The Sky May Actully Be Falling

[Retire Soon]

Considering that Fannie and Freddie were intially created by the US government in order to foster a liquid mortgage market and enable average Joe to buy a home, it would be ridiculous for the same government to stand by and do nothing while these companies faltered and became impaired to continue to issue mortgage backed notes.

Fannie and Freddie were initially created to enable average Joe to reach the All American dream of home ownership. Here lies the problem. Many of the people who obtained home financing over the past few years were far from being average Joe's. How can one justify placing someone in a $600,000 McMansion with a zero down payment on "stated income." Today the federal government is asking the taxpayers to pick up the tab for what initially started as a noble system to enable the average Joe to become a homeowner, but later included people with bad credit, no savings, poor w*rk history, who probably could not have even afford to rent the house they were encouraged to purchase.

 

[Bikerdude]

It's been a wild ride, and the panic has seemed ridiculous when the default rates on Fannie and Freddie mortgages are at only 0.8% in one case, and 1.2% in another. Yet the equity markets have become totally panicked on these companies, coming to believe that the Bush government would allow shareholder equity in these companies to be wiped out.

It does seem ridiculous until you realize that their total combined capital is 1.6% of outstanding mortgages. I think the problem is they have had massive growth over the last few years without an increase in capital funding.

Why they let this go for so long and let panic start to settle in is anyone's guess. Maybe it has something to do with an election year?

 

[audreyh1]

Wow, you said exactly what I have been thinking about this. FWIW, I think the whole thing is a manufactured problem with no basis in reality.

Oh, and I think this may indicate a bottom, at least for now.

It's good to know that my layman's superficial grasp of what is going on is not completely off base!

It might have been a good bottom, except that banks are failing! Here we go for another round of bank panics.

Audrey

 

[brewer12345]

It might have been a good bottom, except that banks are failing! Here we go for another round of bank panics.

Audrey

The frustrating thing about this round of nonsense is that the market is making little distoinction between banks. So the shakiest are going down right along with some of the safest and best-run banks in the US.

 

[REWahoo]

While I understand the general public might be spooked by bank failures, this is hardly something new to those of us who were around for the S&L crisis in the late 80's. Note this article in May which said the handwriting was clearly on the wall - the FDIC luring retirees experienced in bank closures out of retirement:

Bank failures to surge as credit crunch slows economy - MarketWatch

(Let me be the first: "Yeah, but this time is different.")

 

[al_bundy]

Considering that Fannie and Freddie were intially created by the US government in order to foster a liquid mortgage market and enable average Joe to buy a home, it would be ridiculous for the same government to stand by and do nothing while these companies faltered and became impaired to continue to issue mortgage backed notes.

Fannie and Freddie were initially created to enable average Joe to reach the All American dream of home ownership. Here lies the problem. Many of the people who obtained home financing over the past few years were far from being average Joe's. How can one justify placing someone in a $600,000 McMansion with a zero down payment on "stated income." Today the federal government is asking the taxpayers to pick up the tab for what initially started as a noble system to enable the average Joe to become a homeowner, but later included people with bad credit, no savings, poor w*rk history, who probably could not have even afford to rent the house they were encouraged to purchase.

most of the NINJA loans didn't have anything to do with Fannie or Freddie. Once in a while i visit the mortgage broker board at creditboards. when this first started last year the resident subprime mortgage brokers said that in the last few years FHA and GSE loans were a small part of their business. Now it's going to be the opposite.

Even through the nonsense of the last few years fannie still had pretty good underwriting standards. the loony loans were mostly originated, packaged and sold by the investment banks

 

[al_bundy]

Wow, you said exactly what I have been thinking about this. FWIW, I think the whole thing is a manufactured problem with no basis in reality.

Oh, and I think this may indicate a bottom, at least for now.

if the US Government has to pump a few hundred billion $$$ to support the GSE's debts, isn't it the same thing as pumping money into the system via the Fed? you are still pumping money into the system which can lead to higher inflation. and if you have to borrow than the deficit/GDP equation changes and it can affect T-Bill prices

 

[MichaelB]

The frustrating thing about this round of nonsense is that the market is making little distoinction between banks. So the shakiest are going down right along with some of the safest and best-run banks in the US.

That's a buying opportunity.

 

[MichaelB]

The other funny thing about the wekkend's annnouncement's was the SEC's laughable intention to start looking into market manipulation via rumor mongering. Hey morons: if you want to clamp down on manipulation, reinstate to uptick rule on short selling!

I think the SEC is right. Only CEOs should be allowed to use false or misleading information to [-]manipulate[/-] support stock prices.

 

[brewer12345]

That's a buying opportunity.

Based on recent experience, it just means you will be setting yourself up fore another ass-kicking within a week.

 

[haha]

Based on recent experience, it just means you will be setting yourself up fore another ass-kicking within a week.

When I look at many stocks that have nothing to do with banking, and are conservatively financed, I can't understand these low prices. The "Doomsday Thesis" IMO makes no sense. I don't know if it might be real or not, but how can interst rates be as weirdly low as they are, and earnings yields of valid blue chip stocks stay as high as they are? There has to be an adjustment although I suppose it could be a real spike in interst rates, which would make stocks less relative bargains.

I think this is a stock panic, and nothing more, and represents a rare opportunity for a discerning buyer. More and nore it feels like late summer 1974, good stocks falling day after day. Then it ended, and Ka-Boom! off to the races.

Be sure you have a seat on this rocket before she lights off. Hey, I might even get to visit my gal Amanda en Suiza when this one plays out.

Ha

 

[brewer12345]

I think this is a stock panic, and nothing more, and represents a rare opportunity for a discerning buyer. More and nore it feels like late summer 1974, good stocks falling day after day. Then it ended, and Ka-Boom! off to the races.
Ha

Was there a catalyst in 1974, or did the selling finally just dry up?

I am having a hard time thinking of a catalyst these days, since the market only reacts to bad news.

 

[haha]

Was there a catalyst in 1974, or did the selling finally just dry up?

I am having a hard time thinking of a catalyst these days, since the market only reacts to bad news.

As I remember, it just dried up. Interst rates were relatively high, inflation was relatively high, and no one in the government was blinking. I would would pick up a Seattle Times on my way into work in the afternoon-at that time it was an afternoon paper and so it had the closing stocks. Day after day lower, then finally, a rally. Then back down again into October, and then off to the races. Although it remained rocky for a few years, good high ROI companies never looked back from the fall '74 lows.

Ha

 

[Nords]

Was there a catalyst in 1974, or did the selling finally just dry up?
I am having a hard time thinking of a catalyst these days, since the market only reacts to bad news.

The selling dried up in 1974-5.

In late 1979 Business Week published the notorious "Death of Stocks" article.

The Dow Jones bottomed in 1982.

So we could look forward to at least eight years of fantastic dividend reinvestments!

(I can't believe that I can't find an image of that Business Week cover on the Internet. You would think someone would have tracked it down by now, maybe even donated a copy to the Smithsonian...)

 

[DRiP Guy]

 

[DRiP Guy]

2001:

 

[DRiP Guy]

 

[DRiP Guy]

 

[laurence]

Wouldn't it be great if the anchorperson on CNBC, the next time this guy comes on to shill his next book, "accidentally" displayed this one instead? "Ooops, my bad, by the way, what happened with this prediction?"

 

[DRiP Guy]

Yeah, I just had to throw that in there! he he he

 

[Nords]

http://i36.tinypic.com/b8x0me.jpg

Dang, I had the title wrong. Thanks!

 

[DRiP Guy]

De nada.

 

[BunsGettingFirm]

Looks like 09 will be the year. Massive bank asset auctions to liquidate the REOs and OREOs. Save your pennies, it'll be one of the best real estate opportuinties in our life time.

It's getting there already. My realtor is showing me properties that rent for $800/month but sells for $59k.

 

[BunsGettingFirm]

Considering that Fannie and Freddie were intially created by the US government in order to foster a liquid mortgage market and enable average Joe to buy a home, it would be ridiculous for the same government to stand by and do nothing while these companies faltered and became impaired to continue to issue mortgage backed notes.

Fannie and Freddie were initially created to enable average Joe to reach the All American dream of home ownership. Here lies the problem. Many of the people who obtained home financing over the past few years were far from being average Joe's. How can one justify placing someone in a $600,000 McMansion with a zero down payment on "stated income." Today the federal government is asking the taxpayers to pick up the tab for what initially started as a noble system to enable the average Joe to become a homeowner, but later included people with bad credit, no savings, poor w*rk history, who probably could not have even afford to rent the house they were encouraged to purchase.

$600k and 0% down were not conforming loans, and even now with the expanded limit, it's still not a loan that Fannie and Freddie can package.

 

[RockOn]

Fannie/Freddie:

The Fannie / Freddie Bailout: Necessary, But Don't Expect a Happy Ending - Seeking Alpha

The sky has fallen