Fannie Freddie Honeymoon over...

Congress should be asking some HARD AND FRANK questions to Paulson about this bulletin. Already the market is asking tremendously higher rates on Fannie and Freddie debt offerings!!!! This is a clear indication that the proposed bail out of the "debt garbage" out there will hammer the ratings of the US National Debt ratings...

Read this from Dow Jones today:

By Prabha Natarajan
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Yields on newly issued Fannie Mae (FNM) and Freddie Mac (FRE) short-term bills skyrocketed Wednesday as investors demanded much higher risk premiums to compensate for sharp swings in short-term credit markets.
Fannie sold $1 billion of three-month bills at a yield of 2.972%, 0.84 percentage point higher than the 2.131% yield it paid last week at an auction of similar bills.
The housing giant sold $1 billion of six-month bills at a yield of 3.459%, 0.82 percentage point over the 2.635% yield Fannie paid last week for bills of this maturity.
"The short-term funding market appears to be in disarray," said Jim Vogel, senior vice president on the FTN Financial.
Freddie, which completed its $2 billion short-term bills auction Monday at more favorable terms than Fannie, felt the impact of the market dislocation Wednesday when it sold the same amount in one-month bills.
Freddie paid a yield of 2.655%, a 37-basis-point increase from last month's yield on similar bills.
Some market participants felt falling Treasury yields have largely contributed to the higher financing costs the mortgage companies had to pay.
"The flight-to-quality bid to Treasurys has sidelined traditional investors in agency paper," said Margaret Kerins, managing director and head of agency strategy at RBS Greenwich in Chicago.
The higher yields agency bills were driven by outsized risk premiums investors demanded. For instance, Fannie's $1 billion in three-month bills sold at 252 basis points over comparative Treasury yields.
This is in stark contrast to the less than 100-basis-points over Treasury yields these bills had priced in recent months.
Similarly, risk premiums on Fannie's six-month bills widened to 188 basis points and Freddie's one-month bills stretched to 248 basis points over comparative Treasury yields that had dipped to 0.17%.
-By Prabha Natarajan, Dow Jones Newswires; 201-938-5071; prabha.natarajan@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=PJeHmS4lRrSS53ZpCwJJZg%3D%3D. You can use this link on the day this article is published and the following day.

The US Government is Absolutely Insane

Paulson and the Fed have done it again, panicked. Another 300 point drop last week and walla, they are off to save Wall Street.

I will say this one time: Buying the kind of debt that is on the books of financial institutions is complete madness. We are not talking about buying mortgages here. This is a quote from a Bloomberg article today: Read

``The scope of the government's purchase program is quite significant,'' Merrill Lynch & Co. strategists Akiva Dickstein, Roger Lehman and Kamal Abdullah wrote in a note to clients today. At distressed prices, the Treasury could acquire as much as 10 percent of the outstanding residential and commercial mortgages that aren't already owned or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, they said.

This is not the half of it. The article goes on to say:

The U.S. Treasury late yesterday gave Congress revised guidance on its plan, which may allow the government to also buy other devalued assets such as car loans and credit-card debt. Paulson also has proposed as much as $400 billion to guarantee money-market mutual funds.

Am I reading this correctly? The US Government is going to purchase auto loans? Purchase credit card debt? Guarantee money-market mutual funds? (I have a whole nother dissertation about the lunacy of guaranteeing the money-market industry)

These guys are completely nuts. Off their rocker! Find me ONE and I mean ONE sane person with any hint of an economic background and they will tell you, Paulson is nuts! The Federal Government is going insane one 300 point Dow drop at a time.

Let me put something into perspective here. The market has only had a 20% correction since it’s all time high less than one year ago. You heard me correctly, LESS THAN A YEAR AGO!!

With the completely reckless way Wall Street and all other financial firms for that matter lent money to Private Equity, Hedge Funds, Structured Investment Vehicles etc. a 20% correction is peanuts.

After the dot-com crash in 2000 the Nasdaq dropped nearly 80%. We had telecommunications, technology and other bankruptcies of epic proportions. We had billions of dollars evaporate from all of the worthless pipe dream companies launched on a whim with idea of getting rich on the Internet (remember we were mostly dial up then also). The Dow fared well dropping only about 40% and as we sit today it is still above most of the levels of 2006 and all of 2003-2005.

So I ask you, who exactly are we protecting here? If the worthless paper sold as stock of legitimate companies during the tech bubble created an 80% correction in the tech heavy Nasdaq (which still has not managed to maintain ½ it’s highs of 8 years ago), is it not expected that an index like S&P Financial Index should not loose 80% of it’s value after the worthless mathematically engineered garbage pumped onto the balance sheets of nearly every financial institution, pension fund, local government and some individuals collapses? Well as I write this it is down roughly 50%. It touched 70% in July.

Now I am not trying to bore you with this index / history stuff. I am no chart watcher and do not profess to have expertise in this subject, but common sense will tell you, the government did not bail out Worldcom, PSI.net, Enron (well that was a world of it’s own), Global Crossing, Adelphia and Kmart right? Yes, about a Trillion Dollars worth of major bankruptcies (filings over $1 billion) happened over the four years from 2000 to 2003. The government did not bail anyone out, not anyone. So what gives?

I can tell you this for sure. This will not work. This is not the same as the Resolution Trust Corp. bailout. This is dangerous, reckless, stupid and disastrous for the US economy, dollar, interest rates, inflation etc. We will be bringing wheel-barrels of cash to buy groceries if we do this. Trust me. I am not kidding. I am not a doomsayer, conspiracy nut or radical. I have common sense and what Paulson, Bernanke and your government is doing right now is completely crazy.

I am not going to say there are easy solutions here, but when our government is run by to many impotent, bought and paid for weans who will bend over to any idea pushed out there to protect their political future instead of thinking of what is right for the American People, we are in trouble.

Bailing out Bear Sterns, Taking over Fannie and Freddie, and taking a controlling stake in AIG were all wrong. All of these situations could have been dealt with in a fashion that did not involve the government as we did.

Our government is playing chicken with the largest pool of unregulated money on the planet, the hedge fund industry, and until and when they shut this thing down, they will LOOSE.

Peak Energy, This is GOOD!, Message to Senator Obama

I want to encourage Senator Obama to avoid being sucked into the "drill more oil" debate by reading the message below and using this message to completely redefine the debate on energy extraction and use in the world. He is beginning to seem a bit of a reactionary to events around him on this issue instead of creating a leading vision. This message draws the framework for this vision.

The potential that we have reached "peak oil" is the greatest gift the human race could have right now. It means the earth is incapable of producing (humans are incapable of extracting) enough carbon-based energy (oil) to meet the growing demands of 6 billion plus people. Wow, think for a moment and consider the earth as one large complex computer program that includes a kind of formula for energy extraction and use that has human need and technological maturation in it. No matter how hard we try we cannot completely destroy our planet because of the limits of human kind to extract from the planet enough carbon based fuels at a rate which will produce enough pollution to completely destroy our environment; while at the same time human kind has reached the technological capacity to tap into “clean” energy (solar, wind, hydro current, and to some extent nuclear) at economic rates and efficiencies that make the replacement of destructive 19th century power sources we originally tapped into to fuel our insatiable demand for material consumption, practical.

This is kind of like keeping us from drinking too much by limiting how much alcohol we can immediately consume.

If anyone in the Obama camp, including Obama himself, can see this for what it is and take a hold of the idea that "earth" is telling us that if we truly could produce enough energy from carbon based sources to burn all we wanted we would destroy our very existence, i.e.; drink to much and poison ourselves. Instead, we cannot. The formula of energy to consumption has reached "peak" with carbon-based fuels. What better message, gift, could we have than to simply have to face the fact that the time is now to shift to non carbon based energy. It is the "Duh" factor.

Now, if we can spend $1 Trillion on some completely destructive mission half way around the world (in a country with a total population only 3 times that of New York City) and accomplish absolutely NOTHING, they why should the Obama camp not be capable of taking hold of this gift of global balance (peak) in carbon energy extraction and turn it into a powerful "vision" for removing us from its use. This message would resonate with everyone from the “religious” who believe in the wisdom of a supreme power to the science crowd and average Joe who can understand such an idea.

Surly a fraction of the $1 Trillion spent on destruction / reconstruction / destruction in the war (say $300 billion) could allow us to completely transform a large chunk of our energy to solar, wind and other renewables (not corn) over a period of less than 10 years.

The time has come to recognize a Gift Horse when you see one and stop pandering to the PR hype and Think Tanks.

Game of Chicken

Letter to my Senator:

Senator Mikulski,

I beseech you to please make it clear to those that are making these government bail out decisions that they are playing a loosing game against the most powerful unregulated pool of money on the planet, the Hedge Fund Industry.

This industry has over $2 trillion in assets and is completely unregulated, primarily incorporated in island nations where they are completely out of the legal jurisdictions of the nations they operate in, have no allegiance to any nation, and have one primary objective: To make as much money as possible indiscriminately, at all cost and risk.

The time has come to understand, "With 6.2 billion people on the planet and economies all interlinked there is no longer any positive role that can be determined by having $2.5 trillion floating around playing havoc with any asset class it so chooses”.


I cannot make this message any clearer. There is much talk about regulation and cleaning up Wall Street and Washington etc. However no person anywhere is talking about the Golden Cow in the room, the Hedge Fund Industry. Without an immediate set of regulations baring players in this industry from operating in the United States under any context, you will loose, the American People will loose and our government will loose.

I leave you with this thought:

There is a story in the Old Testament about a bunch of people who flee repression only to end up building and worshiping a golden cow. This leads to great moral degradation and a sinful and corrupt people. Does anyone see the golden cow here? Lets call the golden cow "hedge funds" for the lack of a better word.

The golden cow analogy: All of the powers that be, including the chiefs of all the financial firms and government leaders across the globe are playing with the golden cow. So why does the subject of hedge fund influence in Wall Street never come up? Why does everyone talk around the subject, talking about 'regulation' etc. without mentioning the golden cow? The golden cow corrupts deeply and its influence is broad.

Sincerely,

Paulson's 300 Point Panic Trigger

Every time the Dow drops 300 points Treasury Secretary Paulson has to jump. He and his buddy Bernanke at the Fed are two of the most incompetent people to ever be appointed to their respective positions. In one year these guys have dramatically lowered interest rates, pumped hundreds of billions of dollars of "liquidity" into the banking system, opened the Fed to non bank Wall Street investment firms so they could prop up the unregulated hedge fund market and themselves, and now the idiot Paulson takes control of Fannie and Freddie. Paulson still works for Wall Street only he sits in a taxpayer supplied office and has access to the largest checkbook in the world.

I know it has been fashionable for Dick Chaney and Presisent Bush to use the Treasury to write huge checks to their buddies over the past 8 years under the umbrella of the Iraq War, but to put a guy like Paulson in the administration so he could give his Wall Street buddies a gift every time the market goes through a badly needed correction, has been unlike anything Washington has ever experienced.

Back on 20 August when CEO Daniel Mudd himself was on the Diane Rehm Show in Washington, 88.5 FM I sent the following message:

Several years ago wall street ran an intense PR campaign to do away with Fannie Mae and Freddie Mac. They were making billions and wanted to make more in the mortgage business. Their business model making money from retail level to securities to derivatives was so profitable they couldn't wait to destroy Fannie and Freddie and take that business. Today it is no different. Wall Street and its PR
campaign is doing everything they can to destroy these organizations and put them in private hands not unlike the same efforts they made to destroy social security and put it in private hands. I would like a comment from your guests.

I did not get the kind of response I expected but for the following week after Mudd's "appearance" on the show Fannie's stock rose from $4.5 to $7.5 per share. It was clear from Mudd's comments that Fannie was sound at least till the end of the year and that Paulson needed not meddle in their affairs.

But watch out when the market falls 300 points in a day!!! The idiot Paulson will spring into action.

Paulson has said he is leaving his post on 20 January 2009. What he has just done is his big gift to his pals on Wall Street. Once the Government takes over Fannie and Freddie, any idiot can see that the companies will NEVER be floated back on the market as they once existed. They will be broken down piece meal and sold to Wall Street and be no more, just like those guys want it. They hated having the competition, even though they proved their total incompetence in the mortgage business, and they can not wait to get their hands on the cash cow business that Fannie and Freddie ran until some really bad management allowed them to play around with the garbage Wall Street was selling as "securities" during the height of the "mortgage rip off scam" that Wall Street Firms were running and put their government sanctioned, taxpayer backed capital at risk.

I am pissed and I cannot wait until Paulson and Bernanke are gone and someone with the concern of the American Citizen is in their respective posts (not to mention the White House) who also have some inkling of economic principals and doing what is "right" and not what will "benefit their buddies on Wall Street".