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Economic and market consequences of FNM/FRE bailout
- Thread starter Cutten
- Start date
Quote from KeithOmalley:
economics 101.
lets say in 2008 we will have REAL GDP at 1%. lets use your "10% using 1980's era cpi" that means the economy grew at a rate of 11% using nominal gdp. we both know nominal gdp means nothing BUT it does when taking into consideration the 9.5 trillion dollars you owe.
Now if we are running a 3% deficit of gdp, and are are growing at a rate of 11% as you state inflation of 10% and a real rate of 1% then that 9.5 trillion is only worth 8.46 trillion next year.
Meaning a 3% budget deficit when your growing much faster (nominally) isnt a big deal.
Looks like you need some Remedial 101...
Budget deficits aren't the concern. Inflation is.
FED policy determines interest rates irregardless of deficit spending. The problem then, is money supply. Not deficits.
Even if it were a deficit issue (which its not), inflation is a double-edged sword.
This is the problem with arm-chair economists weighing in with a wikipedia understanding of Neoclassical Theory.
Who cares if Zimbabwae can inflate away their debt if private savings are destroyed in the process??
Why do you suppose oil, commodities and the greenback, are where they are?
What affect do you suppose this has on the aggregate economy; an economy whose GDP is 72% reliant on consumption???
Go ask your Prof and come back with the answers.
Quote from daddyeaux:
level 3 debt was created as an off balance sheet entry since it has no bid
and who would dare bid on it since that would set in motion the very write downs that the banks can't handle.
LOL!
Quote from daddyeaux:
so look for the banks to create level 4 if they have to account for level 3 debt
the reason the market is tanking FNM, FRE and LEH
sharks have teeth for only one purpose
an opinion of course
True enough. Is it just FNM, Fred and LEH? Who else is pining for life jackets??
And yea, you're right. I should preface my stuff with IMO. Duly noted, Good Sir.!
Quote from KeithOmalley:
hmmm........lets see 5 trillion of debt. a 1 trillion dollar loss=20% forclosure. oh wait. isn't fannie backing a loan which has a house? meaning if "1 trillion dollars defualt" that at least your getting 50 cents back on the dollar?
Now you're getting it. 500 Billion to 1 Trillion bailout.
Yea, no big deal. Right?!
Quote from KeithOmalley:
most of the loans fre and fnm gave where are PRIME loans.
Then why is Freddie Mac and Fannie May on the verge of bankruptcy if most of their business was low-risk, "PRIME loans", as you say?!!
Thats a real head scratcher... LOLL
Quote from KeithOmalley:
Fitch S&P and Moodys ALL came out today(7/11/08) and affirmed USA debt rating. even if they had to take fre and fnm on there books.
Can all the rating agencies all put FNM and FRE at AAA, knowing there not a AAA company without the "implied government backing". And at the same time rate the USA AAA thinking the debt that fre and fnm are not there's? prob not unless there is another conspiracy theory on ET.
On Friday, July 11, the pandemonium surrounding Fannie Mae and Freddie Macâs fall from financial grace prompted some panic-stricken citizens to ask the most dreaded of all questions: If the U.S. government is forced to bailout the fledgling mortgage giants, will the leader of the free world lose its coveted AAA status?
To which leading ratings service Moodyâs Inc. responded -- fat chance. In their professional opinion: âEven under a real stress scenario, US debt is well within the guidelines for the top credit ratingâ¦
There isn't much dispute on counter-party default risk. Everyone knows the US Treasury will pay its outstanding obligations to bond holders.
The issue is the VALUE OF THE CURRENCY T-bill owners will be paid back with come maturity.
Thats why US bonds are sub AAA. Cause the dollar ain't worth squat.
You gotta read between the lines, Grasshopper.
Quote from daddyeaux:
I caught the tale end of some commentary on the tube stating that some GSE paper was priced at 5 levels below AAA with some short term paper getting no bid ahead of Monday"s auction.
if Monday's auction fails, it should reclench some cheeks at Treasury
I always thought Goldman was ahead of the curve when it came to Investment Banks. They wrote and shorted CDO's during the runup..... Talk about criminality... LOL
Oh sure, its great debt! Here, take all of it!! Its not funny. But its funny. Scum of the earth lol
Quote from daddyeaux:
the market is getting way too anal over 5 trillion in GSE debt when there's 61 trillion is CDS exposure floating around somewhere out there.
which is likely why Benito Bernanke looked like he was on the way to the dentist when appeared before Con-gress.
hahaha. I know. CDS is a nightmare.
But I think it was designed that way. Instead of bailouts for Major Banks, now its investment houses, regionals, bond insurers, monolines, anyone with size that CDS'd their debt.
It made the System hopelessly interconnected so that if our Super Tanker sprung a leak, the whole ship would disintegrate almost instantaneously.
Of course, that can't happen. So now the FED is "forced" to bailout everyone to save us from financial ruin.
Where were the Financial Regulators when CDS was invented and sold?? How come nobody stopped it?? Its so easy to see where it leads. And everyone turned a blind eye?
Smells like more Corporate Fascism. Privatize profits. Socialize losses.
what i still cant understand is how CDSs were written for bonds that didn't exist.
there's a trillion dollars of CDS paper for 250 billion in GM paper.
I always though the bondholder swapped a guarantee of the bond principle for a fee to the swap underwriter.
but to my surprise, a swap could be sold based on a blue smoke bond model.
get ready for a 20 sigma event.
an opinion of course
there's a trillion dollars of CDS paper for 250 billion in GM paper.
I always though the bondholder swapped a guarantee of the bond principle for a fee to the swap underwriter.
but to my surprise, a swap could be sold based on a blue smoke bond model.
get ready for a 20 sigma event.
an opinion of course