Because Ambrose Evans-Pritchard seems to specialize in apocalyptic articles, I tend to discount much of what he says.
—snip—
Fannie and Freddie - the world’s two biggest financial institutions - make up almost half the $12 trillion US mortgage industry. But that understates their vital importance at this juncture. They are now serving as lender of last resort to the housing market, providing 80pc of all new home loans.
Roughly $1.5 trillion of Fannie and Freddie AAA-rated debt - as well as other US “government-sponsored enterprises” - is now in foreign hands. The great unknown is whether foreign patience will snap as losses mount and the dollar slides.
Hiroshi Watanabe, Japan’s chief regulator, rattled the markets yesterday when he urged Japanese banks and life insurance companies to treat US agency debt with caution. The two sets of institutions hold an estimated $56bn of these bonds. Mitsubishi UFJ holds $3bn. Nippon Life has $2.5bn.
But the lion’s share is held by the central banks of China, Russia and petro-powers. These countries could all too easily precipitate a run on the dollar in the current climate and bring the United States to its knees, should they decide that it is in their strategic interest to do so.
So, basically, whenever the Fed writes a check, it depends on foreign investors to keep the checking account solvent. What if they balk? Or what if the $$ just runs dry? What good will all these guarantees be?
Interesting times.
U.S.A.
“Too big to fail?”
Earlier today Bernanke Chairman Ben S. Bernanke testified Before the U.S. Senate in the Fed’s Semiannual Monetary Policy Report to Congress. I commented on his testimony in Bernanke’s Hogwash.
In an unusual but encouraging development, someone besides Ron Paul is calling Bernanke on his hogwash. Please consider Bunning Statement To The Senate Banking Committee On The Federal Reserve Monetary Policy Report.
As Prepared For Delivery:
Thank you, Mr. Chairman. I know we have a lot of ground to cover today, but I want to say a few things on the topic of this hearing and of the next.
First, on monetary policy, I am deeply concerned about what the Fed has done in the last year and in the last decade. Chairman Greenspan’s easy money the late nineties and then following the tech bust inflated the housing bubble and created the mess we are in today. Chairman Bernanke’s easy money in the last year has undermined the dollar and sent oil to new record highs every few days, and almost doubling since the rate cuts started. Inflation is here and it is hurting average Americans.
Second, the Fed is asking for more power. But the Fed has proven they can not be trusted with the power they have. They get it wrong, do not use it, or stretch it further than it was ever supposed to go. As I said a moment ago, their monetary policy is a leading cause of the mess we are in. As regulators, it took them until yesterday to use power we gave them in 1994 to regulate all mortgage lenders. And they stretched their authority to buy 29 billion dollars of Bear Stearns assets so J.P. Morgan could buy Bear at a steep discount.
Now the Fed wants to be the systemic risk regulator. But the Fed is the systemic risk. Giving the Fed more power is like giving the neighborhood kid who broke your window playing baseball in the street a bigger bat and thinking that will fix the problem. I am not going to go along with that and will use all my powers as a Senator to stop any new powers going to the Fed. Instead, we should give them less to do so they can do it right, either by taking away their monetary policy responsibility or by requiring them to focus only on inflation.
Third and finally, since I expect we will try to get right to questions in the next hearing, let me say a few words about the G.S.E. bailout plan. When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turns out socialism is alive and well in America. The Treasury Secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed’s purchase of Bear Stearns’ assets was amateur socialism compared to this.
And for this unprecedented intervention in the markets what assurances do we get that it will not happen again? None. We are in the process of passing a stronger regulator for the G.S.E.s, and that is important, but it allows them to continue in the current form. If they really do fail, should we let them go back to what they were doing before?
I will close with this question Mr. Chairman. Given what the Fed and Treasury did with Bear Stearns, and given what we are talking about here today, I have to wonder what the next government intervention in private enterprise will be. More importantly, where does it stop?
http://globaleconomicanalysis.blogspot.com/
The fed, OTS, and OCC could of done something, but instead they kept me working my magic. Bush pandered a "culture of ownership" even if it was by mortgage fraudsters, corrupt mortgage brokers inventing credit scores, illegal immigrants, and no-doc, neg-am, option arm, exotic subprime toxic waste pushers like myself. Thanks for the 100's of millions suckers. I've already coverted it all into euros & gold and have it stashed away in offshore banks. I'm off to the country club to work on my tan. (honks european car horn)
Don’t worry, we’ll just keep printing that cash. Print our way to prosperity!
HA HA HA HA HA HA HA HA HA HA HA!!!!!! ;)
The stock has been slammed as oil has gone up, up, up.
AMR not be quite at bottom (earnings will be announced tomorrow so it may take a dive) so I reserved more funds to double down and buy more if I need to...but it's not far from bottom. Some of these stocks are at fire sale prices.
The increasing hysteria, high volume, and media shouting over the last few days signals we are close to bottom.
science dictum: Correlation does not automatically equal causation
The fact that buyers x, y, Z hold a particular sum of shares of A does not mean that the owners of A are “beholden” to buyers x, y and z. They, x, y and z simply happen to frequently outbid other buyers when A is selling new shares (treasury notes), because x, y and z WANT TO and not because A has no buyers if they don’t.
If Russians or anyone else want to sell U.S. treasury notes they hold, there is no lack of ready buyers across the world for them, especially those who are frequently out-bid for them by the Russians and others.
This alarm is based on ignorance of financial markets.