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Your government delisted
Posted By Dan Mangru On 06/17/2010 @ 12:33 am In Commentary,Money | Comments Disabled
Whenever I walk into a bank, there is a big sign from the FDIC that says, “Backed by the full faith and credit of the United States government.” It makes us feel warm and fuzzy when we walk into a bank with 1,000 branches and give our hard-earned money to a bank teller we don’t know.
But just how is that full faith and credit of the United States doing these days?
Well, if you ask the New York Stock Exchange, the full faith and credit of the United States government isn’t good enough to keep you trading.
It was announced recently that both Fannie Mae and Freddie Mac have agreed to be delisted from the New York Stock Exchange.
Even though the federal government has poured $145 billion of your hard-earned tax dollars (that we know of), the markets still have rejected both government entities as not being sound investments.
That’s why shares of Fannie Mae and Freddie Mac have been trading for less than $1 for quite some time and no longer meet the requirements of listing for any major exchange, leading to their rejection.
Bloomberg News is now reporting that fixing Fannie and Freddie could cost taxpayers up to $1 trillion.
After all the bailouts that the U.S. already has undertaken do you think that we could handle another trillion, just like that?
At some point the bailout train has to stop. Either the people will get fed up with it or the money simply will not be there.
The U.S. generates money in three ways. First it generates money through taxation. That’s why throughout Congress there are bills for new tax increases on everything from energy and capital gains to sugary sodas.
The second way government generates money is by simply printing more of it. They turn on the old printing press and hope no one notices. While this could work 100 years ago, in the age of digital communication and 24-hour news, money-printing rarely goes unnoticed, and ultimately is reflected by inflation in an economy.
The third way that a government gets money is by selling debt. The U.S. does this in the form of selling Treasury securities. You might know these as T-bills, T-bonds and T-notes.
People buy these Treasury securities as investments because they feel that the value of the United States dollar will increase and that the U.S. government will have the financial wherewithal to make the interest payments on its debt.
When people feel that the U.S. no longer will see its currency appreciate, or if they feel the U.S. government will not have enough money to meet its obligations, they will stop buying U.S. debt.
Consequently the U.S. government will not have that extra money to spend.
That’s what’s happening.
When you give free markets the ability to weed out bad players, the market will efficiently allocate investment capital.
This also is what’s happening. What’s sad is that the government tried to bail out Fannie and Freddie and the market still rejected those two government-run entities. That should show you how bad a shape they really are.
Fannie and Freddie own or guarantee about 31 million home loans worth about $5.5 trillion. That’s almost half of all mortgages in the United States, concentrated into two failed bailed-out companies.
If even the bailed-out companies are starting to collapse, then what is to happen to the bailed-out U.S. banks?
While some banks will survive, such as Goldman Sachs, the verdict is not in on other banks such as Bank of America, SunTrust and Citigroup, which have received billions of dollars in federal bailouts.
But there is an even bigger issue regarding entities like Fannie Mae and Freddie Mac being delisted from the New York Stock Exchange – transparency.
If we thought that we knew very little about Fannie and Freddie now, just wait until they no longer have to make public filings.
You see Fannie and Freddie are now headed for what is known as the Over-The-Counter Bulletin Board market. The reporting requirements are less strenuous for OTC companies.
Soon thereafter, Fannie and Freddie will go the way of General Motors and trade on the OTC Pink Sheets, which require no reporting. And sometime following, Fannie and Freddie will be government-owned private companies, no longer trading on any exchange.
What this means is there will come a point in the future where $1 trillion of your money will go towards an organization that controls half of the housing market, and you won’t have a single clue what that organization is doing or how it spends your money.
The sad news is we have an organization like this that exists right now; it’s called the Federal Reserve. Chairman Ben Bernanke and his partners in money-printing have no oversight. There has been no audit of the Federal Reserve in recorded history, and taxpayers are expensed trillions without even the appearance of transparency.
Fannie Mae, Freddie Mac, the Federal Housing Authority and the Veterans Administration financed or guaranteed almost 97 percent of home mortgages in the first quarter of 2010, according to Inside Mortgage Finance, a respected trade publication.
Americans know the dangers of having an over-bloated housing market. Now America is slowly drifting towards the Federal Reserve model for Fannie and Freddie. Spend trillions and tell no one.
While it’s one thing for the U.S. taxpayers to be on the hook for the nightmare created by Franklin Raines and Bill Clinton, it’s an entirely different story when Americans will have no oversight into both Fannie and Freddie.
Oddly enough, this could be just the recipe for troubled Washington, D.C., politicians. As they struggle to deal with the rising anti-incumbent sentiment of the tea party, they can slowly start to crank up the subprime-loan engine once again.
That will enable them to start giving loans to people who can’t afford it, which ultimately will be the people who end up voting for them.
It’s a great system for career politicians, except in the old days Fannie and Freddie had to publicly disclose via SEC filings how much they were giving away. The great thing about now is that Washington bureaucrats and career politicians could now have an outlet to spend as much money as they want without you ever really knowing how much.
Good for career politicians, bad for American citizens. But then again, once someone gets to Washington do they really care about the American taxpayer, or do they just care about staying in office?
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