Friday, May 8, 2009

Fannie Mae (FNM) with the Next $19 Billion Bailout

Instead of rehashing both the labor report and the continued shell game scheme that is the privatization of gains, and the socialization of losses, I will refer to previous posts if you are interested as support material on both topics. As I've been saying the game plan here is to remove the risk from the banks and then suffer losses quietly on government balance sheets via FHA, Freddie, Fannie, Federal Reserve in coming years while watching the market soar (free of risk!) and the American citizen, with short attention span, not paying attention as the losses mount in the background.

I call Fannie Mae, and Freddie Mac... Franfredron

These were nationalized (but the stocks STILL trade as does AIG) last September [Sep 7, 2008: Bailout Nation Continues - Fannie/Freddie Owned by You]...

Here is the history
If you don't want the detailed version let me give you the Cliff Notes
  1. As the housing market worsened, our bright leadership in Washington D.C. decided to think short term (shocker) and to add even more risk on already shaky Fanfredron [Feb 27, 2008: OFHEO Increases Allowance for Fannie Mae] [Mar 19, 2008: Fannie, Freddie Layered with MORE Risk]
  2. We warned, and warned, [Aug 18, 2008: The Heat is On: Fannie Mae (FNM) and Freddie Mac (FRE)]and warned that Freddie and Fannie were black holes, going to zero - but some of the "sharpest" minds disagreed [Aug 13, 2008: Bill Miller Continues to Boggle Me - Increasing Stake in Freddie Mac (FRE)]
  3. The companies were "bought by you" [Sep 7, 2008: Bailout Nation Continues - Fannie/Freddie Now Owned by You] but certainly don't use the word nationalized. We were told at "worst" it would cost "up to" $200 Billion. We scoffed - and said it's going to be at least $400 - $600 Billion but Hank Paulson wouldn't say that - when you sell snake oil you don't want to say what exactly is in it. But now in the new year government has said.. oops did we say up to $200 Billion; let's make it up to $400 Billion.
  4. So after selling the story to the US taxpayer as a limited cost option - we've come full circle. The politicians are again doing stooopid things to layer even more risk into Fannie/Freddie. [Oct 12, 2008: Fannie, Freddie Turning Into Vacuum Cleaners] [Dec 11, 2008: Fannie, Freddie Considering Waiving Appraisals for Refinancings] [Feb 6, 2009: Americans Will be Refinanced By Any. Means. Necessary]
Let's see the latest tally - as we work towards "up to" $200 Billion, err $400 Billion of bailouts

Fredron ($79.6 B?)
  1. [Nov 14: Freddie Mac First to the Trough] $13.8B
  2. [Jan 25: Freddie Mac Saddles Up for Another $35B] $35.0B
  3. Today - $30.8B (am I double counting with the Jan 25th request? is this the money they were seeking in January, except "official"?) [Mar 12, 2009: Fredie Mac is Back for More of Your Grandkids Money - $30.8B]
And now Franron BEFORE today ($15.2 B)
[Feb 27: Fannie Posts $25 Billion Loss; Comes to US for $15.2 Billion] $15.2B

So the latest is we add to Franron another $19B = bringing her total to $34.2B

Via Reuters
  • Fannie Mae (Pacific:FNM - News), the largest provider of U.S. home mortgage funding, said on Friday it needs more capital from the U.S. Treasury after a $23.2 billion loss in the first quarter, and warned government housing programs would cut deeper into its profitability.
  • Provisions for credit losses soared 85 percent as the U.S. economy faltered, expanding delinquencies -- which have wreaked havoc on the entire financial system -- to consumers with better credit, it said.
  • The government-controlled company said its regulator requested $19 billion from the Treasury under a funding commitment that on Wednesday was doubled to $200 billion.
What I highlighted in blue above is important because the same fearless leaders who we know grovel at their every word as wisdom were the same folk who told us this was "just a subprime" issue in 2007. We on the other hand said, subprime was just the leading edge - long time readers know I laid out the path: subprime, Alt A, option ARM, then prime. Now we enter the prime default era.
  • Fannie Mae's guaranty business, "including loans with lower risk characteristics, has begun to experience increases in delinquency and default rates as a result of the sharp rise in unemployment, the continued decline in home prices, the prolonged downturn in the economy" and the rise in loan balances relative to property values, it said.

The stock market should rally on these events - we have transferred losses out of the arena of stock market entities and directly onto the back of the taxpayer. Each step we've done the past 18 months has taken us in this direction and it is only accelerating. Current programs to save the economy are now simply eliminating the middle man (public financial firms) and putting future losses directly into government or its pseudo government agencies.
  • What's more, Fannie Mae said its role as a linchpin in President Barack Obama's program to boost refinancings and modifications of risky mortgages will likely have a "material adverse effect" on its business and net worth.
I am spitting in the wind talking about this, because no one cares. As long as the stock market goes up, everything must be "correct". My predictions are coming true one after the other, and even Fannie is now owning up to it. And it gets worse from here as these Frankensteins are dead pools of taxpayer money.
  • Fannie Mae said it will probably have to return to Treasury for more capital in the future.
  • Fannie Mae's results appear to counter recent data suggesting the housing market is bottoming as falling home prices and mortgage rates increase affordability.
Just repeat the dogma - if the stock market is going up, the programs must be "working"; if by working it means transferring losses to the public and away from the monied elite - they are 100% correct.

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