for anybody wondering why the US markets are up and the US dollar exchange rate is down big today !
(snip)"From Hussman's weekly report:
"How to spend (up to) $1.5 trillion without Congressional approval (updated)
Step 1: Federal Reserve purchases $1.5 trillion in Fannie Mae and Freddie Mac securities, creating $1.5 trillion of monetary base [out of thin air - sic] to pay for these purchases.
Step 2: U.S. Treasury quietly announces unlimited 3-year support for Fannie Mae and Freddie Mac on December 24, 2009, indicating that it is acting under the authority of a 2008 law (HERA) that was originally written to insure a maximum of $300 billion in total mortgage principal (not losses, but principal)....
[Step 3 through 7 Omitted]
...Outcome: The Federal Reserve closes its positions in Fannie Mae and Freddie Mac securities, the quantity of outstanding Fannie Mae and Freddie Mac liabilities declines by as much as $1.5 trillion, thus allowing their remaining assets repay the remaining liabilities despite insolvency, and the outstanding quantity of U.S. Treasury debt expands by as much as $1.5 trillion in order to protect the lenders, while ordinary Americans continue to lose their homes and jobs."
This would all be really clever if it weren't so insidious.
On Bloomberg television last week, James B. Lockhart III, the former head of the Federal Housing Finance Agency (Fannie and Freddie's regulator) commented on the bailout funds already provided to Fannie and Freddie, saying "Most of that money will never be seen again.(snip)
(snip)"My impression continues to be that current concerns such as the Greek debt crisis are far less important that the incipient backlog of foreclosures and mortgage losses we are likely to observe on all classes of adjustable rate mortgages in the next few quarters. The latest report from RealtyTrac, for example, notes " January foreclosure numbers are exhibiting a pattern very similar to a year ago: a double-digit percentage jump in December foreclosure activity followed by a 10 percent drop in January. If history repeats itself we will see a surge in the numbers over the next few months as lenders foreclose on delinquent loans where neither the existing loan modification programs or the new short sale and deed-in-lieu of foreclosure alternatives works.”
Frankly, it is too early to declare that the government interventions in the financial markets last year "worked." They were certainly effective over the short run, particularly in fostering a significant reduction in the level of investor risk aversion. But to "work" in a larger sense would require that we've solved the problem in a way that will allow us to avoid a second round of credit losses and institutional insolvencies. The evidence on that is unconvincing. The rate of mortgage delinquencies is currently more than double what it was a year ago, even without the impact of Alt-A and Option-ARM resets that can be expected to substantially amplify those difficulties this year. In January, delinquency rates on commercial mortgage backed securities jumped by a greater amount than in any prior month of the recent downturn. Though we've observed a great deal of forbearance in translating those delinquencies into new foreclosures, it is unlikely that this gap between delinquencies and foreclosures will persist much longer. "(snip)
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