» The Worst of All Worlds « : Fannie and Freddie Losses « Can’t Be Calculated, » Posner Says

Government officials want you to know the cost of the bank bailout is going to be around $90 billion, much less than previously feared. But there is, as The Wall Street Journal put it, « one glaring exception » to this otherwise welcome news: The optimistic tally doesn’t include Fannie Mae and Freddie Mac.

Technically, that’s two glaring exceptions, but let’s not split hairs. The troubled mortgage giants currently enjoy an unlimited line of credit from Uncle Sam, and the CBO projects their investment portfolios — stuffed with subprime and other toxic mortgages — will suffer combined losses of $370 billion through 2020.

« I don’t think it’s time to celebrate [because] the losses inside Fannie and Freddie can’t be calculated, » says Kenneth Posner, author of Stalking the Black Swan. « Not only do we have those [CBO estimated] losses but we still have $5 trillion in mortgage-backed securities that they guarantee and $2 to $3 trillion in debt. All of this is potentially on the U.S. government’s balance sheet until we figure out how to restructure these entities. »

The GSE’s business model is « broken » but their role in guaranteeing mortgages is still critical to the housing market, says Posner, the former head of Morgan Stanley’s financial services research group. « Once they give their stamp of approval, those securities can then be sold and traded with great liquidity in the capital markets. If you shut that down right now, that would be counterproductive. »

Instead of shuttering Fannie and Freddie and putting the nascent housing recovery at risk, he recommends auctioning the mortgage guarantee role to a group of large banks. « Make [banks] pay taxpayers for the right to issue those securities [and] let them do it with their deposits and shareholder equity. »

Of course, that will be politically difficult given the populist backlash against the banking sector after the bailout bonanza of 2008-09, as we discuss in the accompanying video.

But big banks already enjoy the implicit backing of the U.S. government and this plan could potentially cut the official federal deficit by trillions of dollars, Posner says.

« Nothing is going to be easy right now, » but maintaining the status quo « is probably the worst of all worlds, » he says. « You have this broken business model that the government is operating as if Congress had appropriated $7 trillion for direct U.S. government involvement in the mortgage business. »
merci vladi

Hahahahaha, 2 à 3 000 milliards de $ de plus à prendre à charge, trop bon, c’est quand que le bateaux coule ?

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Une Réponse to “ » The Worst of All Worlds « : Fannie and Freddie Losses « Can’t Be Calculated, » Posner Says”

  1. vlad Says:

    Encore salut…
    un dernier truc rapide avant un email..
    As tu deja entendu parler de ca ?

    Rien dessus en francais, pourtant plusieurs personnes m’en ont parle ici.. Le genre de cata bien plus grave que la crise des missiles de Cuba..
    Elaine Ingham nous a tous sauve la mise, et personne n’est au courant.

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