Sunday, September 7, 2008

The national debt doubled this morning ...

So, the Feds have placed FNM and FRE into conservatorship, basically, adding their $5 trillion in loans (and loan guaranties) to the existing $5.7 trillion national debt. Yes, I know that is an oversimplification and that much of the loans will be repaid or collateral recovered so it won't be a $5 trillion loss (at least I hope not).

Two comments: First, expect FNE and FRE to freeze foreclosures of their portfolio loans. How else can they minimize the expected losses, if they keep adding REO inventory to an already depressed market? They will do this by letting the flippers and homeowners who are delinquent, keep the properties with "re-negotiated" loan terms, including reduced interest, principal and forgiven back payments.

Second, I don't usually rant about the mainstream media, but with 240 channels on my tv, only CSpan had the live coverage of Paulson's press conference. We double the national debt and it isn't maybe a little newsworthy? CNN carried the first 60 seconds of his 30 minute press conference, then the talking heads cut Paulson off to tell us their opinion of the impact of Treasury's actions, before Paulson had even finished! And CNBC decided its infomercial was more important.

And, yes, it's true, some say I need a life, but this is a huge event that I don't think most people understand or appreciate (except of course, the regular readers of Average Buyer).



Buying Time said...

I'll be pretty ticked off if they freeze all the foreclosure activity at taxpayer expense.

It't not the governments job to pick winners and losers in the economy. At least with the recent govnt rebate, most renters and responsible homeowners get something.

As a liberal, I believe in social safety nets, affordable health care for all etc. But this does not qualify.

Jacob said...

The national debt didn't double. We are at $53T so what's another $5T here or there...

The problem for the banks and government is that they assume/hope people want to stay in their homes. But is that really the case? People that are underwater can just walk, rent for less, and forget about the debt, let the bank have the asset.

Paul said...

I sit corrected on the national (US Government) debt. Several websites list it as $9.7 trillion today, of which $5 trillion is held by the public. So the debt didn't double, it only increased by 50%.

And my prediction of the foreclosure freeze isn't creative on my part. Recall that is exactly what they did after they took over IndyMac not much more than one month ago.

So what happens if they freeze foreclores for folks who are going to walk? (1) Those people get free rent (aka tax free income) for that much longer and (2)it delays the inevitable foreclosure prolonging the problem.

Patient Renter said...

We double the national debt and it isn't maybe a little newsworthy?

As I'm fond of saying, the media is worthless.

Cmyst said...

On the media: My brain really appreciated viewing the conventions on C-span. It was amazing what opinions I could actually come to myself, and that Sig and I could debate together, without people actually telling us what to think.
On the bailout: people may not be as blind as we assume. My youngest daughter is currently going through a very rough time and has little time to spare for thinking about such things. She's a renter, she has no investments and is struggling to simply pay her bills, she has a 2 year old, etc. When I spoke with her today, she was well aware of the bailout and she told me that it meant "my great grandkids are going to be paying for this".

Husmanen said...

I missed the all coverage of Paulson today, except for the Internet, and even find my various blog sources scrambling to figure this one out.

From what I can gather so far, the extended foreclosure time period and the potential to reduce the interest rates only prolong the "correction" of the market, I steer away from the word crash as it seems inappropriate.

Extending the market correction only prolongs the pain, I believe Japan can attest to this.