Wednesday, July 23, 2008

The System Defends Itself


As of Friday, there will be no difference between the US Government and the GSEs. How long before our foreign creditors stop trading their dollars for T-Bills and start buying U.S. assets instead? Oh, wait...

10 comments :

Darth Toll said...

This is pretty much a no-win situation for RE. If the GSE's are allowed to fail, then the primary support for RE lending goes away. OTOH, if the GSE's are not allowed to fail, then yields will spike hard and RE collapses under the weight of high interest rates. That will lead to death-spiral financing where higher rates lead to more losses lead to higher rates, etc. The second scenario seems more likely at the moment, although it's hard to say if this is a done deal as the bond market is still yawning about it.

Why would the foreigners want to continue to support our paper when they could just buy the assets instead? This FCB buying will provide some support for RE at a certain price level. But I doubt the foreigners will want to overpay, especially when they can control the interest rates, and thus prices of said assets. This is known as a giant "Blue Light Special"

http://wallstreetexaminer.com/blogs/winter/?p=1782

Patient Renter said...

This is pretty much a no-win situation for RE. If the GSE's are allowed to fail, then the primary support for RE lending goes away.

For a while, yes. But eventually - perhaps after a long time, but eventually - the market would resume these responsibilities and we'd be rid of the problems of the past. Instead we've chosen to perpetuate those problems and even prop them up with taxpayer dollars.

How does the saying go? The government is only capable of growing, it never shrinks.

Max said...

The GSE rescue play is failing before it begins:

For Fannie, Freddie, A No-Solution Solution

What Paulson plan?

Creditors of Fannie Mae and Freddie Mac appear unimpressed by Treasury Secretary Henry Paulson's efforts to restore confidence in the two mortgage giants.

The amount that short-term debt investors are charging Fannie and Freddie has remained at high levels, despite supportive statements from Mr. Paulson that started July 11.

The passage of the housing bill now looks assured. Creditors should like that, since it would make it easier for the government to take over Fannie and Freddie and assume their debt obligations.

Yet a Fannie Mae auction of three-month bills Wednesday was done at a yield of 2.64%, which is more than a percentage point above the yield on three-month Treasury bills.

At the start of last month, before jitters got serious, Fannie was issuing three-month bills at around 0.4 of a percentage point over similarly dated Treasurys.

The slim premium reflected the belief that the government implicitly guarantees Fannie and Freddie's debt.

Despite Mr. Paulson's moves, investors are less sure of that today. Some private-sector banks are borrowing money close to, or below, the rates Fannie and Freddie are paying. If Fannie and Freddie can't borrow more cheaply than private-sector lenders, there isn't a rationale for their existence.

A Freddie spokeswoman says the company's longer-term debt has yields that are close to those on Treasuries.

Mr. Paulson and the companies can try to jawbone creditors into charging less. But they have their work cut out.

Darth Toll said...

Max, don't know if you saw this, but I stumbled on it over at Winter's page. This represents a possible conduit to allow foreign ownership of various US assets:

http://tinyurl.com/599tsq

Max said...

This represents a possible conduit to allow foreign ownership of various US assets

Yeah, I just saw that via CR. You would think the treasury would want to discourage foreign purchases of US assets and force them into debt purchases. I guess "for the good of the nation" is a relative term. :)

Patient Renter said...

You would think the treasury would want to discourage foreign purchases of US assets and force them into debt purchases. I guess "for the good of the nation" is a relative term. :)

I'll point out that both Paulson and Bernanke did attend this year's Bilderberg meeting. So, if you buy the idea that these folks are globalists (what they are exactly we have no idea since corporate media is mostly and literally owned by Bilderberg members and refuses to cover their meetings), it's no surprise that they're not bothered by American being sold off.

Anonymous said...

Anyone know what this home sold for?

1022 44th St
95819

Max said...

Looks like it didn't sell.

HousingRealist said...

The sign said sold!

Max said...

I could be wrong. Maybe a Realtor could weigh in?