This article was written by Shaun Bradley and originally published at The Anti-Media.org.
Editor’s Comment: This could be the trigger event everyone has been waiting for; it certainly was in 2008. Like the conditioned animal, punished with a shock repeatedly, it produces more fear, and adrenaline and stress response during the build-up from the time the bell is rung and the shock is delivered. The actual shock is actually a relief, even though the animal fears the pain. It will all happen again, once the bell rings.
Here, we know the crash is coming. The banks have orchestrated it, the Federal Reserve is setting the pace and preparing the bed in which we must all lie. A devastating blow to the economy is building up again. Which one will bring it all crashing down, and which will simply prove once again that we are held captive by a dangerous and failing economy that could soon wipe us all out? This could be 2008 all over again; on the other hand, it could be much worse. Either way, there is every sense that things are just getting started.
Brace Yourselves, America: The next Huge Housing Bailout Could Be Coming
by Shaun Bradley
The failures of government intervention in the economy have made headlines yet again. Recent stress tests by the Federal Housing Finance Agency found something sinister brewing under the surface at notorious mortgage giants Fannie Mae and Freddie Mac. The results show that these puppet companies could need up to a $126 billion bailout if the economy continues to deteriorate.
That’s right — the two companies that were taken over by the government and that sucked $187 billion from the treasury could be entitled to more taxpayer money. The toxic home loans bought during the last crisis coupled with a lack of liquidity have suddenly become serious risk factors. The so-called “recovery” that has been trumpeted for years by countless politicians and economists is falling apart in plain view. The media will do just about anything to assure the public that this is all isolated and overblown, but the canary in the coal mine has just dropped dead.
The tests ran a scenario eerily similar to warnings we’ve heard about what the economic future might hold:
“The global market shock involves large and immediate changes in asset prices, interest rates, and spreads caused by general market dislocation and uncertainty in the global economy.”
In the throes of the 2008 crisis, the government took many unprecedented actions, but one of the most notable was seizing control of the two largest mortgage loan holders in the country. Since then, Fannie Mae and Freddie Mac have been converted from subsidized private organizations into some of the biggest government-sponsored enterprises ever created. These institutions have been used to prop up the entire real estate market by purchasing trillions of dollars in home loans from other banks to keep prices elevated.
Without Fannie and Freddie, the supply of houses on the market would have far exceeded the number of buyers. This glut in supply and low demand would have forced sellers to lower prices until a deal was made. Instead, these wards of the state were able to buy up properties at artificially high prices using government-issued blank checks, allowing for the manipulation of home values back up to desired levels.
Fannie and Freddie’s main function has always been to buy mortgages from other lenders and clear those liabilities off of the bank’s balance sheets. As a result, the bank is able to lend more money out to the public. For instance, if a home loan is taken out through Wells Fargo, the bank can then sell that contract to a secondary market buyer, like F&F.
The problem facing Fannie Mae and Freddie Mac now is directly connected to the zero percent interest rate policy that has remained unchanged for almost a decade. It has made it harder and harder for loan holders to turn a profit when they can’t earn interest off of the debt they issue. The pressure really started to build in 2012, when the rules of their deal with Uncle Sam changed drastically. Fannie and Freddie were required from then on to pay all profits directly to the treasury, leaving them with very little money for general operations.
As Melvin Watt, director of the Federal Housing Finance Agency, said back in February, “The most serious risk and the one that has the most potential for escalating in the future is the enterprises’ lack of capital.”
The shareholders are still private and have been significantly damaged by the weakness of the companies. Since 2014, both FNMA and FMCC have lost nearly 60% of their stock value. Along with hedge fund, Perry Capital LLC, several investors launched a civil lawsuit against the government in 2013, but it was quickly dismissed by a federal judge. Several appeal attempts have been made, but the government thus far has been unwilling to discuss any form of settlement.
Theodore B. Olson, an attorney representing the shareholders, stated that this new arrangement “systematically drained these entities of all value, leaving in its wake two unsound and insolvent zombies—a golden goose for the Treasury and utterly worthless for the individuals and institutions who in good faith invested in them.”
Although both companies have paid back more than they originally borrowed from the treasury, that money didn’t go towards paying off the nonperforming mortgage debt they bought over the years. As a consequence, they’ve found themselves in an almost identical situation as last time, except with less income and fewer options. This breakdown in confidence is the culmination of over two years of bad economic news and stock price declines.
Anyone who owns a home — or is considering buying one — needs to pay close attention to this developing story. The response from the public, central banks, and legal system will set the tone for how challenges like this are handled throughout the rest of this ongoing crisis. The decisions made in the months to come have the potential to radically impact real estate values across the board. Regardless of the outcome, it seems almost guaranteed that the taxpayer is about to be put through the ringer.
The U.S. and other developed nations are reaching a crossroads. The worldwide suicide pact of government stimulus made during the last downturn has led to a far more dire situation. By blindly granting power to the federal government out of fear, the fate of the American economy was sealed. The State’s track record shows it should have no role meddling in the interests of private companies, or converting their status’ to allow for market manipulation. The bailout plans being put into place — yet again — for Fannie and Freddie will only compound the problems.
The same government that has mismanaged and extorted billions from these enterprises for almost a decade should not be the one we turn to for help. The federal government has proved its incompetence time and time again, and the taxpayer continues to be punished for it.
It’s always tempting to trust someone else to come up with solutions that protect your future, but unfortunately, this massive fraud has left us in a no-win situation. If the past isn’t reflected upon and learned from, the entire global economy is going to get a lot worse before it gets better. When the moment comes to take a stand on these pressing issues, only those who have educated themselves will have a meaningful voice. The power of one informed individual is unmatched by any level of propaganda.
This article was written by Shaun Bradley and originally published at The Anti-Media.org.
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Most “new jobs” are part time and low pay. We add 35 million poor migrants to our population every 10 years. We have 95 million working age people not in the work force. 46 million getting “food stamps”. No surprise the real estate market is going to implode again. It already would have tanked if it wasn’t for investors buying homes to rent to other people. Including section 8.
Observer, to drive your point home, the anchor on CNN Money this morning spoke of how well the economy is doing. In July, 255k new jobs were created! She failed to mention, however, only 70k of those jobs were in the high-paying sector like IT, engineering, management, etc. The other 185,000 jobs were in healthcare, restaurants, and service/retail sectors – jobs that pay about 12 dollars an hour. She also neglected to mention that, since 2014, more than 195,000 high-paying energy jobs have been cut, and 95,000 of those were in 2016!
The 255k jobs were illogically calculated with some off the wall seasonal adjustments. IT is actually reported only 85k jobs were added, and the 255k is a farce.
Remember there is an election coming up in a few months and Obama’s labor department is pulling the strings to make the economy look good, especially when July’s jobs were 100k more than expected and economists who predicted 155k were shocked, someone under Obama ran off bogus numbers……
Let them go down the tubes.
Not only NO but HELL NO. You failed now dry up and go away.
You not to big to fail you proved it twice now.
Foul me once shame on you. Foul me twice shame on ME!
Don’t go away mad, just go away already!!!!!
Sgt.
SGT.
AGREED!!!! got to turn this country around and it is probably to late just might be able to LESSEN the drop!!
Let’s not forget the suspension of Mark to Market accounting that was allowed by CONgress to keep the banks afloat. If they hadn’t have done this they would have been exposed as being completely insolvent .
That next giant sucking sound you hear will be the US economy imploding
Won’t be a sucking sound. It will be the ringing of hell’s bells.
Too big to fail my ass. I wonder if they’ve ever heard the phrase: “The bigger they are, the harder they fall”. It applies to crappy mismanaged banks too.
I’m Not Violent but shouldn’t somebody shoot FANNY & FREDDY. ?
B from CA- All we can do it be too small to Tax, and stay out of harms way, off the Grid in a remote area, and being self sustained, to enjoy your daily freedom on your own property. And do not feed the beast in any form when ever possible. Its a runaway train and I ain’t playing that Game… again.
~WWTI…
? to WTF: You’re on here every day, I FINALLY used my VA loan from my V/N era time to buy a house in SC 1.5 yrs ago. On the market 1 day, had exhausted everything else available. When it hit the listings, we reconed it on a Sunday, w/o the realtor. The guy was selling his “winter” place, having a farm in OH for summer. He took 13 yrs, completely restoring a house on 2acres, behind a lake and surrounded by 1,000’s of game-rich woodlands. We struck the deal, then called the realtors to contract it. Had been pre-approved by my FCU lender, and if I gave him full price,which was VERY fair, he paid closing costs. It cost me nothing OOP to close escrow, plus, there is no PMI on a VA, which I got at a fixed 3.3%/30yrs, plus, we have a ‘Homestead’ exemption on the 1st $50K appraised value for taxes, which are only $465/yr. My local FCU did the deal, then the loan was sold to ‘Franklin’ Bank, who then sold it to Wells Fargo, who, when I called them, said they were going to hold on to it, and have done right, so far, in servicing it. I pay only $962/mo for P/I/T/I. Do you think I’m in a pretty good position at this point? Rents are any where from $1,200-1,400 on tract houses.
you did quite well
Sometimes it is best when the principals negotiate there on deal leaving the agents out of the way. Wells Fargo will sale your loan if they have not already and continue to service it. That is just the way it is done
American Dream. No, the American Scream.
Jesus threw the money changers out of the temple..Hitler threw the money changers out of Germany. JFK tried to throw them out with the treasury note. And look what happened to everyone of them. Maybe the three bravest men in history? And I bet they knew they would lose? But only a coward dosent try?
I suspect there is a lot of truth in your comment, perhaps a lot more than most of us realize.
People(home owners) and the government didn’t learn their lesson the first time. Let em all crumble. Maybe they can learn the hard way. wait til the interest rates go up, the whole shebang will collapse.
I Say Let it Collapse No one in the Banking conglomerate comes to my Aide. So puck them
OK I read alot of the stories on here , have been following this site for like 6 years or more and am still waiting for this shyt thing to happen, Celente has been crying wolf for what 3 years now. If the market does collapse will he say see I told you. I just ate up my stored things . I don’t know if this shyt is ever going to happen Stock market at all time highs. Who believes Celnte anymore?