Posted on 03/26/2008 2:55:12 PM PDT by kiriath_jearim
As the subprime saga has unfolded in recent months, it has packed a powerful – and somewhat unexpected – globalisation punch.
For while subprime loans are rooted in the heart of the US, the credit risk from mortgage-backed securities based on such loans has been scattered all over the world – and losses have consequently cropped up in institutions ranging from Australia to Norway.
Now, however, the globalisation issue is moving to the so-called “agency” sector of the mortgage market – or mortgage securities underwritten by Fannie Mae and Freddie Mac.
In recent years, this type of agency debt has been scattered even more widely around the world than subprime-linked instruments. That was because these securities were traditionally considered to be ultra-safe – and as such were heavily purchased by risk-averse groups in places such as Asia. As a result, the recent sharp swings in the debt prices of Fannie and Freddie are being closely watched by portfolio managers around the world.
While many of the investors who own agency debt do not need to mark this to market – meaning that they can ignore many short-term market swings – there is growing debate about the future of these groups.
“This [issue] is relevant for Asia which owns a huge amount of Fannie and Freddie debt,” says Christopher Wood, an economist at CLSA, a Hong Kong-based brokerage house. “Before the credit crisis is over [we] expect the federal mortgage agencies to be formally nationalised . . . The explicit commitment will be demanded by the market to forestall a full-scale panic.”
The steady drumbeat for a taxpayer funded bailout of garbage mortgages continues.
There must be a bailout or there’ll be: Panic! Meltdown! Loss of executive bonuses! Plagues of Boils! Showers of newts!
Those on AFDC have nothing on the financiers. They’re the *real* corporate welfare queens.
Panic all you want to, buddy. FNMA and FHLMC are not going to be integrated into the Federal Government. Wall Street makes too much $$$ on packaging the loans that fannie and freddy buy from the lenders and selling it to you.
The firms have the best of both worlds now and they will not give it up.
It already has dried up. The bet right now is to hold onto your stuff if you can’t sell it to a rube at a profit or an acceptable loss, and use every bit of cash you can get your mitts on to meet capital requirements.
I just posted on another thread that the liquidity issue is now becoming front and center as a consequence of the asset quality issue.
But Fannie and Freddy are not going to be doing anything about the fractionalized mortgages already out there; heck, they sold these people complete mortgages. It is not their mandate to create liquidity for the Asset Backed Debt market — it is their mandate to keep themselves liquid so they can keep buying mortgage loans.
What this guy is talking is basically turning Uncle Sugar into a mortgage lender and asset backed debt issuer. Not gonna happen, unless and until we go completely communist.
Many different central banks and sovereign funds will purchase highly risky mortgage based securities from banks, and investment banks. The US Fed will encourage a strong inflationary trend, making the the value of "hard goods" worth more. The Fed will also prime the pump and get the US economy moving. This will ultimately make the printed value of the homes worth more reducing the "risk" to those central banks holding the paper security. These central banks will be paid back with cheaper dollars, but the default losses will have been avoided by the privileged few.
The folks that are going to suffer are the regular investors and people that inflation always hurts.
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