Fannie, Freddie to channel mortgage rescue: sources

Pork by any other name.  From the article:

“Fannie Mae and Freddie Mac will likely be the cornerstone of an administration mortgage-aid program that will tap between $50 billion and $100 billion from the government’s $700 billion financial rescue fund.”

Many months ago, John Hussman one of the more astute fund managers on the scene today, did propose what in essence was a very simple and clear plan that requires no money other than an honest assessment of banks and GSE assets. Essentially, Hussman proposes to:

1 – Decrease mortgage payments by recognizing the lower value of the house

2 – Sign an agreement whereby the value of the asset is assessed on an ongoing basis and if it should rise, mortgage payment is to rise correspondingly. Also, in the event of the sale of the asset, the lender is awarded part of the higher sale value achieved

Et voilá. If the main concern is truly to keep people in their houses, this solution guarantees to avoid a much greater number of foreclosures.

The problem of course is that it requires the lender (the banks) to recognize the lower value of their assets. This is what is meant by “marking to market”. And this is the crux of the problem. At present, banks assets are not marked to market. Therefore, banks can maintain the appearance of solvency and upon transferring these assets to government, they overcharge the tax payer.

This, in essence, is what all the bailout money boils down to. It is the money required to buy troubled assets from banks. And although these assets are “troubled” you and me are not allowed to know just how troubled they are.

However, making use of that rare faculty that is apparently awarded to but a few chosen people on earth, I can tell you that if banks are unable to sell these assets on the open market, of two things one: either the value of these assets is ZERO or it is a fraction of its original value – something like 10 or 20 cents on the Dollar as turned out to be the case for assets of previously failed banks Bear and Lehman. In either case, banks are fighting tooth and nail not to have mark-to-market rules imposed on them because otherwise they would instantaneously implode.

And so, our governments are giving the banks money under threat that if allowed to fail, they’ll take “the system” with them.

Is it blackmail on the part of banks? Is it collusion on the part of politicians? I don’t know.  Probably a bit of both. Either way, the taxpayer is screwed (is screwed now, not in the long run, now!) and is the bag holder of last resort.


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