S. Treasury Department, with an object of expanding FED authority to provide rescue taxpayer funding, to prevent the twin public/private hybrid mortgage industry entities, Fannie Mae and Freddie Mac, from further sliding into financial oblivion.

We watched FED Chairman Ben Bernanke's testimony before the Senate Banking Committee yesterday, during which he made his first pitch to congress for expanded FED financial and regulatory authority.

We've been scouring the web for one particular video segment of yesterday's committee hearing, and the one we were searching for finally popped up on YouTube about an hour ago. We hope you'll share our delight, as Kentucky Senator Jim Bunning tears FED Chairman Bernanke "a new one." (WCF Disclosure: We have no idea who the Arab guy is who rattles on in the left frame, or why he chose to mug and comment on camera. Fast forward to 1:42, and you can skip most of the guy's blathering, and get to the real red meat):

As an added bonus to those political wonks among us whose eyes don't glaze over when presented with discussions involving economics issues, we'll also link two highly instructiive articles on the topic of the government's percipient intervention in this matter, and what it all possibly means for the U.S. economy: The Financial Tsunami: The Next Big Wave is Breaking Fannie Mae, Freddie Mac and US Mortgage Debt Freddie, Fannie, and Curses on FDR
Don't let the cat get your tongues.

Congress Finalizes the Fan/Fred Bailout

U.S. Taxpayers became full partners in the mortgage market melt-down mess under an hour ago

Chalk up another victory for American "nanny government." The Fannie/Freddie bailout, which we've railed about recently here on Weber County Forum, just cleared the U.S. Senate by a 72-13 vote. All that's lacking now is the president's signature. We incorporate CNNMoney's lead paragraphs below:

NEW YORK (CNNMoney.com) -- The Senate on Saturday overwhelmingly passed a landmark housing bill that will offer up to $300 billion in loans for troubled homeowners and establish a government rescue plan for mortgage finance giants Fannie Mae and Freddie Mac.
The House passed the bill on Wednesday just hours after President Bush reversed his long-standing vow to veto the bill. Bush is expected to sign it soon.
The legislation, one of the most far-reaching housing bills from Congress in decades, marks the centerpiece of Washington's efforts to address the nation's housing meltdown.

This bailout legislation is so knuckle-headed that even the Voice of Wall Street, The Wall Street Journal, condemned it in a strong editorial yesterday, rightly labeling it the "scandal" that it is.

Hold on to your wallets, folks. If you think inflation is bad now, just wait. You ain't seen even the beginning of it yet.

In closing, we've embedded an instructive YouTube video below, featuring an interview with commodities guru Jim Rogers, who provides a clear and succinct analysis of the economic downside to this unprecedented act on the part of Congress, to make U.S. taxpayers full partners in the banking industry melt-down mess:

As an added bonus, true gluttons for punishment can also visit this site, for an outlook (and an additional video) even more gloomy than Mr. Sinclair's. (And be patient, gentle readers... this last page [and the incorporated video] takes a few extra seconds to load -- although it's most definitely worth the wait.)

Our readers' ever savvy comments are invited as per usual.

Socialism "Rescues" What's Left of Capitalism

Stirring tales of our existence within the Right-wing American corporo-fascist state

Well it's all official now, U.S. Taxpayers. We're all co-partners in the 2008 banking industry meltdown, and our supposedly "recovering" alcoholic president just issued the Treasury Department and the Federal Reserve (U.S. Bankers' Union) a blank U.S. Treasury check by quietly signing the Fannie/Freddie bailout bill into law this morning. Here's the gist, from the ever-reliable Raw Story website (Don't forget to read the reader comments):

In a seeming effort to blunt attention to the fact he was signing a bill he once rebuked as socialistic, President George W. Bush quietly approved a massive mortgage rescue bill shortly after 7 a.m. in the Oval Office and announced his signature by email.
"Only a few aides and administration officials were present, including Secretary of Housing and Urban Development Steve Preston and James B. Lockhart III, the Director of the Office of Federal Housing Enterprise Oversight (OFHEO)," Politico's Mike Allen remarked. "The White House announced the signing by e-mail moments later."
A senior Bush official told Allen the Administration had no desire to herald the Democrats who shepherded the bill through their congressional committees, Sen. Christopher Dodd (D-CT) and Rep. Barney Frank (D-MA).

And no... we're not about to completely blame the approval of this bill on the current pack of Congressional democRATS who ushered this bill through a compliant Congress without amendments.

This nitwit neoCON Bush had a hand in it too.

Yes. It's the Republicans in Congress who allowed the "mortgage problem" to fester during their inattentive watch.

But it's the recently elected congressional democRAT majority who adopted the "socialist solution" -- with the help of our neoCON president, of course...

Food for thought for our gentle readers, as the congressional Demos usher in a new era of American high taxes and hyper-inflation.

Having said this... we hope our gentle readers won't let their cat get their tongues.

Fed Covers Up Financial Crisis

The China connection to Goldman Sachs figures prominently in the current crisis

Per Canada Free Press: "Fed Covers Up Financial Crisis". Excerpts from yesterday's highly enlightening Cliff Kincaid opinion piece:

Our “adversary” media have been extremely deferential toward those promoting the looting of the American taxpayers during the ongoing economic and financial crisis. However, Bloomberg News should be congratulated for filing suit against the Federal Reserve in an effort to disclose the securities the central bank is accepting on behalf of American taxpayers as collateral for $1.5 trillion of loans to banks such as Goldman Sachs.
“The American taxpayer is entitled to know the risks, costs and methodology associated with the unprecedented government bailout of the U.S. financial industry,” said Matthew Winkler, the editor-in-chief of Bloomberg News.
Another way that the media can begin to fix the blame for the financial meltdown is to cover the views of those who predicted the crisis and understand how it happened.
Consider watching this video of a debate that financial analyst Peter Schiff had with Arthur Laffer on CNBC back on August 29, 2006. Schiff predicted the deep recession that is now underway and made mention of China’s role in our unfolding economic troubles. Laffer’s talk about our economic policies “working beautifully” makes him look utterly ridiculous in today’s climate. “The United States economy has never been in better shape,” he declared:

More from yesterday's CFP article:

The China connection to Goldman Sachs figures prominently in the current crisis. Because China owned $376 billion of Freddie Mac and Fannie Mae paper, it played a big role in the financial crisis, and Treasury Secretary Henry Paulson, with his own personal and financial ties to China, admittedly tried to reassure the Chinese through this process that their investments would be protected. They are being “protected” in the sense that the American taxpayers are now on the hook for these government mortgage companies, which have been nationalized. On top of this, Paulson, a former CEO of Goldman Sachs, made sure, as part of the bailout legislation, that he could bail out Chinese banks holding other troubled U.S. assets. Schiff, who blows the whistle on these schemes, is not very popular in the media, which have been telling us consistently that things would get better after Wall Street was bailed out. But Schiff was on Bloomberg on October 28 talking about how the problems will get worse if we continue to follow the current tax, spend and bailout policies. His basic message is that the U.S. is broke and that the situation will get worse under an Obama Administration because of its commitment to more federal interference and involvement in the economy.

Flash forward two years and don't miss the October 28, 2008 Bloomberg video interview, mentioned in the preceding paragraph: Peter Schiff October 28 2008 Bloomberg - Open Exchange Update 11/12/08 8:51 a.m. MT: Just for laughs, check out Art Laffer Regarding his Challenge & Bet Made With Peter Schiff And don't let the cat get your tongues, Weber County Forum economics wonks.

Dow Drops 504 points; AIG Talks Bankruptcy

The nation's largest insurance company seeks a FED lifeline

Today's Deseret News carries a pretty good synopsis of yesterday's stock market action, wherein the Dow dripped 500+ points, as a result of the chaos in the financials sector. From this morning's article:

NEW YORK — Mighty investment banks were laid low. Stocks put in their worst performance in seven years. About $700 billion was washed away on Wall Street.
The crisis set in motion more than a year ago by a series of bad mortgage bets produced its most devastating day yet Monday, leaving investors to wonder whether anywhere was safe for their money.
Capping a tumultuous 24 hours that redrew the American financial system, Lehman Brothers filed the largest bankruptcy in American history, and a second storied bank, Merrill Lynch, fled into the arms of Bank of America.
The Dow Jones industrial average lost more than 500 points, more than 4 percent, its steepest point drop since the day the stock market reopened after the Sept. 11, 2001, attacks.
About $700 billion evaporated from retirement plans, government pension funds and other investment portfolios.
It was by far the most stomach-churning single day since a financial crisis began to bubble up from billions of dollars in rotten mortgage loans that have crippled the balance sheets of one bank after another and landed mortgage giants Fannie Mae and Freddie Mac under the control of the federal government.

Read this morning's full Deseret News article here.

Wall Street traders seem to be taking the crisis somewhat in stride this morning. Although the Dow has been down as much as 86 points this morning, it's in positive territory (up 24 pts.) as of the time of this posting. While it's still too early in the day to determine whether yesterday's trading action signalled a complete erosion of confidence in the financials sector, there's another GIANT problem looming on the near horizon:

An AIG Accident Could Dwarf Lehman's

AIG is one of the largest insurance companies in the world, with significant exposure in the areas of mortgage insurance, bond (derivatives) insurance and other forms of insurance involving the financials sector. The collapse of AIG could leave a wide array of banks, pension funds and other financial institutions and investors essentially "naked" to the effects of a collapsing financial market.

Those readers who regularly follow developments in the financial markets already know we are witnessing the unfolding of events which are highly reminiscent of events preceding the great depression. Those readers who don't have these financial developments on their radar screens probably ought to take off their blinders and at least have a look.

The events transpiring during the last few days (and in the days immediately to come) will be viewed as "historic."

Will government officials, financial institutions and the FED have the wherewithal to deflate the financial bubble in a tolerable and orderly fashion; or is the U.S. economy ineluctably headed for doom?

Update 9/16/08 11:04 a.m. MT: More chirpy economic news:

Goldman Sachs net plunges 70 percent

Next!

YouTube video: You Can't Make It In America Anymore

Is a new American lumpencitizen revolution in the works?

Inasmuch that it's another tediously slow Emerald City news day and all, we'll provide our readers with an opportunity to leapfrog from a Standard-Examiner lead editorial which appeared in yesterday's edition. The Std-Ex Editorial Board gets off to a danged good start in the lead paragraphs when they try to characterise the mood in America, even as the less economically advantaged are shuffled off to "the Governator's" 21st century version of Steinbeck's great depression-era labor camps, while the fat cat bankers in America rake in billions in bonuses:

"Who do we shoot?"
-- "Muley," in the film version of John Steinbeck's "The Grapes of Wrath."
Pitchfork politics. It sort of has a catchy ring to it, particularly if you're angry at the political and financial elite in our country.
And a lot of us are angry right now. That anger seems to be very bipartisan in nature. After all, not all of those AIG execs who thought they could grab a bonus on the sly can be Republicans. In fact, the two senators who received the most campaign money from AIG are the currently notorious Sen. Chris Dodd, D-Conn., and, ahem, President Obama, when he was the Democratic senator from Illinois.
The recession, or embryonic depression, or whatever you call it, has a lot of scapegoats. Wall Street, Congress, President Bush, Fannie Mae, Freddie Mac, AIG, Bear Stearns, Republicans, Democrats ... the list is endless. We should be outraged that the political and financial classes we trust to lead economic policy allowed blind faith in past financial history to supersede caution against an expanding, defenseless. mortgage-based credit bubble.
To put it straight, we've got a lot of fixing to do. Optimism, faith and hope -- all admittedly wavering at the moment -- will be necessary to get that fixing accomplished.

And from that point, the Editorial Board goes completely off-track, we believe, with this stanza, which finishes the above paragraph:

We can't get sidetracked with emotional, pitchfork anger. We're seeing too much of that from precisely those who should have cool heads.

From there, the editorial board goes even more haywire through the rest of the editorial, complaining about incivility, and of course the threats to the personal safety of those bastards who were set to receive the outrageous multi-million dollar bonuses, despite their appallingly bad business judgment. Not that we condone that, BTW.

Nevertheless, we're going to point out what Thomas Jefferson wrote about this, in of all places, the U.S. Declaration of Independence:

When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness, [Emphasis added}.

Get a grip, Standard-Examiner Editorial Board. Here's a great video we googled up a couple of days ago which we believe better expresses the lumpencitizens' anger and angst, than any of the corporo-fascist crap you can post in your editorials. It's not about ivory tower lefty-righty ideology. It's about the more basic and fundamental ideology of survival. We believe this excellent video may very well capture the sentiment of our times in America.

"We can't make it here anymore":


We don't know that this is the current mood of the lumpen proletariat across the country, but we have a strong sense that it may well be.

And if the politically-jaded Std-Ex Editorial Board chooses invoke a quote from that dastardly neoCON Robert Shapiro to the effect that current American sentiment is "a spasmodic outpouring of ideologically incoherent rage," we'll just add that the Standard and their neoCON friends from Sanduskey obviously have no concept of the "dark side" of American Democracy, in a land where agile and aggressive Americans still believe that their government should be of, by and for "the people."

Remember people, that what the Std-Ex derisively calls "pitchfork anger" is the exact same motivation which propelled American colonialists to throw over King George.

Don't ever think it couldn't happen again.

Reader comments are invited, as always.

More Bad News On the World Economic Meltdown

This will take a long time to get better

By Danny

Disturbing economic news this morning from The Prudent Bear investor's website:

• A Week of Big Numbers

Scroll down about 2/3 of the way to where it says, "A Week of Big Numbers:" and read it all, To see the size of the problem is to see how ruined we really are. Here's a short excerpt:

February 24 – Bloomberg (Mark Pittman and Bob Ivry): “…the U.S. government has pledged more than $11.6 trillion on behalf of American taxpayers over the past 19 months, according to data compiled by Bloomberg. Changes from the previous table, published Feb. 9, include a $787 billion economic stimulus package. The Federal Reserve has new lending commitments totaling $1.8 trillion. It expanded the Term Asset-Backed Lending Facility, or TALF, by $800 billion to $1 trillion and announced a $1 trillion Public-Private Investment Fund to buy troubled assets from banks. The U.S. Treasury also added $200 billion to its support commitment for Fannie Mae and Freddie Mac…”
The Administration’s new budget projects an astounding $1.75 TN fiscal 2009 federal deficit - or about 12% of GDP. Federal outlays are expected to surge 32% this year to $3.94 TN. In nominal terms, the deficit is set to quadruple the previous all-time record. In percentage terms one has to return back to the war economy of the 1940s to find anything comparable. [...]
What are the ramifications and consequences associated with U.S. deficits approaching 12% of GDP? [...]
I do fear that we now face Trillion dollar deficits as far as the eye can see. I don’t expect “Keynesian” policies to have much success in reinvigorating busted asset markets. I’ll be surprised if private-sector Credit creation bounces back anytime soon. I fear policymaking will do more harm than good when it comes to needed economic restructuring. And my worst fears of policymaking (fiscal and monetary, democrat and republican, national and local) bankrupting the country are being anything but allayed.

This will take a long time to get better.

And what about the rest of the world?

• It's Worse Over There

Comments? Anyone?

Affordable Housing Deals Are Stalling: The Market for Tax Credits, a Catalyst for Construction, Is Drying Up

Many developers are finding it difficult or even impossible to put their deals together

By Curmudgeon

The New York Times today has a story on its economics pages that is not un-related to Ogden matters. The headline is "Affordable Housing Deals Are Stalling: The Market for Tax Credits, a Catalyst for Construction, Is Drying Up. "

Two points of interest in the story. First, federal tax credits [in this case for building affordable housing, mostly apartments] are now falling in value. The developer gets the credits and then sells them to raise money to build the project. Federal tax credits for affordable housing had been selling for 90 cents on the dollar. Now they're going for 78 cents on the dollar... if you can find a buyer. Fannie Mae, Freddie Mac and Citigroup... all major purchasers of tax credits in the past... have stopped dealing in them altogether, as have others. Funding tax-credit and tax-free bond financed projects has become, as a result, much more difficult.

Second point: the projects that are being funded... and some are... tend, according to the story, to be projects to build low and mid-income housing, not high end housing. From the story: "Affordable housing is said to do better than other real estate sectors in a bad economy because government subsidies are available, land and construction costs fall and demand for the apartments rises."

Wondering about the impact on Ogden, because the model for downtown regeneration Ogden currently has in place rests heavily on attracting relatively up-scale condo owners to the downtown area, exactly the kind of construction the Times article suggests is doing badly in current market conditions. [E.g. the Reid condo development, now on what is politely being called "hiatus" for at least two years, and maybe forever. The condo building just north of the Salomon Center has still not been completed, I think, well after its planned completion date. And have the new condos now completing to the east and south of the Salomon Center been leased or bought? I don't know. Just curious. ] I'm wondering what the Times story might mean for downtown Ogden going forward, if anything. How does the River Project development Mr. Leshem plans fit into all this? Would it be wise for the City... Mayors office and Council... to look again at the development model for downtown and to consider whether it needs to be changed in light of new circumstances? Worth chewing over, probably. Anyway, the Times article can be found here:

"Affordable Housing Deals Are Stalling: The Market for Tax Credits, a Catalyst for Construction, Is Drying Up. "

It's worth a read.

Fed Fright: Bernanke Sets Up Multibillion-dollar Emergency CDO Bailout

The U.S. Government sets the stage to trade $billions in U.S. government bonds for worthless mortgage paper

By Dorothy

Interesting article this morning on Agora Financial's website. When you read today's article it becomes obvious that the Federal Reserve has just nationalized all the banks who are bankrupt because of greedy speculation in the subprime mortages - which means that you and I are going to pay off the banks' debts just like we taxpayers were forced to do when the Savings and Loans went belly-up for making bad housing loans in the '70's & 80's. Here's the skinny:

You have to admit, widespread panic at the Fed is entertaining.

One week after calling Mulligan” on the entire mortgage bubble, Bernanke is suggesting we pass the entire mess onto the next generation. God forbid the baby boomers ever take responsibility for their own actions.

The Federal Reserve announced this morning that it will make an additional $200 billion available to strapped lending institutions. But instead of firing up the printing presses and going about business as usual, the Fed has unveiled a whole new plot, and a handy acronym to go with it: Term Securities Lending Facility (TSLF).

The new initiative, like the old Term Auction Facility (TAF), will provide short-term loans to distressed financial institutions. But instead of enticing banks with cheap interest rates, the Fed is now offering to swap mortgage-backed securities for U.S. Treasuries.

Thus, a bank swelling with Fannie Mae and Freddie Mac paper and other “AAA” mortgage-backed assets can unload it on the Fed for the next 28 days. The Fed wants banks to take that money and lend to the masses, thus stimulating the economy. No word yet how much additional debt it will take for the government to absorb this mess.

The new TSLFs will begin on March 27.

The painful part is that the Federal Reserve is not part of our government, but a private consortium of investors, many of whom are in Europe and other parts of the world.

The bigger - worst - part is that our President and Congress do not have a clue about what has just been done to all of us including them and their heirs. How stupid can we get as a nation?

We are now in the process of trading U.S. government bonds for worthless mortgages in the billions that the banks cannot get an investor to take off their hands... The day of reckoning will eventually arrive for this.