http://seattlebubble.com/forum/viewtopic.php?f=5&t=1783

quote: “The up-shot of all of this is that the last of the building blocks have now fallen into place that makes the US government both the first and last resort of mortgage finance. Already something like 90% of all US mortgages have been made through either Fannie, Freddie, or FHA in the last few months. Now that the government is going to be making outright purchases of mortgage securities it won’t be long before the US government provides over 99% of mortgage finance. With the US treasury willing to buy mortgage securities for less than rates that private investors would be willing to, then how could there possibly be any space for private finance?”

“Ironically, the GSE conservatorship (and the decision to EXPAND the GSE portfolios) will almost inevitably destroy the rest of the private banking system, and FORCE even more conservatorships. No private institutions can possibly be profitable now that they have to compete with subsidized government lenders.”

Contaminating T notes with MBS cannot be a good idea.

Looks like you are correct. The GSE’s are going to increase their exposure to MBS throughout 2009 and then start cutting back 10% per year in 2010.

Looks like the pigmen can thank the taxpayers once again for another gigantic transfer of wealth. Oh well, J6P won’t care, football season is here. Pop open another Busch Light and watch the game!

I’m just reading this right now.

Loan them the money, guarantee the new debt, change the require ratios, etc. I just don’t see what the conservatorship does for anyone, absent the type of existing problems mentioned in the first paragraph.

BTW, I think Jillayne made reference to this, but I’m losing a bit of confidence in Washington knowing what to do when they just recently increased the conforming loan limits. This makes that seem like perhaps not the best decision, which calls into question the decision making process.

What do you think this solution is? The government is taking over the companies and granting an explicit guarantee. They are engineering it to push money in quarterly to spread out the pain, but everyone knows what the result is. The foreign investors started to say “no thanks” and obviously behind the scenes made it clear this was not a temporary blip. Sniglet is right that they haven’t failed a selling yet, but if the central banks say no they will start failing them which would be much more catastrophic for equity and other markets than this takeover. They had some enormous amount of bond selling coming up for their cycle in the next two quarters if I recall correctly, so the Treasury/Fed was probably very concerned the Chinese and Russians just weren’t going to show up.

http://calculatedrisk.blogspot.com/2008/09/more-fannie-and-freddie.html

” “Without them the housing market is toast.”

I think it goes a little deeper than that. The GSE bonds became a dumping ground for foreign investors to park their dollars. Instead of buying treasuries, they seem to have been guided into buying the GSE’s at a higher yield. The higher yield was supposed to be for the extra risk since they were not officially backed by the government.

So it’s sort of about housing, but also supporting the dollar. Otherwise the foreign investors will start bailing out too fast. That’s similar to what we saw since June with them pulling out of GSE bonds and into Treasuries.

The scam to the taxpayer is that these investors received the higher yield for the risk taking the GSE over treasuries all this time. Now, it comes time to pay for the risk. And it’s not the bondholder who has to pay that enjoyed the higher yield, but the taxpayer.

So in short, I think alot of it goes back to keeping foreign investors happy so they don’t start dumping their dollars and collapse our economy faster than we’d like.”