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Oh Wait, the Freddie/Fannie Scam is Now Unlimited

2009 December 24
by Ian Welsh

Update: Go read Numerian.

Per Bloomberg:

The U.S. Treasury Department will remove the caps on aid to Fannie Mae and Freddie Mac for the next three years, to allay investor concerns that the companies will exhaust the available government assistance.

The two companies, the largest sources of mortgage financing in the U.S., are currently under government conservatorship and have caps of $200 billion each on backstop capital from the Treasury. Under the new agreement announced today, these limits can rise as needed to cover net worth losses through 2012.

The Obama administration is “beginning to realize it’s not getting better and it’s not likely to get better” soon in the housing market, said Julian Mann, who helps oversee $5.5 billion in bonds as a vice president at First Pacific Advisors LLC in Los Angeles. “They don’t want the foreclosures now, so they’re saying, we’ll pay whatever it takes to continue to kick the can down the road.”

Basically, at this point, almost all mortgage lending is guaranteed by the federal government under the FHA, or it doesn’t happen.  Private lending has pretty much dried up.

Since there’s no way Freddie and Fannie took unlimited losses, one has to wonder what all this money is going to be used for.  Is it to make up losses they don’t want to admit?  Is it to make future bad mortgage loans?  Is it so they can take bad debt from the banks and put the government at risk for it?

Notice also how they’ve made an unlimited commitment without consulting Congress.  You only need Congressional approval to spend money on wars and healthcare, when it comes to bailing out banks, apparently the Presidency controls the power of the purse all by itself.

It’s also interesting that this is unlimited till the end of 2012.

(See also the earlier post when it was just a 400 billion increase, not unlimited.)

9 Responses
  1. December 24, 2009

    Well, this is Christmas!

  2. Lori permalink
    December 24, 2009

    It’s like watching another country melt down. It’s just so weird. But it’s not another country, it’s my country – well, in a manner of speaking. I do feel like the country has been hijacked away.

  3. anonymous permalink
    December 25, 2009

    It can only mean one thing: the crisis has now become unlimited. Financial meltdown is immanent (that word doesn’t look right, but who can think about spellcheck at times like this?).

  4. December 25, 2009

    it’s “immanent” for sure but do you also mean “imminent”?

  5. December 25, 2009

    There will be no public perception of crisis until it benefits those who would rule us.

    Then look for the shit to hit the fan, but only after the fan is pointed in the right direction.

  6. December 25, 2009

    This is quite shocking and horrible. It’s obvious by now that the Obama administration’s only “plan” is to pour gazillions more into the failing financial system. The corruption is monumental and completely out in the open now. I think there is much more public awareness of this than our idiot leaders in D.C. yet grasp.

    This won’t end well for us or the world. They’re risking the collapse of the dollar here, aren’t they?

  7. Scott R. permalink
    December 25, 2009

    Let’s not forget about the FHA:,0,5815426,full.story

    Hat tip to Ilargi at The Automatic Earth

    “The percentage of loans backed by the agency that are delinquent or in foreclosure hit nearly 8% at the end of June. Critics say borrowers don’t have enough of a stake in keeping up with payments.

    In the wake of the mortgage meltdown, the Federal Housing Administration has emerged as a pillar of the still wobbly housing market — providing vital insurance that enables borrowers to qualify for loans with as little as 3.5% down. This year alone the agency has backed nearly 2 million mortgages worth at least $328 billion. It insured 21.5% of all new mortgages last year, up from fewer than 6% in 2007. Some lawmakers, however, worry that the FHA may be doing its job too well — enabling too many people with shaky finances to get loans, and in effect setting up a potential repeat of the housing bubble fueled in part by no-questions-asked subprime loans.”

    And Denninger had this:

    “So let’s ask a few questions here:

    1.What’s the bond market going to think about a literal $5 trillion guarantee (for three years anyway) on MBS? Might some people have known about this in advance, with that being the reason for the bleed in the long end of the bond curve this last week or so? One wonders – of course nobody would ever trade on inside information, right?

    2.Why wait until the market closed on Christmas Eve for this? Oh, that’s to stop a sell-off in bonds, right? Yeah, we’re playing “American Idol is on, and you’re too stupid to remember this for three days.” Got it. We’ll see how that works out. “

  8. December 25, 2009

    Hmm… I wonder if they are expecting a lot more strategic foreclosure, and plan to stick the taxpayers with the tab, instead of the banks?

  9. anonymous permalink
    December 25, 2009

    “Got it. We’ll see how that works out.”

    Well, so far the public either hasn’t caught on or just doesn’t care. It’s not like anybody’s going to DO anything about this, except hope that Rasmussen or Gallop calls to ask their opinion so that the punditutes will have to work even harder to spin this the right way.

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