Market Ticker’s Take On Bernanke

This is definitely one of those don’t miss posts from Market Ticker with all the bells and whistles.  Karl puts the puzzle pieces together; ‘actions speak louder than words’.  Make sure to go over and read the entire article; it is eye-opening.

Financial Terrorism? You Decide

Remember this?  $125 billion of “slosh”, or excess liquidity, drained from the system in the four days from 9/19 – 9/24/2008.

To put this in perspective that was a drain of sixty-five percent of the total excess liquidity in the system – a “starvation diet” if you will – and that withdrawal was an intentional act!

The above is an irrefutable record of what The Fed actually did.

Remember that Bernanke’s argument at the time was that the credit markets were suffering from a lack of liquidity.  That is, there was no problem with firms actually being bankrupt, but they were illiquid.

If that’s true why did Bernanke intentionally drain $125 billion from the system – two thirds of the market’s total excess liquidity – instead of adding to it?

What did the market do after The Fed pulled $125 billion in system liquidity out over the space of four days?

Do you remember?

“FHA Running Leverage Equal To Bear Stearns and Lehman Brothers”

If you have not put Market Ticker on your subscribe list, better do it now!

DAMNIT, STOP THE LOOTING NOW!

Put the kids away before reading.

If this does not make your blood boil…..

Herein lies the problem. The FHA’s standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud. Sound familiar? This is called subprime lending—the same financial roulette that busted Fannie, Freddie and large mortgage houses like Countrywide Financial.

The article goes on to note that as of the end of this year FHA and Ginnie will have issued and hold one trillion dollars of mortgages,  that the current default rate is now 7%, and the delinquent rate is running some 13%.

Why?

Because the same crooks, swindlers and thieves that infested the housing market in 2003, 2004, 2005, 2006 and 2007 in “subprime” and “ALT-A” have now moved into the FHA product.

There is only ONE way to guarantee safety and soundness in mortgage lending.  ONE!

That is to require twenty percent down payments, limit the back end ratio, or debt-to-income, to no more than 36%, and fully-underwrite EVERY SINGLE FILE, with CRIMINAL penalties ruthlessly enforced for ANY fraudulent misrepresentation BY ANYONE.

PERIOD!

The FHA is now running with leverage equal to that of Bear Stearns and Lehman Brothers.  You know, those two “banks” that were underwriting loans without sufficient down payments and on dodgy debt-to-income ratios AND BLEW UP?

We’re even doing 125% loan-to-value on FHA NOW!

In some cases, these owners are so overdue in their payments, and housing prices have fallen so dramatically, that the borrowers have a negative 25% equity in the home and they are still eligible for an FHA refi.

WHAT?!

Make sure to read the rest, it’ll give ya shivers…

Here is the story that Karl is writing about:

The Next Fannie Mae

Ginnie Mae and FHA are becoming $1 trillion subprime guarantors.

Much to their dismay, Americans learned last year that they “owned” Fannie Mae and Freddie Mac. Well, meet their cousin, Ginnie Mae or the Government National Mortgage Association, which will soon join them as a trillion-dollar packager of subprime mortgages. Taxpayers own Ginnie too.

Only last week, Ginnie announced that it issued a monthly record of $43 billion in mortgage-backed securities in June. Ginnie Mae President Joseph Murin sounded almost giddy as he cheered this “phenomenal growth.” Ginnie Mae’s mortgage exposure is expected to top $1 trillion by the end of next year—or far more than double the dollar amount of 2007. (See the nearby table.) Earlier this summer, Reuters quoted Anthony Medici of the Housing Department’s Inspector General’s office as saying, “Who would have predicted that Ginnie Mae and Fannie Mae would have swapped positions” in loan volume?

Ginnie’s mission is to bundle, guarantee and then sell mortgages insured by the Federal Housing Administration, which is Uncle Sam’s home mortgage shop. Ginnie’s growth is a by-product of the FHA’s spectacular growth. The FHA now insures $560 billion of mortgages—quadruple the amount in 2006. Among the FHA, Ginnie, Fannie and Freddie, nearly nine of every 10 new mortgages in America now carry a federal taxpayer guarantee.

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