Sunday, 12 October 2008 06:00

If I wasn't such an optimist, I just might start fearing for my country!

In an election year, what normally would be an important topic of
debate becomes a debatable topic of nill importance. Case in point: As
the public strives to understand the root causes of the economic
crisis, politicians and partisan media have refined their talking
points. Unfortunately, many are quite focused on creating a wedge
political issue, truth be damned. This is an excerpt from a blog post
called the The CRA Talking Point
and it is well worth the read. Basically, it illustrates a shift of the
blame for the current financial situation from those who probably
deserve it to those who can't defend themselves when accused. Granted,
there is enough guilt to go around, but the Community Reinvestment Act
really has nothing to do with this. Actually, it is the conservative
Republican party that seems to be trying to fit a square peg in a round
hole. Hmmm! The geometrically challenged. Here are a few quips from a
recent Bloomberg article :

Federal regulators directed Fannie Mae and Freddie Mac
to start purchasing $40 billion a month of underperforming mortgage
bonds as the Bush administration expands its options to buy troubled
financial assets and resuscitate the U.S. economy, according to three
people briefed about the plan.

Fannie and Freddie
began notifying bond traders last week that each company needs to buy
$20 billion a month in mostly subprime, Alt-A and non-performing prime
mortgage securities, according to the people, who asked not to be
identified because the plans are confidential. The purchases would be
separate from the U.S. Treasury's $700 billion Troubled Asset Relief Program.

The Federal Housing Finance Agency, which placed the two companies in conservatorship on Sept. 7, directed them last month to start increasing their purchases of loans and mortgage-backed securities as the Treasury seeks to absorb underperforming and illiquid assets from financial companies. That's because some people think it is better that our government become underperforming and illiquid than to have the cowboys responsible for this eat their own medicine. Yes, we should have seen it coming. I did (see In the Great Global Macro Experiment, the next bubble to burst is... scroll to about mid-post).

... Adding underperforming assets to Fannie and Freddie's combined $1.52 trillion mortgage portfolios would come at a time when the two mortgage-finance companies already hold as much as $210 billion of bad debt that may be eligible itself for the Treasury's relief program, their regulator said Oct. 5. Isn't that ironic? It would be funny if it wasn't my tax money powering the punch line!

... Neither Fannie nor Freddie has turned a profit in the past year, accumulating $14.9 billion in combined quarterly losses, largely related to bad subprime and Alt-A mortgage assets.

... Subprime loans were given to borrowers with poor or limited credit records or high debt burdens. Alt-A loans were made to borrowers who wanted atypical terms such as proof-of-income waivers, without sufficient compensating attributes. About 35 percent of subprime loans in non-agency mortgage securities are at least 60 days late, while 15 percent of Alt-A loans are, according to a Sept. 9 report by FTN Financial Capital Markets. With this thought fresh in our minds, let's move on to the next topic at hand, but first I must ask, Is the worst behind us yet, Mr. Paulson?...

And more from a concerned reader.

If there ever was a time to inform the American public of a pending financial crisis of epic proportions, now is the time. I feel compelled to comment where ever I can about the IMF's study wherein they have a simple chart of the mortgage defaults charted through 2010. If you look at the chart, and read their predictions, what we have been experiencing was primarily Sub-prime (B Paper) mortgage loan defaults over the past 6 months expertly borne out as they predicted. What is REAL scary is that in 2009 Q1-Q4 of 2008 and into 20010 there is a BIG spike in Alt-A & Option-Arm defaults that will make what we have seen thus far pale in comparison. The reason this should be brought to light is if the public thinks that what the Fed is attempting is going to make a difference then they need to be informed of the calamity that will come in 2009 & 2010. The only way any political party is going to do right by the public is to make the IMF's report and this 2007 Mortgage Resets chart, known and all it findings.

We are in trouble because there is much more pain to come. The economists know this well but they are not on the cable news outlets challenging the talking heads. Please take a look at the study & important chart and bring this to light.

The October 2007 report

- Page: 8 (FIGURE 1.7 shows monthly mortgage resets)

The October report is at

- Pages: 12 (Mortgage delinquencies), 14 (Consumer charge-off rates), 13 (US charge-off rates), 19 (UK Foreclosure)

Actually, I have expressed in extreme detail the risks coming down the pike in the very near future in my Asset Securitization Crisis series. This never was about subprime. See The Asset Securitization Crisis Part 27: The Butterfly Effect for the latest installment and links to all of the previous installments.

Last modified on Sunday, 12 October 2008 06:00