The 1% non-solution


… of all Americans are in prison

… exposure of the “GSE’s” (FNM and FRE) 58 billion : 5.1 trillion

On the surface, simply locking up more people would not appear to be in the long term interests of this country, and doesn’t address the underlying causes of criminal activity. Indeed, we prefer to lock people up and throw away the key, then go down to the corner Starbucks for a latte mocha frijole and pretend the problem has been dealt with.

Likewise, not addressing the fundamental flaws that could potentially bankrupt both “GSE’s”, which will in turn further immobilize an already frozen housing market, is easy to do when so few really understand the complexity of this half-assed bailout (the first of many to come, to be sure) and are happier thinking someone else is worrying about the problem.

Feeling like a dupe?

Then two developments caused the insurers [MBIA and Ambac] to veer from their path: as public companies, monoline insurers were looking for new income streams. Not only that, rating agencies told these insurers that they were not very diversified, and that they might have to have a second look at the credit ratings if they did not broaden their insurance coverage to, say, securitized mortgage products. Rating agencies were eager to see the market of debt derivatives expand, so that they could facilitate a market by providing credit ratings to structured products. [Asiatimes]

How valid is our money?

After this act was instituted, President Kennedy was assassinated and in the first day of office for President Johnson, all notes were re-called. [Hmmm][Bloomberg]

“GSE’s carry the implicit backing of the U.S. Government, but they are not direct obligations of the U.S. Government. For this reason, these securities will offer a yield premium over Treasuries. Some consider GSEs to be stealth recipients of corporate welfare.” [Investopedia]


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