Saturday, September 06, 2008

Mortgage meltdown heats up

As I mentioned on August 30, the mortgage meltdown may only be heating up. With expected write-offs of $95 billion this month... the Washington establishment is quickly doing everything they can to ensure their political donors good friends on Wall Street remain high on the hog:

Fannie Mae and Freddie Mac, the mortgage finance giants that fund half the U.S. housing market, are about to become subsidiaries of the U.S. government.

The Treasury Department late Friday was putting together final details of a plan to take the two into conservatorship, effectively a government takeover, at a potential cost of tens of billions to taxpayers.
(Forbes, by Liz Moyer and Maurna Desmond)

But what does this mean to John Q. Public?

Reports circulating Friday night have the two companies entering conservatorship, which would nearly wipe out equity holders but preserve the interests of debt holders. The chief executives of both companies would lose their jobs, but the companies could continue to operate, with quarterly infusions of capital from the Treasury* depending on losses.

In simple terms, I'm pretty sure this mean that John Q. Public loses his shirt on all Fannie / Freddie holdings... of which I, and many of you, probably hold shares via a 401(k). But card-carrying members of The Billionaire Bankers Club will have their risk (debt-related losses) insured by "The Treasury*."

As for who is driving this continued bailout that began in March with Bear Stearns...

The Treasury, which has been hemming and hawing about a plan for weeks, may have been forced to act now by grumblings overseas. Bank of China, as one example, has been cutting its holdings of debt in the so-called government sponsored entities.

That's right! While many Americans have known the US Government balances its budget with money borrowed from China... we've also been wondering when these fiscally irresponsible and immoral budgets would come home to roost.

Today may be the day.

But my guess is that there's still enough goodwill left with the US Dollar that nothing in particular will be seen overnight. Rather, it's going to be a long decline (with upticks) in our standard of living over the next couple decades. The decline would not be solely due to the steady devaluation of the US Dollar, but also due to globalization... with the standards of living in other countries rising... while the US falls.

My solution? Throw the bums out, including both Rs & Ds. And return to a commodity-backed currency. For that I suggest either a gold standard or a combination of precious metals.

Tim White

* Treasury [trezh-uh-ree] (n): American taxpayers


Anonymous said...

Notice tht Chris Dodd has spent most of the last tow months vacationing at his vacation home in Ireland and attending the Democratic convention in Denver. Way for the chairman to stay on top of things!

tim white said...

And now he's an advisor to Obama on Ireland:

Anonymous said...

He should stick to that and quit pretending he understands jack about finances