Friday, July 11, 2008

Details are emerging on FRE/FNM...

From unnamed sources:

In the event of nationalization:

* The GSE will have to book pretax loss of $70-100B.

* Charge the losses through the capital structure.

* Then the government will guarantee the obligation.

* The government will run the portfolio in a runoff mode.

* Mortgage rate will be very high and lending term will be very restricted going forward.

I believe

* this will take the final leg of denial in house prices around the USA. Drop of 40-60% from HERE.
* lead to no money printing at all.
* final admission that in the next few years the best USA can do, is to "manage" the deflationary process so that it can be as orderly as possible. (Which should have been the case upfront since 2 years ago, I regret to say).


D said...

Brasil is calling my name...

Greenie said...

Will the lawmakers stop all bailout bills? Which company will subsidize housing then?

Greenie said...

Would you please explain to me, whether the $300B bailout bill is dead on arrival? Does it make any sense to pass the bill any more?

MTGSPY said...

The bailout bill was passed easily on Friday 5 pm.

The largest points:

* The govt gives $8000 tax rebate for first time FORECLOSURE buyers.

* The govt continues to RELY on FRE/FNM to lend AGGRESIVELY despite FACTS in front of their eyes.

* The ones about FHA and Govt insurance is a non-starter. Nobody has money to forgive principal, not 15%, not 10%, not 5%, heck not EVEN 1%.

The senate bill will now be MERGED with the House Bill, before Bush can sign it in mid August (?)

I am going to take wait and see attitude Monday morning, probably a large rally is in order. But then you KNOW what I'd be doing around the time of the rally. :D