Fannie & Freddie: Mo’ Money
No surprise here:
As Home prices have fallen, more mortgages have defaulted. The increasing default levels are further pressuring the GSEs, sending them deeper in the hole. Hence, Fannie/Freddie will require significantly more cash to keep operating.
The two GSEs hold (or guarantee) about $5.2 trillion of the $12 trillion home-loan market. Freddie Mac has taken $13.8 billion in federal aid — and needs $35 billion more before March 1; Fannie Mae needs $16 billion. Note that F&F aren’t expected to take any immediate losses, but needs the cash flow to help them through the credit crisis.
Bloomberg has the details:
“Fannie Mae and Freddie Mac, the mortgage-finance companies seized by regulators, may need more than the $200 billion in funding pledged by the U.S. government if the housing market continues to deteriorate, Federal Housing Finance Agency Director James Lockhart said.
The companies’ needs will depend largely on the direction of home prices, Lockhart said in an interview in Las Vegas yesterday. His comments followed statements from Fannie Mae in November and Freddie Mac Chairman John Koskinen last week that the government’s funding commitment through 2009 may fall short of what the companies need to make good on their obligations.
The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth, according to a Feb. 3 report from Zillow.com. Following a record boom, home prices are down 25 percent on average since mid-2006 amid a tightening of lending standards and an economic recession, the S&P/Case-Shiller Composite 20-city price index shows.”
Bloomberg also quotes Freddie Mac Chairman John Koskinen, who manages to say the following absurd statement: “When we sized the amount in September, we obviously looked at stress tests and what was happening in the marketplace. There’s been some significant events since then that weren’t in our forecast.”
This is astonishing. Even as recently as Q3 2008, the major players still had no damned clue as to how bad things were.
When even at this late date, events continue to surprise you to the downside, its time to throw out all of your basic assumptions and models and start over.
>
Source:
Fannie, Freddie Funding Needs May Pass $200 Billion, FHFA Says
Dawn Kopecki
Bloomberg, Feb. 10 2009
http://www.bloomberg.com/apps/news?pid=20601087&sid=aId2BJIzu0cQ&
February 10th, 2009 at 7:15 am
“When even at this late date, events continue to surprise you to the downside, its time to throw out all of your basic assumptions and models and start over.”
http://www.foxnews.com/politics/first100days/2009/02/09/obama-takes-stimulus-case-nation-prime-time-press-conference/
Obama: ‘Only Government’ Can Break Cycle of Job Loss, Economic Downturn
Barry,
When my president tells me “only government” can save me….this is one basic assumption I think has drinking the kool-aid written all over it…
Put me in the “I don’t think so” column…
Good luck for those thinking government is salvation…
~~~
BR: Well, the counter argument is the private sector created the mess, and has been wholly unable to deal with it (other than sending these bad banks to zero).
I am in favor of letting that process play out — (that mkes two of is) but very few others are, including the advocates of both private and public rescues.
February 10th, 2009 at 7:29 am
And frankly, every press conference has this fear element in it…daily….
I am beginning to think the message isn’t “Only government can save you” , I think the message is getting awfully close to “Only I can save you”
Hopefully, my innate cynicism is wrong here…
February 10th, 2009 at 7:49 am
If he’s wrong, then everyone will blame his inheritance and he hasn’t much to lose by buying into Pelosi’s and Reid’s stimulus. He blames Bush for a trillion dollar deficit and then with a straight face ADDS what will be $2-3 trillion more to it.
Politics as per usual.
February 10th, 2009 at 7:52 am
Thought this was a very neat visual:
http://www.washingtonpost.com/wp-dyn/content/graphic/2009/02/01/GR2009020100154.html
February 10th, 2009 at 8:08 am
It is not a matter of only government can save us, until the will is in place to wipe out the equity holders in those banks, those stockholders who are responsible for hiring the management that caused this problem it will not be fixed. I can speak for the common working guy who is sitting on the sideline, not having the income that would let him be an investor. This time it looks really bad and we don’t think the market is prepared or able to fix this themselves.
February 10th, 2009 at 8:11 am
Are we surprised?
February 10th, 2009 at 8:14 am
Financial paradox: Obama has to borrow and spend to offset Bush’s borrowing and spending. But as Ray Dalio tells us: China no longer needs to buy our bonds. Conclusion: The Fed will have to print money.
Let’s be clear: printing does not increase the national debt, only borrowing does that. Printing just produces (desired) inflation. Finally, bad news becomes good news and we need more of that!
February 10th, 2009 at 8:28 am
To GlobalEyes,
Perhaps it’s time to visit the opthamologist?
February 10th, 2009 at 9:04 am
Bruce in TN:
Did you ever see this:
http://www.youtube.com/watch?v=INAGMSARPYw
Scary stuff.
February 10th, 2009 at 9:07 am
“When even at this late date, events continue to surprise you to the downside…”
It’s time to throw out more than your models. Luckily even though humans don’t know that, the world does, and more than models will be thrown out, steadily and in ever increasing numbers. Unfortunately that will just make the system more corrupt and power-centric, as humans attempt to maintain the status quo ante. a case in point is illustrated in the comments:
Ya gotta love the single minded determination of the government is evil/tax cuts are the only solution crowd. They have managed to entirely destroy the US’s place in the world, as well as our lifestyle, and yet refuse not only to own up to it, but indeed even to modulate their beliefs in the face of facts. You go girl, maybe you can undermine the entire world social order. I wonder what you think you will get by this accomplishment?
February 10th, 2009 at 9:15 am
More money?
OK everyone, all together now, WE’RE SHOCKED !!
February 10th, 2009 at 9:18 am
They have managed to entirely destroy the US’s place in the world, as well as our lifestyle, and yet refuse not only to own up to it, but indeed even to modulate their beliefs in the face of facts
—-
When you keep on electing politicians who are hell bent on proving that government does not work, how can you expect anything good to come out of it?
February 10th, 2009 at 9:27 am
damn, damn good point.
February 10th, 2009 at 10:16 am
“Hopefully, my innate cynicism is wrong here…” by Bruce N Tennessee
Maybe it’s my hard-scrabble Scots-Irish roots. Or maybe it’s just a lifetime of observation. But one thing I’ve learned about the government is that you can never be too cynical. Just when you think it can’t be any stupider, it is.
The prescription for a housing market that got completely queered up by too-low interest rates/too much money is to lower interest rates and pump more money into it? Incredible. But there you have it.
What nobody seems to get is that nothing changes by changing the accounting. There are too many houses. Anything intended to prevent prices from declining to a clearing price will only exacerbate the problem, not fix it.
No, you can’t be too cynical. Usually you can’t be cynical enough.
February 10th, 2009 at 10:57 am
Only government has the will, the drive, and the resources to do anything about this. Not only did the private sector (and lack of government supervision of those clowns) cause the problem. The private sector does not have what it takes to get us out of it – if anybody could show me how the private sector could fix this I would be happy to join the group of “let them do it”. All I see from that angle is something like “let it all burn down and then by some non-specific magic it will all rise from the ashes and heaven on earth shall return”. That kind of religious statement just doesn’t cut it with me. Every year that 10 million people are unemployed we lose about 1 trillion worth of productivity, and that is wealth creation that is lost forever.
February 10th, 2009 at 10:58 am
So in other words, without saying as much, they’re surprised (no “shocked”, “SHOCKED”!) things have gotten much worse since Sept. There are those words again. Nobody could have predicted…..
Nice forecasts, guys. And why do you all still have jobs again? Oh yeah, that’s right in our bizarro, deny reality world, our corporations prefer those who live in la-la land to those who tell and face the truth. Heckuva job, Fannie & Freddie!
February 10th, 2009 at 11:13 am
“Only government has the will, the drive, and the resources to do anything about this”
Just like it did something about the Great Depression, which, for all the government’s Keynesian manipulations, dragged on for over a decade until a neat little empire-building exercise juiced demand (for tanks, etc.) and destroyed supply (battlefield losses) enough to drag us out of it.
Once all these programs fail, (including continued and massive subsidies to the housing market via Fannie and Freddie) I wonder how long it will take for the commencement of WWIII?
February 10th, 2009 at 11:56 am
So…. The gov’t should just do nothing and let everything fail?
February 10th, 2009 at 11:59 am
The new deal did solve the depression, it was case of letting the foot of the gas to soon (IE they tried to balance the budget before the economy had really gotten back on track). and if you really get down to it, isn’t war a government intervention in the market any way? last time i checked, private industry doesn’t declare wars, but they certainly can make a mess of an economy. and lead to them. and looking back at history I have yet to see where private industry ever solved the economic mess they created. ever.
February 10th, 2009 at 12:31 pm
Ny Stock Guy Says:
February 10th, 2009 at 11:56 am
So…. The gov’t should just do nothing and let everything fail?
In some respects, yes.
The government should stand by and support the programs already in place—FDIC, unemployment benefits, welfare and food stamps, bankruptcy courts 7, 11 and 13 combined with the Fed on standby to prevent any bank runs as they did last fall when there was a 500 billion dollar run on money market accounts. Suspend the insanity of mark to the market during this debacle. The market does not need that pressure at the moment.
I’ll be the first to acknowledge that it is more complicated than what I listed but you get the gist of my remarks. Let things fail and trust the system. There should be no bailouts for the most part. If you want housing to bottom speed up foreclosures and get to fair value as fast as you can. Renting is a whole lot cheaper in times like these.
Anyway, I trust the millions of individuals making decisions rather than a small cabal of politicians/financiers who did not see this coming but pretend to see where we should go. The history of bubbles is very clear–you cannot put the “splat back in the bottle”. There is no Plan.
I do realize no one will follow this advice but I will predict that the lessons coming will prove its merits. What will happen is that the last cockeyed plan in effect will be given credit for a market already bottoming, setting up the next intervention years from now. We are doing it today by invoking the Depression’s New Deal as a reason for the trillions we are wasting now.
Bubble, bubble, toil and trouble…….
February 10th, 2009 at 12:43 pm
I am trying to move around so I enjoy it too, but this is becoming absurd.
My sense is our beloved leaders are the deer frozen in the headlights of the oncoming truth. They are telling themselves they can make it better even though at some level they must know they can’t. They feel compelled to try something that maintains the status quo. Digging in to do thorough evaluations is not something appealing when the alligators are already there. The only alternatives are a slower death or hari-kari. They must at this point be terrified of civil unrest that will make the race riots of the past a cake walk, and destroy what little social fabric we have. “Boomers with guns is scary”.
@ben22: thanks for the link to the CBO stimulus plan chart I think. But it’s making me incredibly angry. The media has repeatedly said that the 40B state aid had been removed from the plan during the Senate debate. But the chart shows a total of 79B. Granted it starts at zero this year, but it’s still 79B..
WTF????????
February 10th, 2009 at 1:26 pm
Patrick Neid says:
Anyway, I trust the millions of individuals making decisions rather than a small cabal of politicians/financiers who did not see this coming but pretend to see where we should go. The history of bubbles is very clear–you cannot put the “splat back in the bottle”. There is no Plan.
Reply:
Exactly. Wealth is created from the trillions of tiny decisions made each day by folks negotiating their way through life. It flows up, not down. What flows down is the result of taxing the wealth created at the bottom.
February 10th, 2009 at 1:41 pm
usphoenix;
I’ll fight a boomer with a gun any day. If they shoot as straight as they deal, they won’t hit the broad side of a barn. Besides, who are they going to take out their aggression on? Other boomers? They were the main players in the mess, are you advocating boomer on boomer aggression?
Chuck
February 10th, 2009 at 1:46 pm
Patrick;
“I trust the millions of individuals making decisions”
I say that we have trusted the millions to make prudent decisions on how much to save and to pay for a home and see where that got us. Now you want to trust them to act against their own self-preservation and start spending what little they have because that is how we get the economy going again. Leaving the free market free to do its “free” thing has always had disasterous concequences.
February 10th, 2009 at 2:13 pm
For all the stupidity of the private investors, do not forget how much was aided and abetted but Fannie, Freddie, FHA, Fed, and FHLB. The F stands for the same thing in each of them. People mess up in the hundreds of thousands of dollars. It takes the government to mess up in the trillions. Do not tell me that the explicit and implicit protections of the government didn’t underlie this leverage. And for all the “deregulation” most of it was merely “changes in the regulation” that favored whoever was in favor.
February 10th, 2009 at 2:21 pm
aypay;
Actually the best of the crappy paper was issued by all those F’s. The worst of the crappy paper (can you say 10c on the $) was issued by a different type of F’s – all in the private sector. Now none of them can make money if the underlying asset lose to much value and a whopper of a recession makes huge number of borrowers lose their jobs.
February 10th, 2009 at 2:46 pm
Comrade DeDude,
Free market? When was that?
I have a feeling you mean the strawman you call the free market.
And this quote indicates you didn’t understand what I wrote:
“Now you want to trust them to act against their own self-preservation and start spending what little they have because that is how we get the economy going again. Leaving the free market free to do its “free” thing has always had disasterous concequences.”
I said no such thing. What I was very clear about was the government not spending any money under the pretense of a welfare bailout. It is the government which created the original bubbles (aided and abetted by financiers) , now trying to reconstitute it. It will not succeed. What they will succeed at is putting us trillions more in debt.
February 10th, 2009 at 3:24 pm
So your “I trust the millions of individuals making decisions” wasn’t really as much an expression of your trust in the people as it was a smart introduction to some anti-gobinment rhetoric.
The barely a trillion stimulus package is not much compared to the 4-5 trillions Bush added to our debt; mostly for irresponsible tax-cuts (at a time when we did not need them) and irresponsible wars (that we had no use for either). It is also miniscule compared to the size of our economy and the 7 trillion lost in housing and stock market value. So just as it is not big enough to “reconstitute” us back to where we were, it is also not big enough to cause any significant additional destruction. It is however big enough to help the 4 million people who will get some sensible work to do, rather than being unemployed.
February 10th, 2009 at 7:51 pm
Comrade dedude,
As I said earlier you suffer from a comprehension disorder.
February 10th, 2009 at 8:14 pm
@Chuck Ponzi I am advocating make love not war. As a breakthrough Boomer play “Hair” spelled it out.
How very interesting that you would choose to focus on one sentence in a much longer diatribe.
I am well aware of a social order that wants to make it the Boomers fault. We are all victims, and that means it’s always someone else’s fault. You have to find someone to blame.
My parents were children of the depression, the great generation, and they deserve no blame, or do they?
The Boomer generation was probably the most fragmented in our history. Vietnam War. Richard Nixon, Watergate. There became a clearer dividing line than ever before. The rich got deferments, Everyone else got shot. You can generalize your discontent about how much more they have, or how much they screwed up. Perhaps you would do well to do a little self-analysis about who’s fault your situation really is.
A few Boomers have more wealth than they can spend. And a few have put this country in a horrible predicament by virtue of their greed and stupidity. They inherited their parents drive, but not their wisdom. But a lot of Boomers have become disenfranchised. Unable to find work – they’re too old and out of date, regardless of the wisdom and experience they have bottled up inside. Employers want cheap young, manipulable newbies.
The bottom line is, for whatever reasons, this country saw far more wealth gains during the Boomers’ work span than ever before, and most likely ever after. Every generation after the great generation and the Boomers owes far more to their preceding generations than they care to admit. The current dilemma is still the earlier generations’ fault. You want more and don’t understand why you should have to deal with the Boomers’ screw ups. Forget about their gains. The American way: More. And if not, it’s someone else’s fault.
The Boomers are now becoming the bottom of the barrel. The ones that have very little chance of economic gain. And every time things get squeezed, they take the bigger hit. When it gets to the point where enough of them feel hopeless enough, and have nothing to hope for and little to lose, they will act on their feelings. When they see the society they helped build and create crumbling and manipulated by younger people that want more and don’t understand real work or hardship, they may snap.
When they feel totally disenfranchised, they will act. And these are people that have their own network, which people in power understand. And nothing to lose, and everything to gain in terms of self-vindication. The American version of Jihad.
If you knew the Boomers I knew, you would choose your words more carefully. They are true, honest, hard-working people with enormous conviction and integrity. And they don’t suffer fools lightly.
I for one, would never challenge them.