How the Government is Setting Us Up for a Second Subprime Crisis
By Shah Gilani Contributing Writer Money Morning
Is the government creating another subprime-mortgage bubble?
The first time around, the three-headed federal serpent – the Bush administration, the Treasury Department and the U.S. Federal Reserve – used Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) to "legitimize" trillions of dollars worth of toxic financial waste known as subprime mortgages.
The result was the worst financial crisis since the Great Depression – a mess that was global in nature.
And we’re now headed for a repeat performance.
Some of the players may have changed since the first subprime-mortgage crisis, but the game apparently remains the same. With banks currently unwilling to lend, the new federal triumvirate of the Obama administration, the Treasury and the Fed are trying to inflate the moribund U.S. housing market. This time around, however, the FHA is the weapon of choice.
Obama & Co. are making an all-or-nothing bet that the U.S. economy will recover and bail out the housing market before the final bill for this ill-advised gambit comes due.
When this bubble bursts – and it will – U.S. taxpayers will be on the hook for more than $1 trillion in government-guaranteed debt.
Ginnie Mae: Fannie and Freddie’s Once-Quiet Cousin
As a direct result of the real-estate meltdown, U.S. banks have become reluctant lenders. And they’ve raised their loan standards considerably. Federal officials knew they had to keep the mortgage spigot open, especially to suspect borrowers, so they turned to their new "secret weapon" – the FHA.
The FHA has been cranking out new government-insured subprime loans, which it packages into government guaranteed securities for sale to banks. This frightening reflation of the subprime bubble is being engineered for two key reasons:
To put a floor under falling house prices.
And to let banks swap toxic Fannie and Freddie securities for new toxic debt that is 100% guaranteed by U.S. taxpayers.
The almost inevitable insolvency of the FHA could rapidly undermine the fragile recovery of the U.S. economy. And it could plunge stock prices and bank viability to new lows.
Why the FHA? That’s simple. In an era of increasingly stringent lending standards, the FHA’s standards are laughably lax.
Here’s a credit-crisis video retrospective from the Wall Street Journal. It is chapter one of a three part series. Notice the Wall Street meme that subprime borrowers caused the crisis which is patently false. It’s all about dodgy credits and Fannie and Freddie? Total rubbish.
Easy money, as the clip says, is the culprit. And this money went into credit cards, leveraged buy outs, residential housing, student loans, commercial property and on down the line. It’s not about subprime, my friends I like the rest of it, but remember the Wall Street Journal has a certain bias and it is reflected here.
Chapter One: In the first of this three-part series, WSJ reporters explain how the housing bubble inflated and burst, and why easy money led to the collapse of Wall Street’s biggest financial institutions.
This is part two of the End of Wall Street series the Wall Street Journal is producing.
Chapter Two of A WSJ series: What was going through the minds of CEOs, corporate boards, fund managers and mortgage lenders as they created hard-to-understand derivatives Warren Buffett once called "weapons of financial mass destruction."
You have to love how it starts off with Alan Murray saying “There’s plenty of blame to go around. I think in retrospect lots of people who were doing stupid things.” Then the famous NYSE opening bell goes off and they cut to a shot of Alan Greenspan.
I couldn’t help but think about Tim Iacono’s site when I saw this. Watch this video. They really takeoff the gloves here. Regulators and the rating agencies get a severe beat-down. Well-done.
With 85% of Wall Street telling Citi they expect a "dovish hike signal" from Yellen tomorrow, which means a polite request for another BTFD opportunity, even if as BofA says "expectations for a dovish Fed are coinciding with macro strength in the US (most obviously in housing & consumer spending) as well as highest level of wage inflation since Jan’10"...
By The Foundation for Economic Education. Originally published at ValueWalk.
Rights Don’t Come From Governments
With every new mass shooting, it seems that everyone on social media is some combination of a gun expert, Islam expert, terror expert, security expert, etc. That’s all well and good, and I am all for people having conversations about these kinds of things. I’m admittedly no expert in any of these areas, and I’m not writing this to try to present any answers or solutions. But this topic, and others like gay marriage, seem to always show that many people profoundly misunderstand what rights are.
Image source: mac411official – deviantartRights and Law Aren’t Synonymous
The Advance Report on Manufacturers’ Shipments, Inventories and Orders released today gives us a first look at the latest durable goods numbers. Here is the Bureau's summary on new orders:
New orders for manufactured durable goods in July increased $9.7 billion or 4.4 percent to $228.9 billion, the U.S. Census Bureau announced today. This increase, up following two consecutive monthly decreases, followed a 4.2 percent June decrease. Excluding transportation, new orders increased 1.5 percent. Excluding defense, new orders increased 3.8 percent.
Transportation equipment, also up following two consecutive monthly decreases, led the increase, $7.5 billion or 10.5 percent to $78.9 billion. ...
Gold mining stocks have had a great year 2016. From the lows, GDX is up over 100%, remaining inside of a steep rising channel. The rising channel GDX has been in during this historic sharp rally, could be breaking.
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GDX has remained inside of the blue rising channel for the majority of 2016. This channel has contained a 100% rally in the past few months.
The rally took GDX up to an unfilled GAP, just below its 38% Fibonacci retrac...
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Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer. One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."
Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.
Genetic components are the DNA sequences that are 'inherited.' Some of these genes are stronger than others in their expression (e.g., eye color). Yet, some genes turn on or off due to external factors (environmental), and it is und...
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Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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