Comments: When risks go south: FM&FM to be nationalized

"The financial sector, everyone whose business is essentially lending money, is now a ward of the state. They could lend to each other, but they don't trust each other. They can't raise money in the equity market. There is nowhere else to turn." - Howard Simons, research analyst at Blanco Research.

"That is precisely the point. There is now "nowhere else to turn" for the financial system but the supposedly unlimited credit issuing power of the government. It is true that a government can issue any amount of debt paper they choose to. It is NOT true that this debt paper will find a buyer, no matter what. Nor is it true that interest rates will remain unaffected forever. Nor is it true that the currency which all this paper supposedly "backs" is immune from its "value" being savaged.

It is said that there are no strings attached to "manna from heaven". That cannot be said down here on earth." - Bill Buckler, The Privateer

Series: BORROW, Total Borrowings of Depository Institutions from the Federal Reserve
http://research.stlouisfed.org/fred2/series/BORROW

Series: NFORBRES, Net Free or Borrowed Reserves of Depository Institutions
http://research.stlouisfed.org/fred2/series/NFORBRES?rid=19&soid=1

I have a chart on my hard drive by ECDeGroot, source: NBER, federalreserve.gov.
"Free Reserves As A % of Total Reserves Held at Federal Reserve Banks"
It starts a little bit before 1929.
1929: a little bit below -40%
1932: about -40%
1933: 0%
1937: about 50%
1943: about 50% (after a dip to about 10%)
Then the ratio goes down to about 0% around 1950 very roughly staying there till recently where it takes a direct plunge to almost -80%

So, if I make it through the coming new Dark Ages in the Anglo Saxon world, there is always the Singularity to look forward to. Or, maybe I don't have to wait that long. A tidbit from Jim Willie's latest at:
http://www.gold-eagle.com/editorials_08/willie090508.html
"...
In any newly established vacuum could quickly come new gold-backed currencies. Two are already planned, whose launch date is uncertain but clearly tied to the upcoming plan.
..."

Backed by gold is one thing. Whether they are redeemable in gold remains to be seen.

Posted by bob at September 7, 2008 06:28 AM

recent reference to GSE documents obtained by washington post touting brilliant strategy buying toxic CDOs
http://www.garlic.com/~lynn/subtopic.html#12 Fraud due to stupid failure to test for negative

recent reference to having GSE bought $5bil in toxic CDOs with $80 mil of capital (i.e. heavily leveraged ... not quite 100 times)
http://www.garlic.com/~lynn/2008m.html#15 Fraud due to stupid failure to test for negative

and eference to Buffet getting out of GSE because of their use of accounting methods
http://www.garlic.com/~lynn/2008m.html#17 Fraud due to stupid failure to test for negative

from today:

Fannie, Freddie Capital Concerns Prompt Paulson Plan
http://www.bloomberg.com/apps/news?pid=20601087&sid=at2rZoL11_sw&refer=home

from above:

Treasury Secretary Henry Paulson decided to take control of Fannie Mae and Freddie Mac after a review found the beleaguered mortgage-finance companies used accounting methods that inflated their capital, according to people with knowledge of the decision.

... snip ...

other articles

Why U.S. moved to take over mortgage giants
http://www.iht.com/articles/2008/09/07/business/fannie.php
Treasury Secretary Paulson's balancing act on Fannie and Freddie
http://www.latimes.com/business/la-fi-fannie7-2008sep07,0,2490258.story
Feds to Take Over Fannie, Freddie
http://www.time.com/time/nation/article/0,8599,1839294,00.html
Paulson readies the 'bazooka'
http://money.cnn.com/2008/09/06/news/economy/fannie_freddie_paulson.fortune/index.htm?postversion=2008090621
Cost of Fannie, Freddie move unknown, but likely in billions
http://money.cnn.com/2008/09/06/news/economy/Fannie_Freddie_rescue_cost/index.htm?postversion=2008090619

--
40+yrs virtualization experience (since Jan68), online at home since Mar70

Posted by Lynn Wheeler at September 7, 2008 10:02 AM

televised press conference going on in real-time announcing actions

Posted by Lynn Wheeler at September 7, 2008 11:20 AM

Why U.S. moved on mortgage giants; Freddie Mac's books jolted inspectors
http://www.iht.com/articles/2008/09/07/business/fannie.php

from above:

The U.S. government's planned takeover of Fannie Mae and Freddie Mac came together hurriedly after advisers poring over the companies' books for the Treasury Department concluded that Freddie's accounting methods had overstated its capital cushion, according to regulatory officials briefed on the matter.

... snip ...

several weeks there was interview with Buffett who commented that after being the largest Freddie stockholder in 2000&2001, got out of GSEs because of their accounting methods.

Posted by Lynn Wheeler at September 7, 2008 03:27 PM
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