(Downtown Tokyo)Fannie Mae and Freddie Mac Taking on the President
Last night, a late-night TV news program in Japan reported that higher gasoline prices are contributing to an increase in safety on roads and a decline in the number of American youths killed in a car accident nowadays.
Yet, the higher gasoline prices can be explained with the billiard table theory: The subprime loan problem has led to the surge of oil prices in the commodity market.
It is because those who have lost big money in the housing loan sector are trying to compensate for their loss by increasing the oil price and thus multiplying their credit capability.
But, more importantly, US President Mr. George W. Bush very recently, namely after the G8 Meeting, looked like first discovering the core of the problem with a surprise: Fannie Mae/Freddie Mac.
So, let’s check the situation.
SECTION I: SHARES OF FANNIE MAE/FREDDIE MAC
The following is a graph indicating a trend of a total share of Fannie Mae and Freddie Mac in the total US housing loan business.
( http://zai.diamond.jp/servlets/Query?SRC=zai/serial/column&cate=hirose&art=22 )Their total share is above 40%, meaning that their collapse in business would trigger the Great Depression in the US Economy.
So, we have to check on why nobody has ever given any advice to the US President that at the core of the problem are Fannie Mae and Freddie Mac.
SECTION II: JUNE 2002
In 2002, some US experts calculating the scale of the possible financial crisis to reach $10 trillion pointed at "foolish statements" by Mr. Alan Greenspan.
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This article appears in the June 21, 2002 issue of Executive Intelligence Review.
'Fannie and Freddie Were Lenders':
U.S. Real Estate Bubble Nears Its End
by Richard Freeman
…
In testimony on April 17, before Congress' Joint Economic Committee, Federal Reserve Board Chairman Alan Greenspan foolishly denied that there is a housing bubble, and asserted that housing conditions are "scarcely tinder for a speculative conflagration." Greenspan's statements fall under the heading of "he doth protest too much”…
On May 28, the 2004 Presidential pre-candidate Lyndon LaRouche told an international webcast audience: "We are sitting on top of a real-estate bubble collapse in the United States today; the Fannie Mae/Freddie Mac bubble is about to blow. What day it's going to blow, I don't know. But it's going to blow.…
Thus, the total of housing-related high-risk obligations is roughly $5 trillion.
It should be kept in mind that if one starts with $5.757 trillion in mortgages, these $5.0 trillion in risky obligations are distinct from and in addition to the mortgages, and a total of $10.757 trillion is laden onto the homes and attached to the incomes of America's homeowners. A Mortgage-Backed Security is an instrument with its own risks, independent of those of the underlying mortgages. For example, a dramatic change in interest rates or even a significant increase in pre-payments of mortgages can wipe out MBS value, quite as efficiently as the increase in mortgage defaults.
Signs now exist of an increase in mortgage problems: In the first quarter of 2002, more than 4.65% of mortgage loans nationwide were delinquent (30 days past due), the highest level in ten years, and the rate of mortgage defaults is rising. Fannie Mae has taken extraordinary measures to roll over troubled homeowners' mortgages, in order not to have the level of defaults show up. But the housing bubble cannot be sustained.…
http://www.larouchepub.com/other/2002/2924fannie_mae.html
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In 2002, some experts were expecting that the housing loan bubble will sooner or later burst despite Fannie Mae’s absurd strategy to hide defaults.
SECTION III: AUGUST 2007
A year ago, at least some advice looked like being delivered to the US President.
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Bush against lifting Fannie, Freddie mortgage cap
Says reform of government-sponsored mortgage buyers needs to come first
By Robert Schroeder, MarketWatch
Last update: 4:05 p.m. EDT Aug. 9, 2007
WASHINGTON (MarketWatch) -- President Bush said Thursday that he's against letting Fannie Mae and Freddie Mac buy more home loans in an effort to prop up the sagging mortgage market, commenting that he prefers to reform the two entities first.
It's "first things first" when it comes to Fannie and Freddie, Bush told reporters at a news conference. The two companies have been riven by accounting scandals…
Fannie Mae was fined $400 million in May 2006 after regulators found that senior executives manipulated books to reap bonuses for themselves. In 2003, Freddie Mac said that it misstated earnings by $5 billion for the years 2000 to 2002. The McLean, Va.-based company paid a fine of $125 million.
On Thursday, Bush said that both enterprises need to be reformed and "streamlined" before they're allowed to buy more loans.…
http://www.marketwatch.com/news/story/bush-against-more-mortgages-fannie/story.aspx?guid={550D5AFD-3900-411A-8EA4-8CD2E28AD678}
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If President Mr. Bush had continued to keep an eye on these two key players in today’s financial crisis, the situation should have been contained more effectively.
But, it is in 2003 that experts like Mr. Greenspan should have been more alerted, since "In 2003, Freddie Mac said that it misstated earnings by $5 billion for the years 2000 to 2002.”
SECTION IV: JULY 11, 2008
Before US President Mr. Bush made an urgent announcement early this week, some media already started to discuss how to bail out Fannie Mae and Freddie Mac.
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The Fannie and Freddie doomsday scenario
It's time to wonder what would happen if Fannie Mae and Freddie Mac failed.
By Katie Benner, writer-reporter
Last Updated: July 11, 2008: 3:03 PM EDT
NEW YORK (Fortune) -- Here's a scary, and relevant, question to ponder as the housing market continues to slide: What would it take for the government to step in and help Fannie Mae and Freddie Mac, and how would a rescue affect you, the taxpayer?...
The bailout scenarios
So what might it look like if the government had to lend a hand? Outright nationalization is an unlikely option given that neither the current administration nor the presidential candidates could afford to support such a move in an election year.
More likely, the Treasury Department or the Federal Reserve would come in and provide a liquidity backstop, in the form of a loan or guarantee to bondholders that they will be paid. Fannie and Freddie could even do a preferred stock deal with the government, much like the deal forged by Citigroup with the Abu Dhabi Investment Authority, says Egan…
"But [a rescue] would be a political situation, so it would be messy," says Mason. "Fannie and Freddie would fight against having officers replaced. They would want to keep the dividend."
The doomsday scenario could cost taxpayers more than $1 trillion, says the S&P report. The report went so far as to say that a government bailout of Fannie or Freddie could force the agency to lower its rating on the creditworthiness of the United States
http://money.cnn.com/2008/07/09/news/companies/benner_fanniefreddie.fortune/index.htm?postversion=2008071013
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This expected burden of $1 trillion on taxpayers must have been a key to gaining an insight into the subsequent announcement by the US Treasury Secretary and the President.
SECTION V: JULY 16, 2008
The announcement of the Bush Administration’s plan issued early this week to rescue Fannie Mae and Freddie Mac has been amid criticism.
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Opposition, From Both Parties, Over Bailout Plan
By STEPHEN LABATON and DAVID M. HERSZENHORN
Published: July 16, 2008
WASHINGTON — The Bush administration’s plan to rescue the nation’s two largest mortgage finance companies ran into sharp criticism in Congress on Tuesday as some lawmakers questioned the open-ended request for money that could be used to help the companies…
After Mr. Paulson replied that he did not think any money would be needed, Mr. Bunning said, “That doesn’t answer my question. Where is the money going to come from?”
“From the government,” Mr. Paulson said.
“And who is the government?” Mr. Bunning asked.
“The taxpayer,” Mr. Paulson said.
http://www.nytimes.com/2008/07/16/business/16fannie.html?pagewanted=2&_r=1&hp
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But the fact is as follows:
- The amount ($1.6 trillion) of outstanding bond of Fannie Mae and Freddie Mac has reached the level equal to one third of the amount ($4.7 trillion) of the US Treasury bonds outstanding.
- Top five holders of bonds of Fannie Mae and Freddie Mac are China, Japan, Cayman Islands, Luxemburg and Belgium, and institutional investors, accounting for more than $1.3 trillion.
( http://blog.goo.ne.jp/yamanonaka17171919/e/a78dcb4a42d4e813749f5843de2b4e54 )
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What should be noted is however that US President Mr. George W. Bush looks like not having been fully informed of the above facts on Fannie Mae and Freddie Mac until very recently, though he made a special announcement, just a year ago, on the need to reform the two major players in the housing sector.
It is just like the case that the report on the possible terror scheme planned by AlQaeda was not fully taken care of by the White House in the summer of 2001.
Until the exposure of the subprime loan problem in late last year, economists in Japan always commented in the media that US economy was robust since the US housing sector was enjoying a steady growth.
But, too much is as bad as too little, isn’t it?
( http://www.fukuchan.ac/music/latin/koiwamizuiro.html )
Joh 7:16 Jesus answered them, and said, My doctrine is not mine, but his that sent me.
Joh 7:17 If any man will do his will, he shall know of the doctrine, whether it be of God, or whether I speak of myself.
Joh 7:18 He that speaketh of himself seeketh his own glory: but he that seeketh his glory that sent him, the same is true, and no unrighteousness is in him.