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The Creature from Jekyll Island 2.0? - Real Estate, Fannie, Freddie and Future Implications for Gold
Refer to chart at:
http://www.facebook.com/photo.php?pi...d=140608094660
The Creature from Jekyll Island 2.0 (the Fed and Treasury on Steriods)? - Real Estate, Fannie, Freddie and Future Implications for Consumer Prices and Gold
15 January 2010
By Greg Hunter
On Christmas Eve of 2009, the Treasury decided to lift the caps on how much bailout money failed U.S. government supported mortgage giants Fannie Mae and Freddie Mac would receive to stay in business. The caps represented a maximum taxpayer exposure of $400 billion for both companies. Now, taxpayers will be on the hook for an “unlimited” amount for, at least, the next three years. How much is “unlimited?” Well, for starters, Fannie and Freddie guarantee more than $5 trillion in mortgage backed securities (the guarantee means they must reimburse banks like JP Morgan Chase, Citibank, Wells Fargo, Bank of America, etc. for any losses on Fannie and Freddie approved mortgages - which amounts to two out of every three U.S. home loans). Add that to the combined debt of nearly $3 trillion for both companies, and you get $8 trillion of taxpayer liability ($80,000 per U.S. household!). When I first heard that the caps would be lifted for just three years, I asked myself “Why three years?” The chart below gave me the answer. Take a look at the 2010 mark. You see that wave of mortgage resets for all those different kinds of mortgages? They peak and fall off about mid 2012.
Comment added by Dr. No: "The most important component of resets are Option Adjustable Rate Mortgages (Option ARMS), most of which were taken out purchase upper-middle and high-end houses. The vast majority of Option ARMS borrowers took the payment option (thus the name of the loan) to pay significantly less than even the interest accruing on the mortgage each month. Most such loans have balances that by now are 15-25% higher than the original loan amount. Not only do people have little incentive to try to continue paying these mortgages after they reset, few could afford to do so even if they tried. The reason why is that Option ARMS do not merely have a reset in the interest rate; these mortgages recast, and a recast means that they switch to a fully amortizing schedule where the loan payments are adjusted to where the mortgage will be paid off in 25 or 27 years (if all the payments are made). In effect, this entails that most people's monthly payments will double or triple. Who wants to pay that - even if they can - on a house that has fallen in value and in addition has a mortgage where the balance is now much higher than the original amount due to less-than-interest-only payments having been made by most such borrowers? Expect the residential real-estate market crash to hit upper-middle and high-end houses the hardest from 2010 through the end of 2012."
You know the reset mess won’t be over at that precise point. It will take about six months or so for all the defaults to shake out. That’s just about three years, which is the exact same amount of time the caps on Freddie and Fannie will be lifted to bail them out of infinity. I am confident Treasury Secretary Geithner has seen the same chart. He knows those bars represent millions of mortgages. Not everybody will default because their mortgage resets, but many will not be able to afford the higher payments and lose their home.
Also, Fannie and Freddie are going to have to keep providing hundreds of billions of dollars in new mortgage financing because, if they don’t, the real estate market will probably utterly collapse. With all the sour mortgages, securities, and new mortgage exposure, there is no telling how much this will cost the taxpayers. I don’t think it is a stretch to say it will end up being many trillions of dollars. Once again, there was a huge tax bill hung on the country, on Christmas Eve no less, and the mainstream media is nowhere to be found. Zero news coverage. Where is CBS, NBC, ABC, and CNN? What just happened to the budget deficit is far bigger than the $700 billion TARP bailout, the $787 billion stimulus bill, and the $180 billion bailout of AIG, COMBINED. As a matter of fact, lifting the caps on Fannie and Freddie will cost many times more than all those COMBINED! I guess that is just not a story in mainstream media land.
On Christmas Eve 2009, an $8 trillion addition to the federal debt was made by a single bureaucrat (again, $80,000 per U.S. household!). This move by the Treasury is a budget buster and will guarantee some massive inflation over the next five years. Gold will react to higher inflation with higher prices. There was only one other time in the last 10 years that there was such a clear signal precious metals were in for a ride. It was March 2006, and brand new Fed Chief, Ben Bernanke, decided to call an end to the M3 report. (a statistic that shows the broadest measure of all money in the system). The Fed effectively said it was not going to tell the world exactly how much money it was creating. You might as well have walked into the gold trading pits with a starting pistol because, after the M3 died, gold just about doubled in less than four years.
Now, with the elimination of the caps on mortgage giants Fannie and Freddie, you will have gold off to the races again because the government will print money to pay off debt. And if we have another financial meltdown, like 2008, gold will take a moon shot. What makes me say that? It is H.R. 4173, which is the Reform and Consumer Protection Act of 2009. This legislation is supposed to protect the little guy, but it also protects the banks with a provision in the bill to rescue them from financial ruin in the future. The Fed will have pre-authorization to give reckless banks as much as $4 trillion in the future to, once again, bailout the incompetent (an additional $40,000 per U.S. household!). The bill has a long way to go before it is signed into law. Still, I’d say the odds are pretty good there will be another crisis; otherwise, Wall Street would not have paid their lobbyists to push a pre-authorized bailout.
My advice to you is to brace yourself for the impact of massive increases in consumer prices (including food and gasoline) throughout the next five or more years. The actions of the Federal Reserve, the Treasury, and Wall Street have already guaranteed it. And don't expect salaries to increase at the same rate (if they increase at all).
http://www.facebook.com/photo.php?pi...d=140608094660
The Creature from Jekyll Island 2.0 (the Fed and Treasury on Steriods)? - Real Estate, Fannie, Freddie and Future Implications for Consumer Prices and Gold
15 January 2010
By Greg Hunter
On Christmas Eve of 2009, the Treasury decided to lift the caps on how much bailout money failed U.S. government supported mortgage giants Fannie Mae and Freddie Mac would receive to stay in business. The caps represented a maximum taxpayer exposure of $400 billion for both companies. Now, taxpayers will be on the hook for an “unlimited” amount for, at least, the next three years. How much is “unlimited?” Well, for starters, Fannie and Freddie guarantee more than $5 trillion in mortgage backed securities (the guarantee means they must reimburse banks like JP Morgan Chase, Citibank, Wells Fargo, Bank of America, etc. for any losses on Fannie and Freddie approved mortgages - which amounts to two out of every three U.S. home loans). Add that to the combined debt of nearly $3 trillion for both companies, and you get $8 trillion of taxpayer liability ($80,000 per U.S. household!). When I first heard that the caps would be lifted for just three years, I asked myself “Why three years?” The chart below gave me the answer. Take a look at the 2010 mark. You see that wave of mortgage resets for all those different kinds of mortgages? They peak and fall off about mid 2012.
Comment added by Dr. No: "The most important component of resets are Option Adjustable Rate Mortgages (Option ARMS), most of which were taken out purchase upper-middle and high-end houses. The vast majority of Option ARMS borrowers took the payment option (thus the name of the loan) to pay significantly less than even the interest accruing on the mortgage each month. Most such loans have balances that by now are 15-25% higher than the original loan amount. Not only do people have little incentive to try to continue paying these mortgages after they reset, few could afford to do so even if they tried. The reason why is that Option ARMS do not merely have a reset in the interest rate; these mortgages recast, and a recast means that they switch to a fully amortizing schedule where the loan payments are adjusted to where the mortgage will be paid off in 25 or 27 years (if all the payments are made). In effect, this entails that most people's monthly payments will double or triple. Who wants to pay that - even if they can - on a house that has fallen in value and in addition has a mortgage where the balance is now much higher than the original amount due to less-than-interest-only payments having been made by most such borrowers? Expect the residential real-estate market crash to hit upper-middle and high-end houses the hardest from 2010 through the end of 2012."
You know the reset mess won’t be over at that precise point. It will take about six months or so for all the defaults to shake out. That’s just about three years, which is the exact same amount of time the caps on Freddie and Fannie will be lifted to bail them out of infinity. I am confident Treasury Secretary Geithner has seen the same chart. He knows those bars represent millions of mortgages. Not everybody will default because their mortgage resets, but many will not be able to afford the higher payments and lose their home.
Also, Fannie and Freddie are going to have to keep providing hundreds of billions of dollars in new mortgage financing because, if they don’t, the real estate market will probably utterly collapse. With all the sour mortgages, securities, and new mortgage exposure, there is no telling how much this will cost the taxpayers. I don’t think it is a stretch to say it will end up being many trillions of dollars. Once again, there was a huge tax bill hung on the country, on Christmas Eve no less, and the mainstream media is nowhere to be found. Zero news coverage. Where is CBS, NBC, ABC, and CNN? What just happened to the budget deficit is far bigger than the $700 billion TARP bailout, the $787 billion stimulus bill, and the $180 billion bailout of AIG, COMBINED. As a matter of fact, lifting the caps on Fannie and Freddie will cost many times more than all those COMBINED! I guess that is just not a story in mainstream media land.
On Christmas Eve 2009, an $8 trillion addition to the federal debt was made by a single bureaucrat (again, $80,000 per U.S. household!). This move by the Treasury is a budget buster and will guarantee some massive inflation over the next five years. Gold will react to higher inflation with higher prices. There was only one other time in the last 10 years that there was such a clear signal precious metals were in for a ride. It was March 2006, and brand new Fed Chief, Ben Bernanke, decided to call an end to the M3 report. (a statistic that shows the broadest measure of all money in the system). The Fed effectively said it was not going to tell the world exactly how much money it was creating. You might as well have walked into the gold trading pits with a starting pistol because, after the M3 died, gold just about doubled in less than four years.
Now, with the elimination of the caps on mortgage giants Fannie and Freddie, you will have gold off to the races again because the government will print money to pay off debt. And if we have another financial meltdown, like 2008, gold will take a moon shot. What makes me say that? It is H.R. 4173, which is the Reform and Consumer Protection Act of 2009. This legislation is supposed to protect the little guy, but it also protects the banks with a provision in the bill to rescue them from financial ruin in the future. The Fed will have pre-authorization to give reckless banks as much as $4 trillion in the future to, once again, bailout the incompetent (an additional $40,000 per U.S. household!). The bill has a long way to go before it is signed into law. Still, I’d say the odds are pretty good there will be another crisis; otherwise, Wall Street would not have paid their lobbyists to push a pre-authorized bailout.
My advice to you is to brace yourself for the impact of massive increases in consumer prices (including food and gasoline) throughout the next five or more years. The actions of the Federal Reserve, the Treasury, and Wall Street have already guaranteed it. And don't expect salaries to increase at the same rate (if they increase at all).
. Thanks a bunch.
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