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FED to rescue Fannie Mae?, US mortgage provider
alonso
post Posted: Nov 8 2008, 01:33 PM
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In reply to: Danville on Tuesday 28/10/08 10:49am

interesting report about new White House chief of staff:

http://abcnews.go.com/Blotter/story?id=6201900&page=1



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"The optimist proclaims that we live in the best of all possible worlds. The pessimist fears this is true"

"What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom." Adam Smith
 
Danville
post Posted: Oct 28 2008, 09:49 AM
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In reply to: alonso on Tuesday 28/10/08 07:34am

What we need are more questions and more transparency in order to keep this sort of thing from repeating itself.

Joe the Plumber has gotten raked over the coals for asking a simple question from his front garden. Now today, a TV station has been "cut off" for asking a question they didn't like.

What the???

This is not lost on those who might invest in America.

No one wants to be holding the next Fannie Mae when the truth leaks out.

 
alonso
post Posted: Oct 28 2008, 09:34 AM
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In reply to: Danville on Saturday 11/10/08 09:51pm

Danville, it's amazing it has taken so long for all of this to come out (great post by the way).
I have seen reports that Clinton's former Attorney-General Janet Reno put huge pressure on Fanny/Freddy in terms of anti-discrimination actions for failure to lower mortgage guidelines for minority groups. Not to mention questions of huge funds flowing to the Democrat party.
Now I suppose we will see another round of misguided philanthropy under this jerk Obama, who I heard today was promising to "change the world".
God save America! (and us too I suppose)



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"The optimist proclaims that we live in the best of all possible worlds. The pessimist fears this is true"

"What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom." Adam Smith
 
flower
post Posted: Oct 12 2008, 07:50 PM
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In reply to: cooma on Sunday 12/10/08 06:52am

Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets

By Dawn Kopecki

Oct. 11 (Bloomberg) -- Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.

Fannie and Freddie began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities, according to the people, who asked not to be identified because the plans are confidential. The purchases would be separate from the U.S. Treasury's $700 billion Troubled Asset Relief Program.
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Whats another USD480 billion a year when youre already bust!!!!!!





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Combining Fundamental comments with Fundamental charts.
 
cooma
post Posted: Oct 12 2008, 06:52 AM
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In reply to: flower on Saturday 11/10/08 11:52pm

Adding to the problem was in April 2004 , Paulson and the other heads of the big 5 investment banks persuaded the SEC to increase their levereage limits from 10/1 to 40/1.!!!! As we know recently 2 have changed status and must return to their original 10/1[ over time I think, 9 months ]

Have a listen to Donald Coxe on this weekends FSN 3rd hour. EXCELLENT listening.



 
flower
post Posted: Oct 11 2008, 11:52 PM
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QUOTE (Danville @ Saturday 11/10/08 08:51pm)

Danville: If an ordinary retiree worked out ten years ago what was going to happen, it sais something when the experts claim they have been taken by surprise. Even an idiot knows that banking doesn't function in a negative effective interest rate regime.

However I'm somewhat heartened to see sections of the better informed press at last laying the blame where it sqarely lies. This a section from a Bloomberg report.

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But let's turn to happier subjects. Finally, Alan Greenspan is getting beaten up in the press.

More than any other man - living or dead - Alan Greenspan bears the blame for the intensity of the current financial crisis. Booms and busts are inevitable, but the former Fed chief made this one much worse than it should have been. This he accomplished by acts of omission as well as acts of commission.

As to the commission, he almost single-handedly caused the great real estate bubble by lending money far below the inflation rate. The housing market is extremely sensitive to changes in interest rates; Greenspan's "emergency" low rates hit it like a shot of whiskey on an empty stomach. Within months, bulldozers were scraping new roads…and thousands of nail guns made the suburbs sound like a battle zone.

But it was the omission that the New York Times thought was important:

"Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient," said "the maestro" in 2004.

Greenspan was talking about derivatives - the complex financial instruments that are now blowing up in accounts all over the world.

The NYT:

"George Soros, the prominent financier, avoids using the financial contracts known as derivatives 'because we don't really understand how they work.' Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential 'hydrogen bombs.'

And Warren E. Buffett presciently observed five years ago that derivatives were 'financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.'

"One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives - exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. 'What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing to and are capable of doing so,' Mr. Greenspan told the Senate Banking Committee in 2003. 'We think it would be a mistake' to more deeply regulate the contracts, he added.

"The derivatives market is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them.

"If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman from 1987 to 2006, many economists say, the current crisis might have been averted or muted."



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Combining Fundamental comments with Fundamental charts.
 


Danville
post Posted: Oct 11 2008, 08:51 PM
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This is an interesting article from the NY Times in 1999 describing the new tact Fannie was taking and the potential risks. I'm sick of all these talking heads on TV saying "How could this happen? We never knew"

QUOTE
FANNIE MAE EASES CREDIT TO AID MORTGAGE LENDING

By STEVEN A. HOLMES 


Published in the New York Times on September 30, 1999.

Printer-Friendly Version


In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

  Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.


''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''


Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.



 
cooma
post Posted: Sep 11 2008, 08:54 PM
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In reply to: Brierley on Thursday 11/09/08 07:14pm

Read Doug Caseys article of Sept 10 ," The biggest bailout of all times " on the the same site where he calls it short covering which will not last. I have read elsewhere it should top at 80 [ just checked it has just gone through 80 ] and then head south into the 50's when the currency crisis really hits.




 
Brierley
post Posted: Sep 11 2008, 07:14 PM
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In reply to: cooma on Thursday 11/09/08 02:19pm

Pity the article didnt encompass why the USD index has gone from 71 to 79 in the last few weeks

I expect Chris and his dad would be hoping the fed has to inflate and gold/oil will go back up again

QUOTE
To fund the bailouts and economic stimulus packages the Treasury is going to have to issue more debt. Sources of buyers will either be domestic or foreign investors and the Fed through debt monetization.




 
disco stu
post Posted: Sep 11 2008, 06:12 PM
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QUOTE (cooma @ Thursday 11/09/08 05:19pm)

Hi Cooma,

Chris's article was an interesting read. Certainly reinforces my opinion that the credit crisis is probably intensifying as opposed to abating. I saw the reference and the graphs referring to "St. Louis adjusted monetary base has increased by 7.15%". This doesn't necessarily invalidate what I was saying about broad money supply.

From what I can make out the St Louis adjusted monetary base that he is referring to is the narrow definition of money or M1

QUOTE
The adjusted monetary base equals the sum of the monetary base and a reserve adjustment magnitude (RAM) that maps changes in reserve requirements into equivalent


http://ideas.repec.org/p/fip/fedlwp/1996-004.html

with the pure monetary base being defined thus:

QUOTE
The total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held in the central bank's reserves. This measure of the money supply typically only includes the most liquid currencies.


http://www.answers.com/topic/monetary-base

(Please let me know if I have got this defintion wrong as I am only trying to understand it myself !! )

Essentially M1 (or the St Louis monetary base) is the narrowest definition of money. Broad money base, or M3, includes lots of additional concepts of money

QUOTE
M3: M2 + large time deposits, institutional money-market funds, short-term repurchase agreements, along with other larger liquid assets. This is the broadest measure of money and is used by economists to estimate the entire supply of money within an economy.


http://en.wikipedia.org/wiki/Money_supply

A large scale liquidation of broader M3 is still possible without necessarily resulting in a reduction in M1 - on the contrary, it could actually result in an increase in M1 as less liquid forms of money are liquidated and turned into cash. Resulting in the 7% increase that has been reported.

Anyhow, I have been reading about the reduction in M3, or broad money from a number of sources. I've reposted the news article below that I was referring to:

http://www.telegraph.co.uk/money/main.jhtm...cnusecon119.xml

If you can find other articles contradicting this I would be keen to find out, as I would happily discard this theory. As I said, it was only a theory and one where I was trying to understand interplay between the credit crisis and the appreciation in the USD.

Thanks again for Chris's article, it was an interesting read.

Cheers

DS


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