Generally speaking this is good news.
When the waves close over the Titanic known as the Imperial Feral Government the human race will have learned a valuable lesson about hubris and government.
We will have smaller government no matter what the liberals want.
Best regards,
This story is not a relatively limited business story. Further, it is a depiction of only a part of the story--the two FM's are a significant part of the mortgage lending market, and the financial hedge market. But the two entities combined are a smaller fraction of the total credit money creation engine. And the two FM's are directly dependent on the remainder of that financial market--credit problems elsewhere could well cause liqudation of a large part of the FM's capital as well as eliminate the credit on the other side of many of their derivative transactions.
The word "insurance" here ought to be stricken--these transactions are insurance only in the sense that they are offsetting bets about financial futures. The term "insurance" under circumstances where the risk is a $350,000 fire and the entity that promises to rebuild the house has three quarters of a billion dollars of assets is a fair description of the relationship because one or ten or fifty simultaneous fires are extremely unlikely and the cost of the fix is quite manageable in terms of the total assets available.
Here, we cannot really quantify the magnitude of the financial obligations that support FM's position that rising interest rates are not a risk nor can we make any assessment of how great the risk is that the other party to the transaction will be unable to perform if the risk hits. Under circumstances where a failure to perform (hypothetically) by JP Morgan on a totally unrealated derivative obligation could bring down the other side of the hedge transaction to which FM looks to support its rate avoidence risk, the entire system is subject to the risk of being brought down by one or two financial events.
Everyone here ought to look up PrudentBear.Com. This week through Friday, there is an article by Doug Noland under "Credit Bubble Bulletin" which is an effort at a college freshman level explanation of the problem. The article is long; the examples tedious; and understanding is difficult unless you have enough basic accounting skills to create T-accounts to follow his analysis. However the article is a basic tool in understanding the magnitude of the problem.
Foreclosures are on the rise by a substantial amount. I'm seeing it in the lower end of the market right now, mainly in first time homebuyer type housing where it takes two incomes to pay the mortgage and one or both have gotten laid off from work.
I've never been through a market collapse like Houston of the 80's and I wonder what it will take for this foreclosure rate to filter on up into the higher income brackets.
An Enron type failure of Freddie and Fannie would be very, very bad for all involved in the Mortage/Real Estate/Building industries.