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5 Trillion MORE Dollars To Fix Fannie Mae And Freddie Mac???

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Fannie Mae and Freddie Mac have become gigantic financial black holes that the U.S. government endlessly pours massive quantities of money into.  Unfortunately, if the U.S. government did allow Fannie Mae and Freddie Mac to totally implode, both the mortgage industry and the housing industry in the United States would completely collapse.  So essentially the U.S. government finds itself between a rock and a hard place.  Prior to the financial crisis of the last few years, Fannie Mae and Freddie Mac were profit-seeking private corporations that also had a government-chartered mission of expanding home ownership in America.  But now that they have been officially taken over by the U.S. government, they have become gigantic bottomless money pits.  It is hard to even describe just how much of a mess Fannie and Freddie are in.  However, the unprecedented intervention by Fannie Mae and Freddie Mac in the mortgage market over the past couple of years has been about the only thing that has kept it from plunging into absolute chaos.  So what does the future hold for Fannie Mae and for Freddie Mac?  Well, according to one estimate, it could take another 5 trillion dollars to “fix” Fannie Mae And Freddie Mac.

Yes, you read the correctly.  According to an article in the Christian Science Monitor, Fannie Mae and Freddie Mac are facing $5 trillion dollars in liabilities that the federal government is going to have to deal with one way or another….

An exit strategy could involve adding Fannie and Freddie’s roughly $5 trillion in obligations, in effect, to a federal balance sheet that already includes $13.3 trillion in federal government debts. The GSE obligations would be a different animal, because those liabilities would need to be covered by taxpayers only if things went bad in the housing market.

It is hard to even put into words how much money that is.  If you were alive when Jesus was born, and you spent one million dollars every single day since then, you still would not have spent one trillion dollars by now.

But Fannie Mae and Freddie Mac are not a one trillion dollar problem.

They are a five trillion dollar problem.

And if the housing market gets even worse (which it will), that figure could rise substantially.

Of course the U.S. government should have never gotten into the mortgage business in the first place, but these days the U.S. government is intervening in virtually every industry.

And don’t expect U.S. government support for the mortgage industry to stop any time soon.  In fact, U.S. Treasury Secretary Timothy Geithner says that the U.S. government plans to continue to play a prominent role in back-stopping mortgages in order to keep the U.S. economy stabilized.

But if the only thing keeping the U.S. housing industry from plunging into the abyss is unprecedented intervention by the U.S. government, what does that say about the overall health of the U.S. economy?

Mortgage defaults and foreclosures continue to set new all-time records even with all of this government intervention.  In fact, major U.S. banks wrote off about $8 billion on mortgages during the first 3 months of 2010, and if this pace continues it will even exceed 2009’s staggering full-year total of $31 billion.

Not only that, but construction of new homes in the U.S. and applications to build new homes in the U.S. both declined to their lowest levels in more than a year during July.

And things are rapidly getting even worse for Fannie Mae and Freddie Mac.  Mortgages held by Fannie and Freddie are going delinquent at a very alarming pace as the Christian Science Monitor recently explained….

As of March 31 this year, 6.3 percent of mortgages held by Fannie and Freddie are either seriously delinquent or in foreclosure. Although that’s down slightly from the figure three months earlier, it represents a big one-year rise (from 3.9 percent in early 2009).

An increase in delinquencies of over 50 percent in just one year?

That is not a promising trend.

If the U.S. housing market takes another big dive in the next few years, and things certainly look very ominous at the moment, what in the world is that going to do to Fannie Mae and Freddie Mac?

So what is the solution?

Well, on Tuesday the Obama administration invited prominent banking executives to offer their thoughts on the mortgage market.

So what was the consensus?

It was something along the lines of this: “Please, oh please, oh please continue propping up the 11 trillion dollar mortgage market.”

So much for capitalism, eh?

When even the banksters are begging for massive ongoing government intervention you know that the game has changed.

Adam Smith must be rolling over in his grave.

But this is where we are at.

We are on the verge of a horrific economic collapse, and it is only enormous intervention by the U.S. government that is holding things together.

Fannie Mae, Freddie Mac, the Federal Housing Administration and the Veterans Administration backed approximately 90 percent of all home loans made during the first half of 2010.

So where would we be without the government?

Of course we could let the whole thing collapse and allow housing prices to eventually settle at a level where people could actually afford them, but what fun would that be?

No, for now the U.S. government will continue to endlessly spend billions of dollars to prop up a system that is artificially inflated and that is destined to collapse one way or another.

The truth is that the American middle class is slowly being wiped out and they just can’t afford to pay $300,000, $400,000 or $500,000 for their houses anymore.

Without good jobs, the American people are not going to be able to afford hefty mortgages.  Unfortunately, millions upon millions of middle class jobs are being offshored and outsourced every single year and they are not coming back.

There simply will never be a recovery in the housing market without jobs.  But in the new global economy, American workers have been put in direct competition with the cheapest labor in the world.  It doesn’t take a genius to figure out that jobs are going to be taken away from American workers and given to people who are willing to work for less than ten percent as much.

So, no, the housing market is never going to fully recover.  Things got dramatically out of balance over the past couple of decades, and the housing market is going to try to restore that balance regardless of what the U.S. government does. 

The U.S. government can continue to throw billions (or even trillions) of dollars at the problem, but in the end the underlying economic fundamentals are simply not going to be denied.

  • TnAndy

    Something I can’t get my head wrapped around with this mortgage mess…..WHERE did the money go ?

    Our money is debt based, so it didn’t exist before someone borrowed it into existence when they went to a bank, got newly created funds, then paid someone for a house.

    OK…I understand the borrower can’t repay the money to the bank…and thus the bank has some problem ( that seems like should be simple to cure with an eraser, since the money didn’t exist before anyway )…but the SELLER of the house still ended up with funds, surely some of which was over and above anything they still owed on the house.

    WHERE is that money ? Did that many sellers roll it into another house, borrowing even more ?

    Or what ?

    If 5 trillion disappeared on the lending side, it seems like 5 trillion would have to have come in on the income side of someone’s balance sheet ?

    Like I said, I just can’t wrap my head around this…..

  • Spencer

    Considering that Obama placed a moratorium on foreclosures for the first 3-4 months of 2009, I would expect the figures to be significantly higher for several quarters after that moratorium was raised.

    so the increase from 3.9 to 6.3 would be expected.

    that being said, I don’t know the source of these figures, they are (i bet intentionaly) very vague – so my above statement may or may not be relevant. But one thing is for sure, there will certainly be massive amounts more foreclosures when there is NO moratorium then during.

  • hipshot percusion

    Taxpayers foot the bill? Why don’t we make all the crooked politicians fork it over from their Swiss Bank Accounts? Yeah, right!

  • Laticia

    Let’s work out the math another way. They will give 5,000,000,000,000 more to these two corrupt entities. There are about 100,000,000 households in the USA. Divide one into another, and just this hideous government maneuver will cost EACH American household $50,000. Even if you don’t add that to the enormous sums already owed by governments at all levels, corporations, and individuals, this is not a sum that can ever be, realistically, paid. So Mr. Snyder is absolutely right, and we’re staring at the unknown. They may hyperinflate, default, launch another 9/11 to distract and scare us, or some combination of the above. We need to prepare, personally, for the coming collapse, and we need to figure out a way of bringing this corrupt system down.

  • > “Of course we could let the whole thing collapse and allow housing prices to eventually settle at a level where people could actually afford them, but what fun would that be?”

    Actually it would be a lot of fun for the financial terrorists who caused this mess in the first place, because that would mean allowing them to foreclose on everyone, even though they gave no lawful consideration for any of the collateral-backed IOUs they accepted in exchange for the non-existent “money” they loaned.

    This transfer of wealth from the productive class to the non-productive, parasitic banking class is what Austrian School cranks and other apologists for ruling-class privilege call a “correction.”

    Bottom line: if we don’t pressure our representatives into (a) wiping out all derivatives, and (b) replacing our current debt-based money system with the sort of debt-free “Greenback” system called for by monetary reformers such as Ellen Brown, Byron Dale, Richard C. Cook, Stephen Zarlenga, and the makers of both “The Money Masters” documentary and the recently-released sequel, “The Secret of Oz,” then we’re going to experience the worst economic depression in U.S. history (to put it mildy).

  • Damian

    When someone sells a house they either downsize or upsize or relocate. It is very rare for someone to sell and then just pocket the money because everyone has to live somewhere and why rent if you don’t have to. So, basically the money goes round and round creating mortgages until someone decides to buy a newly constructed house at which point the money disperses. So maybe a third goes to construction workers wages, a third for construction materials and a third for construction industry profits.

    The money is gone and what is left is a pile of debt. Unfortunately this is where derivatives comes in. Fannie and Freddie packaged the debt into mortgage backed bonds and sold them to investors. If Fannie and Freddy simply erase the loans the bonds will be worthless. 5 trillion dollars worth of investor dollars will disappear.

    So anyone who invested, pension funds, retirement accounts, Colleges, rich people, foreign central banks, mutual funds, will lose their investment and it will reverberate through the economy.

  • DFC

    It is time to act right now, in my opinion, there must be a combination of fiscal stimulus, low interest rate, public investment, industrial policy, trade deficit reduction and tax havens closure as a way out of this nightmare

    a.- The defense budget must be greatly reduced, and expend this money in infrastructures that acts as “economic multipliers”, for example= why not to build some nuclear power plants to have less energy imports, and have an advantage in production costs associated to the energy costs?. Also the green energy should be help in the research and development phase to get a real competitive energy prices

    b.- The interest rates should be maintained low in the next years, as an incentive to the investment, and also to avoid the nightmare a high interest rate could pose to the people with variable interest mortgage that can give the keys of their houses to the banks in millions, and then wrecking havoc to the now damaged financial system

    c.- There must have an industrial policy, helping new factories that produce jobs, and installing a “fair” trade policy, more than a “free” trade policy. USA cannot compete with an authoritarian state that maintains slavery labor conditions to his workers and no environmental constrains to the factories. This way of life in those countries are not sustainable in the long term, but before it collapses they could destroy all the industrial base of the western countries, now very depleted (except Germany of course). Also the technology and know-how provide by the public universities and research centers should be not allowed to be sent oversea to give an advantage to others countries that do not invest in this kind of things

    d.- The tax cut for the rich must finish, also prosecute much hardly the black economy and tax havens where a huge amount of money is lost. The tax havens are really an scandal in this time, and nobody seems interested in close them

    Those are some things to start to change the course

  • Chuck

    Where did the money go?
    Take an example. House is for sale for $150,000, right? Bank steps in, pays for house through “buyer”, who now has a mortgage. Seller settles obligations, and buyer has a 30-year mortgage of c.$1200 a month.
    The original buyer(the seller) payed boatloads of money in interest, as the new buyer will, on the mortgage. As a mortgage, the bank can bundle it as a Collateralized Debt Obligation(CDO), which works as long as the buyer continues to pay his mortgage, and effectively pays back the bank(plus interest) who is now a mediary in what is a relationship between the buyer and the actual holder of the collateralized mortgage.
    Once the buyer can no longer pay, the bank is at risk, but not for the $150,000 selling price of the home, but for the $1200 monthly mortgage payment over 30 years, which translates into $432,000. Thus the bank is losing a projected amount of money reflected in the amortization for that home, and thus whatever value is attached to the mortgage(the CDO) is now compromised.
    The above is a standard mortgage with a fixed rate, not an ARM, and a home at a relatively low price. Compound these numbers for the number of foreclosures and you will see where all the money has “gone”.
    The fact is, it is money that hasn’t even been earned yet, it is money owed.
    Thus, as long as the treadmill runs the machine operates. But once it stops, the machine breaks down.

  • If it was me an i was president. An i was truly for my country an people. I would declare an immediate housing holiday. An not just days. 3 years long. Which would consist of everybodies home loan mortgages be cut in half. Till the economy gets better. Taking the stress out of the american people to pay. Giving the american people a break. An would do alot for the minds of the people believing in our gov again. Could it happen?

  • A sorry place now but was once so great. When capitalism was born. Everybody had a chance to become great. Running strong an so true from 1776 till 1963 the best of times we knew. Then something changed an it wasnt the american people. Was the gov way we followed them with what they say.. All there new laws an ideas they implied. Slowly killing america the capitalism we knew. Times seem bad now getting worse every day. Pretty soon capitalism will be a lost word in gov never knew.

  • jack nichols

    Andy real estate lost 60 % of its value but mortgages lost very little, that’s where the money went

  • TnAndy

    “If it was me an i was president. An i was truly for my country an people. I would declare an immediate housing holiday.”

    Why stop there ?

    How about a food store holiday ( everything’s free ) free gasoline, an insurance holiday, and so on. Pretty sure that’s what that now famous black gal who thought Obama was going to pay her rent and provide free gas had in mind…..

    Since everything would be free, we’d all be released from the worry of showing up for work….which means there “might” develop a shortage of free stuff down the road….who knows…the Prez could also declare you have to continue to work to get your free stuff…hey…ain’t that communism ?

    Dang, that Karl Marx was a smart guy….let’s try it !

  • caryn verell

    bad debt is bad debt no matter how you add or subract..fannie mae and freddie mac are drawing the “go to jail” card and taking a lot of people with them..i do not see innocent victims here…they all knew they were borrowing or lending for homes that they could not afford and could not pay for. i am so pissed off that the taxpayer is gonna get stuck with this again…

  • Here’s my little story about government bailouts.

    A stupid man from Texas, we’ll call him Dubya (that means ass in Polish) opened a sandwich shop. Unfortunately instead of using kosher cuts of meat he used road kill because it was cheaper, and all you needed was a shovel to get more meat. People would come to his Road Kill Diner to eat but once they tasted the food they never came back. Even the ice tea was made from old stinking socks squeezed into a glass with ice. So business was slow, very slow. Eventually nobody came into asses rrrrr Dubya’s shop. But he had connections! He got interest free loans from Daddy who was president of the United States and the Treasury Secretary was Daddy’s good friend Shiek Bin Laden. Instead of losing money Daddy would ask Dubya “how much money do you think you could make in one year”? Dubya replied “about a million”. Daddy wrote him a government check for the million, and chimp ears continued on with his business. The following year Dubya asked daddy for 3 million and then 7 million after that. Daddy wrote the checks signed by Bin Laden until guess what? The money was no good anymore. Since we as a country just wrote checks the money turned to fiat paper that other countries didn’t want anymore. Poverty spread like the plagued. No yobs, no food, no homes.

    Then when smart American people said “I’ll just grow my own food and start a garden”, it was impossible because mega corporation Monsanto had patentend all the seeds. And one seed cost 10 dollars in the year 2017, and the seed was a terminator seed which grows only once. And if you didn’t spray that seed with Round-Up it wouldn’t grow anyway. And Round Up cost 200 per gallon.
    So I picked up my trusted Remington rifle and shot a deer and fed my family. End of story.

  • Five trillion dollars to fix Fannie ass and Big Mac with cheese? Didn’t we give away 5 trillion to a French bank and the Bank of England just as Dubya was leaving office? Then when asked where’s the beef rrrrr where’s the money? Timmy(I only wear womans clothes on Saturday night) Gietner said “none of your business”. It’s only a matter of time before other countries get sick and tired of our governments spending habits and quits the greenback all together. Especially if we strike Iran with Israel, most countries will then push aside the U.S. and start their own basket currency leaving you and me in the dust.

  • Rod

    At this stage, it doesn’t matter how much “money” they throw at anything !
    The US debt is some $70 Trillion now, ignoring the estimated $18T odd retirement funds shortfall.
    The total, absolute collapse of the US economy is unavoidable as practically every financial guru is now saying.
    Celente’s last 2 vids on his channel have said this and even Celente is now stating the truth more forcefully as there’s no point understating it any more.
    We ARE on the brink of the 3rd great depression and it will run for at least 2 decades. I’ve now switched to survivalist mode as it’s dog eat dog time. We simply can’t afford not to look out for #1 and totally ignore the government rhetoric and ignorance.
    AT least over here in Australia we’ll be the last domino to fall…hopefully…

  • econ

    Aren’t taxpayers also homeowners? It’s just a wealth transfer from the people who can afford a home and pay taxes to the people who can’t afford homes and pay less taxes. The burden is piled on the ones who have jobs and (stupidly?) still pay their mortgage and don’t get free handouts, who continue to vote for representatives that are in bed with the bankers and then fork over large amounts of taxes to bail out the overextended home-buyers/speculators/GSE’s/automakers/Uncle Sam’s debt/unemployment benefits…

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