[VOA]

Cramer: 'Dysfunctional' Banking System Puts U.S.
'Totally' at Risk of 'Great Depression No. 2'

I'm not an economist, so when I watch Cramer it's for the floor show
and some decent suggestions/tips he will present.

But I'm leaning to agreeing him on the doom-and-gloom factor.

Especially after hearing Sen. Shelby say that Freddie Mac/Ginnie Mae
was nothing but "a house of cards".
And then hearing a Forbes Magazine staff member explain the magic
of the accounting of Freddie/Ginnie in calculating their reserves.

Turns out their "accounting" said they had plenty of reserves...
and they were based on "deferred tax credits".

In other words, their reserves were the PROJECTED decrease in taxes
they'd pay because of horrendous losses (If I understood this
sort of machination correctly).

In simple terms, the emergency reserves were not stacks of dollar bills,
bonds or bars of gold, silver or platinum in their vaults.

Their reserves were calculations on pieces of paper.
And worth just about as much as the paper if truly needed.

McCain/Palin should make it clear that a prime goal is that the
Skillings/Lays of this debacle are on the fast track to the big house.

Or can have the less painful option of a fatal heart attack.

[VOA]

oops...I meant “Fannie Mae”...
but Ginnie sounds more fun at happy hour!!!

[JerseyHighlander]

You are off a bit VOA,

In other words, their reserves were the PROJECTED decrease in taxes they'd pay because of horrendous losses (If I understood this sort of machination correctly).

In other words, their reserves were the PROJECTED decrease in taxes they'd pay against expected profits but the tax credit reserves have been wiped out because of horrendous losses.

They won't get tax credits on net income if they have gross losses. Freddie's CEOs are arguing they'll hold the paper long enough that they'll end up with net gains and then use the tax credits, but that event horizon is now beyond the horizon line of Fed regulators.

And if they are taken over by the Fed Gov, the entire tax credit reserve disappears and then Freddie is no longer solvent due to lack of reserves, though Fannie still might be salvageable.