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HomeFreddie Mac, Fannie Mae Deja Vu?: Part II
Posted by Larry Doyle on April 8th, 2010 11:51 AM |
On Christmas Eve 2009, the Obama administration provided a blank check to the wards of the state known as Freddie Mac and Fannie Mae. (“Fannie and Freddie’s Huge Christmas Bonus”)
What other quasi-government institutions have a very similar business profile as Freddie and Fannie? The Federal Home Loan Bank system, acronym FHLBs, commonly referred to within the financial industry as FLUBs. I will reserve comment on that moniker. Ten months ago, I questioned whether the dynamics at work within the FHLB system would be the equivalent of what has transpired at Freddie and Fannie. I wrote “Freddie Mac, Fannie Mae Deja Vu?” and highlighted:
Can our economy absorb another financial hit of the magnitude of Freddie Mac and Fannie Mae? (more…)
The TARP Has a $159 Billion Loss !!
Posted by Larry Doyle on June 30th, 2009 3:27 PM |
The American taxpayer was going to make money on the investments in assets related to Bear Stearns, AIG, Citigroup, Bank of America, ad nauseum, correct?
Is it even possible to track the massive government outlays across the entire economic landscape? Is it further possible to measure the actual cost of the outlays as a percentage of the overall subsidies? Can we navigate this terrain without getting bogged down in the midst of a thicket of government data and statistics? You have come to the right place.
Our trusty financial primer, Subsidyscope (right sidebar here at Sense on Cents) has just released a report, entitled Estimated TARP Subsidy Rate Rises, which links to a report from the Congressional Budget Office highlighting all aspects of the TARP (Troubled Asset Relief Program).
Just as “you can’t tell the players without a program” when attending a sporting event, “you can’t track Uncle Sam without Subsidyscope and Sense on Cents.”
What do we learn? Uncle Sam is still holding some TARP firepower. The TARP was launched as a $699 billion capital commitment. If you recall, the TARP legislation was passed as a vehicle to purchase toxic assets from banks. It has moved a long way away from that.
The TARP now covers 4 initiatives:
1. capital purchase and repayments from financial institutions
2. additional support for large financial institutions
3. financial assistance to automakers and related businesses
4. other actions, such as mortgage modification, TALF subsidies, and purchasing securities backed by Small Business Administration loans.
To be perfectly frank, I think it is very plausible that the actual capital commitments and activities ongoing under the TARP may not have met the pure letter of the initial legislation. That said, in an environment in which so many initiatives are capital constrained, there is no real legislative pushback. When was the last time we worried about the spirit or letter of our laws when we had bigger issues concerning money?? Money is more important than legal precedents, correct? We’ll get into that on another post.
On the numbers front:
Of the $699 billion in total capital, $142 billion has yet to be committed. Of the funds already allocated, Uncle Sam has incurred a total cost of $159 billion. What does that mean?
Recall the number of times that government officials told taxpayers that we would make money on investments in AIG and the like. Well, so far we’ve lost $159 billion dollars across all our TARP investments. The loss is calculated as the difference in funds committed and allocated to securities and the market value of those securities. That loss represents 36% of the funds committed and actually allocated.
Not that anybody in the media or the financial industry would want you to know that.
Program, here….get your program….step right up…program, here!!
Enjoy the ballgame, folks!!
LD
Freddie Mac, Fannie Mae Deja Vu?
Posted by Larry Doyle on May 28th, 2009 4:21 PM |
Can our economy absorb another financial hit of the magnitude of Freddie Mac and Fannie Mae?
In the process of digging for some data on Uncle Sam’s TARP commitments, I came across a compelling story at Subsidyscope, a Financial Primer (right sidebar) link here at Sense on Cents. The lead story at Subsidyscope, dated May 26, 2009: Concerns Grow Over Federal Home Loan Bank Investments. They write:
The Federal Home Loan Banks, or FHLBs, may be the biggest financial players you’ve never heard of. Collectively, they hold $1.3 trillion in assets and are the largest U.S. borrower after the federal government.
For readers here at Sense on Cents, I have raised warnings about the FHLB system both on April 3rd (Putting Perfume on a Pig!!) and just this past Monday, May 25th (FHLBs: Red Sea, Dead Sea, or Both?). In my opinion, there is little doubt that the FHLB system was the greatest beneficiary of the FASB’s relaxation of the mark-to-market. Subsidyscope says as much:
A Subsidyscope review of the FHLBs’ financial statements has found that several of the banks are carrying substantial “unrealized losses” on their investments in mortgage-backed securities. Because the banks believe these losses are temporary, they don’t have to be recognized on the banks’ accounting statements.
What’s potentially worrisome is the sheer size of the losses. For the Federal Home Loan Bank of Seattle, they are substantially larger than the capital the bank holds to protect itself against such declines. If its mortgage-backed securities don’t regain their value, the bank will have to write them down, which could wipe out its capital buffer and raise risks for taxpayers.
Remind you of Freddie Mac and Fannie Mae? I thought so. Let’s continue to dig even deeper. Subsidyscope asserts: (more…)
The Stakes Are Raised
Posted by Larry Doyle on May 28th, 2009 7:46 AM |
The move higher in rates and lower in the U.S. dollar is nothing more than the market response to Ben Bernanke, Tim Geithner, and ultimately Barack Obama for the cards that they have already shown.
Managing one’s personal business and finances is anything but a game, but the manner in which Wall Street and Washington address economic and financial issues incorporates many aspects of “game theory.” As such, we need to adapt our own thought process and financial management accordingly.
Our leaders in Washington have shown many cards, including:
1. $780 billion Stimulus
2. proposed $3.5 trillion budget
3. multiple trillions in backstops to the financial industry (Sense on Cents’ link to Subsidyscope provides a wealth of info)
4. a trillion dollar plus commitment to quantitative easing targeted over a 6 month time horizon.
Be mindful that the “Washington wizards” are at the “table” and “playing the game” with borrowed funds. Each of us is also in the “game” whether we know it or not. We, along with foreign participants, are funding the window from which the wizards have to get the cash to stay in the game. The move higher in interest rates on the long end of our yield curve is nothing more than market participants (investors) “raising” the stakes on the “wizards.” (more…)
Economic Data and News Below The Radar
Posted by Larry Doyle on May 13th, 2009 8:27 PM |
While navigating the economic landscape, I picked up a few items below the radar:
1. projected issuance of U.S. Treasury bills, notes, and bonds for calendar 2009 will be $2 trillion. To put that in perspective, that figure exceeds the issuance for 2006, 2007, and 2008…..COMBINED.
2. seven senior executives at GM sold all of their stock in the company. With the price of GM in the $1.25-$1.50 range, this sale is a clear indication that the company will either file for bankruptcy or massively dilute existing shareholders in a restructuring.
3. 1st quarter tax revenues in 47 states declined on average by 12.6% year over year with expectations of steeper declines going forward. Increased taxes and declining services are on their way. I also mentioned to my better half, I expect states to pass legislation promoting “sins” in an attempt to generate revenue.
4. our economy is experiencing the highest inflation adjusted level of interest rates since the ’80s. These rates along with anemic consumer demand are squeezing company bottom lines. As a result, companies are aggressively cutting expenses while revenue opportunities are diminishing.
5. the IMF has indicated that European banks should undergo stress tests much like our domestic banks.
6. the GAO (General Accounting Office) issued a scathing report highlighting how deficient the SEC is in terms of equipment, systems, staffing, and execution. No surprise, but very disheartening.
7. I have added a link which I think readers will find quite informative. Subsidyscope, launched by the Pew Charitable Trust, will track federal subsidies across industries. In the Uncle Sam economy, this link should prove to be invaluable.
LD
