Monday July 14, 2008

Fannie, Freddie too big to fail, else a trillion dollar meltdown

news.yahoo.com :

Fannie Mae and Freddie Mac, the largest buyers of US home loans, are too big for the government to allow them to fail, leading Republican and Democratic lawmakers said. A government takeover is being considered if their problems get worse. Shares in Fannie Mae are down 84% from the Oct 2007 highs, while Freddie Mac is down 87% - levels not seen since 1991.

Congress created Fannie Mae during the Great Depression and formed Freddie Mac in 1970. The companies own or guarantee about half of the $12 trillion of US mortgages. The companies' failure would deepen a housing recession that already is the worst in a quarter century. Freddie Mac owed $5.2 billion more than its assets in 2008Q2, making it technically insolvent, while Fannie Mae's assets fell 66% to $12.2 billion, and may be negative next quarter.

- This is huge. If the US government decides to do a bailout, the US dollar will head straight down towards zero, and commodity prices will immediately execute a warp drive and head not only for the stars, but quite possibly the next galaxy. Like the Fed, Congress is now stuck between a rock and a hard place. They have two choices : collapse the dollar, or collapse the housing market, and with it, the rest of the economy. Neither choice is very palatable, and doing nothing is not acceptable either. This has the potential to turn out to be a multi-trillion-dollar meltdown.

See also :

1. The housing bubble has burst
2. US 'spending binge' to end as housing market slows
3. Housing sales drop in 40 states
4. Housing slowdown may claim 800000 jobs

(2008-07-14 09:37:49 SGT) [Biz] Permalink Comments [1]

Matt Simmons goes doomer on CNBC : talks oil, food shortages, Great American Disaster

peakoil.com -> youtube.com :

Matt Simmons, leading peakoiler, author of Twilight in the Desert, former energy advisor to George Bush, and CEO of an energy investment bank, has just gone uber doomer, going on national TV channel CNBC via phone interview to talk about oil and food shortages, $200 oil, and an impending Great American Disaster.

This is a must-watch video, if only to see the jaws drop and eyes pop out on the rest of the on-stage crew as Matt Simmons discusses the oil situation in a way we haven't seen on TV before. The host of the show was at first apologizing and saying that they had to make this interview shorter because they were discussing the billion-dollar collapse of Fannie and Freddie earlier, and at the end, he was so shocked that he stammered that he wished they were back to talking about Fannie and Freddie.

It was supposed to be a debate, the way they usually do in the media, to bring about some "balance" to discuss the crude oil price hitting a record $147.27, so they brought out some young trader to take up the other side, but even he was stunned into silence and only managed to blurt out something about "cyclical" oil prices, and to admit that the traders who were short oil had been caught on the wrong side of the trade.

Also, read the follow-up discussion over at peakoil.com, and simontay78 has got a partial transcript up on his blog. I do not usually link to Youtube videos, and I rarely embed these things, but this is really a must-watch.

See also :

1. The Energy Crisis Has Arrived : Matt Simmons
2. Peak oil forecasters win converts on Wall Street to $200 crude
3. Matthew Simmons calls on regional oil producers to curb output
4. Mexico Cantarell oil production declined at 18% depletion rate in 2007

(2008-07-14 08:34:25 SGT) [Energy] Permalink Comments [1]

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