Sunday, May 10, 2009

Here's a Question

Believers in Obamanomics are telling us that things are getting better and that we've already begun to see the signs of a turnaround in the economy. It's patently obvious that I tend to disagree with that rosy view, and I found some comments out of Fannie Mae on Friday that also seem to throw doubt on the validity of the turnaround claims.

"Fannie Mae issued a grave warning about its future on Friday, saying it needs $19 billion in additional government aid as job losses grow and risky loans made during the housing boom go bad at an unnerving pace... The government, which seized control of Fannie Mae and its sibling Freddie Mac last September, has already spent about $60 billion to prop up the two companies. Fannie Mae's request Friday brings the total to $79 billion. Freddie Mac is expected to release its first quarter results next week. The Obama administration's estimates the taxpayer bill for Fannie and Freddie will hit $147 billion out of a potential $400 billion by the end of September 2010."

Ok, detectives - see if you can figure out where the problem is here (hint: I boldfaced the key numbers!)... Let's take it piece by piece: with this latest request for moolah, the total given to FNM/FRE is up to $79Billion. The administration estimates that this total will hit $147Billion within 15 months. But wait - help me out here: I'm confused. I've already been told that the housing market has bottomed, that the economy is turning, and that "toxic assets" are only toxic because no one wants to buy them, NOT because they are actually worth less than people think.

WHY THEN, are Fannie and Freddie expected to lose another $70 Billion in the next fifteen months? In poker terms, I'd say we just caught the Obamanomics team in a bluff: they KNOW that home prices haven't bottomed, that the economy isn't bouncing off a bottom, and that mortgage backed securities are not properly marked, all of which adds up to at least another $70B in projected aide to FNM/FRE. Why they continue to run the 3-barrel bluff of blind hope, optimism, and deceit instead of facing up to the problems and trying to fix them (convert bank bondholder positions to common equity!) - is a mystery to me.




Anonymous said...

Stick to posting about poker and blackjack bonehead!

Kid Dynamite said...

is that you Timmy Geithner? sorry to blow the cover on your propaganda war... don't worry - no one else noticed

Anonymous said...

Somebody better buy Fannie and Freddie some of those shoes.

...Nice post, KD.

StB said...

Unemployment is at the level projected if a stimulus bill had not passed. Layoffs in state government have increased and gas prices are going right back up. Yeah, Obama's plan is working only if his plan was to continue to blame Bush for everything wrong in the world.

Keep up the good work.

Anonymous said...

Hi KD,

Can you please explain "convert bank bondholder positions to common equity!"


Kid Dynamite said...

sumit -
equity holders "own" the company. what is supposed to happen here is that equity holders get wiped out (ie, stock goes to zero) and the bondholders restructure their claims so that they receive newly issued equity, and become the new owners of the company. they are the ones that are supposed to take the loss and the risk after equity holders