Fannie and Freddie's New Derivatives Cliffhanger

Business Week ^ | 09/09/08 | Ben Levisohn

[TigerLikesRooster]

Ping!

[ikka]

My only question is, will the taxpayer be on the hook for anything? And when will Franklin Raines go to prison?

[rbg81]

I listened to Mark Levin on the way home tonight (for the first time). He was ranting about how there are hearings and indignation about everything (Enron, Big Tobacco, Big Oil profits, Haliburton, etc), but not a whimper in the MSM or Congress about this.

After I laughed for a few minutes, I realized that he’s absolutely right. This whole thing stinks on ice. You can tell its really big and very serious because no one is talking. The cowards in our political & press only raise hackles when they know the stakes are low. Here the whole country is at stake.

The people who own & invest in these Hedge funds make the big contributions, and they will be protected by tax $$ at all cost. No one responsible will go to prison. And anyone who makes noise will be treated like a tin foil hat guy—but its true.

[cowtowney]

Senator Sherrod Brown (D-Ohio) was on CNBC tonight. He blamed this entire mess on George Bush and the Congressional Republicans. Never mind that he is on the Senate Banking Committee and Barney Frank, D-MA and pervert in residence, has been saying for YEARS that everything was OK and was pushing the low income loans.

The Dems want to go blameless.

[ex-Texan]

This is the end of the zero sum game:

'This is the end, the end my friend . . . this is the end'
-- The Doors

Always wondered what they were singing about . . . LOL, LOl !

[TigerLikesRooster]

Yes, sometimes silence says volumes about the gravity of the situation. Ken Lay would have been OK if he played far bigger, while hooking every politicians to his dole.

[Ken H]

My only question is, will the taxpayer be on the hook for anything? And when will Franklin Raines go to prison?

My non-expert answers - a) you bet your boots, and b) when long-johns start selling in Hell.

[bvw]

The government has a proper role in defining what kind of contracts can be made between parties. One reason for this due power is to promote the general welfare by upholding moral sanity -- e.g. contracts to commit crimes are void. Yet another due power to limit the kind of contracts that are valid is that some classes of contracts are so intractably obtuse in terms or ornate in complexity that almost no jury or judge could ever understand to the needed degree the arguments between parties that would arise from it.

I suspect it is that the many of the financial contract forms of the recent era -- the tranches of mortgage portfolios, the obscure credit risk swaps will come to be seen as those kind of obscure contracts. It won't happen until money gets pretty tight though -- for as long as there's enough liquidity to throw a fat stream of it on the litigators, there will not be calls for change.

[groanup]

This whole thing stinks on ice.

You are absolutely right. The Enron screams could be heard at the bottom of the sea. But Fannie and Freddie? Nothing!!

I read somewhere that the lobbying tab for these GSE's over the past few years was in the range of 170 MILLION dollars - most of it going to democRATs. While democRATs were the favored children for plum jobs at these taxpayer guaranteed hedge funds.

This is the lowest and worst use of government in the history of the Republic. This is a scandal that is too big for blame and the RATs know it. They'll just whistle away while the productive citizens get hosed again.

What's with these credtit default swap triggers? There is no default.

[djf]

Fannie was the fat lady.

Ha! Ha!! Fannie! Fat lady! Get it?

The rest upcoming, all the hedge fund defaults and derivative meltdowns are really just.. well, derivative!

Remember, even before Fannie, there have been a few auctions lately that went basically unnoticed. And the ability of the US gov to guarantee debt is DIRECTLY related to the health of our economy.

The end of Sept beginning of Oct, with 3rd quarter stuff coming out, will be interesting.

[GOPJ]

It's possible that cash-strapped hedge funds have been selling insurance on Fannie and Freddie debt as an easy way to make money—while operating under the assumption they'd never have to pay. But near par isn't the same as par: Even a few pennies below face value could add up to billions of dollars. The hedge funds who wrote insurance might not be able to pay, forcing institutions to write down the value of their swaps.

.

Taxpayers should NOT bail these big boys out.

They took a risk - and they were wrong. It happens.

And for all I know, Freddie and Fannie, like a drowning person, might pull down the rescuer - and we'll have the collapse we're trying to avoid.

[Toddsterpatriot]

Do the hedge funds have the money?

The tab could be in the MILLIONS. LOL!

[Toddsterpatriot]

My only question is, will the taxpayer be on the hook for anything?

These CDS are on debt issued by Fannie and Freddie. Fannie and Freddie didn't buy or sell the CDS. So the answer is no.

And when will Franklin Raines go to prison?

Soon, I hope.

[Toddsterpatriot]

This is the end of the zero sum game:

Zero sum and a non-event.

[Toddsterpatriot]

What's with these credtit default swap triggers? There is no default.

A technical default.

[Travis McGee]

They’re quiet, because they realize this is for the whole enchilada. The overloaded boat has one inch of freeboard above the waterline. Anybody jumps around, and the boat is going over.

[ExSES]

The bailout triggers settlement of $1.4 trillion in unregulated credit-default swaps. Do the hedge funds have the money?

The question is being asked..., why are so many secure profit making stocks going down so quickly? Could the answer be that, as stable investments they MUST be sold by many of the hedge funds in a firesale to raise capital???

Time will tell....

[SteveAustin]

Your description of the water logged boat is the best I’ve seen.

The American public has no clue how intertwined the entire US and global financial system has become with “derivative contracts” that basically are nothing except a bunch of Wall Street bookies taking bets on all sorts of financial risk. But now with all these trillions of dollars in “bets” out there, we’re seeing a few bookies start to go down (Bear Stearns). We can handle a couple going under, but anymore and the US financial system collapses for a year or two until it can get rebuilt.

And if that happens (and some argue it’s already taking place) there will be no credit available to anyone. And our economy runs on credit, credit and more credit.

[Travis McGee]

True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression.

Von Mises