July 23, 2008, Ron Paul reports that the House passed HR 3221 by a vote of 272-152. Did your Representative vote for this Pelosi bill? Check here.

The 600-page mega-bill includes:

1) Fannie Mae/Freddie Mac Bailout: Granted Treasury an unlimited line of credit to allowed to buy all housing securities from these two private companies. Ron explains that Treasury will exchange Treasury Bills for the mortgage-backed securities, so these securities will now back the dollar - which will debase the dollar which debt that no one wants to buy, so the dollar will drop.

2) National Debt Expansion: Congress approved to increase the national debt by $0.8 Trillion

3) Police State Expansion: All mortgage brokers must now get fingerprinted. (As if this caused the housing crisis!)

And the winner is...

4) Police State Expansion: All personal credit card transactions will now be reported to the IRS. Just swell.

Feel like casting off some chains? Try registering at www.campaignforliberty.com. Contact your Representative and especially your Senators (who will vote next) by going to this bill at www.downsizedc.org, the Read the Bills Act that requires Congress to read to the floor each bill before it is voted on. A 600-page document would probably stymie even the MicroMachines Man for a couple hours. If anyone thinks their Representative is actually reading all the bills they vote on, I have some subprime mortgages in Las Vegas I can sell you.

As the dollar drops, the risks of hyperinflation will increase as described below:

The 3 Trillion Dollar Government: Hyperinflation in America? (Part 1/2)
Published: July 13, 2008
A Prelude. Interesting statistics on the Federal Government Taxation and Deficit, the Trade Deficit, the National Debt, and more

Calling All Wheelbarrows: Hyperinflation in America? (Part 2/2)
Published: July 16, 2008
"Let it not be said that No One Cared, that No One Objected, once it is realized that our Liberties and our Wealth are in Jeopardy." - Dr. Ron Paul

Ron Paul talks about the bailout out of the housing industry and how it really just destroys the dollar and adds enormously to the debt.

Also, slipped into the bill, was the stipulation that ALL credit card transactions must now be reported to the IRS.

These snippets from an article over at Desidooru Saloon should give you an idea of the schtink. From Freedomworks quote in the post:

"This is a provision with astonishing reach… Not only does it affect nearly every credit card transaction in America, such as Visa, MasterCard, Discover, and American Express, but the bill specifically targets payment systems like eBay's PayPal, Amazon, and Google Checkout that are used by many small online businesses. The privacy implications for America's small businesses are breathtaking."

To which the author offers:

"And so, Congress and the President are about to perform favors for their contributors and constituencies, while ordinary people foot the bill and have their privacy stripped in the process.  Just swell."

Swell indeed.

-UR

The amusing thing about this is that the Republicans who were against it are wagging their fingers at President Bush for changing his mind and supporting it. But why wouldn't he want to support it? It's a wonderful opportunity to bail out the criminals in the banking industry for deceptive, if not fraudulent, lending practices.

I'm also upset that as a responsible adult who pays their mortgage on time and can afford my house that those who weren't so responsible, or able to really pay a mortgage, are going to get bailed out. My liberal brain says help these people out because they fell prey to predatory lenders. The part of my brain that still holds a shred of conservatism says screw 'em because they should have read the fine print before signing those mortgage documents. They should have realized they were overstretching themselves.

And the worst part of this is that the whole mess makes it harder for people who can really afford home loans to get them. If I want to get money to upgrade my house, or refinance my mortgage, it's now harder because of the schmucks both in the banking industry and the ones who bought houses they couldn't afford. And of course its making a big dent in the economy which is screwing everyone.

Thanks President Bush. You're quite a guy.

I've been thinking a lot about the mortgage bailouts after seeing the bill offered by Congress yesterday. Despite the fact that I handle about $12 million per year in revenue for my company, I don't consider myself an economic expert by any means. I'm just REALLY good with Excel. (Normally if I need advice on money matters I turn to my brother, the accountant. Remember, I thought I'd be doing this for the rest of my life.) Still, I think this issue has actually been covered enough in the media that I feel like I am somewhat informed on it and so I'll throw in my two cents.  

Initially, when the public began to get its head around this disaster it became clear that this was a sort of 'perfect storm' in that there were failures and mistakes made by everyone in the lending process. Borrowers, lenders and the companies that bought the mortgages later were all complicit in this mess. My attitude was to let the market sort this out. The lenders would lose billions because they loaned money to people they shouldn't have. The borrowers would lose the homes they never should have purchased. Everyone would have learned their lesson and hopefully this wouldn't happen again.

Then Freddy Mac and Fannie Mae started having trouble. While I still believe that leaving them to the fate of their poor judgement would have eventually worked itself out, how much damage would have been done in the meantime? Because neither kept the amount of capital on hand that other lending institutions normally would, my understanding is that both companies have heavy investments all over the market. So if they are allowed to go under or be severely weakened, it could send a ripple effect through the entire economy that could take years to recover from.

So now we have a bailout. The President pushed for helping the two giant lenders on the grounds that it was vital to the health of our economy in the short term. On that point I agree. Democrats countered this request by demanding that borrowers facing foreclosure be helped as well. I'm less enthusiastic about this part of the plan because I think these folks are the ones that are going to have the most trouble learning this lesson. But it seems fair in light of the govt helping the lenders.

The cost? According to the piece I heard on NPR yesterday, the foreclosure bailout will cost less than $1 billion because the government is only guaranteeing the new loans, not actually giving them. This also makes it easier to support this decision.

For the main details of the plan, I turn to NPR:

A look at what the bill would do:

- Give the Treasury Department the power to extend Fannie Mae and Freddie Mac an unspecified line of credit and to buy their stock, if necessary, to prop up the mortgage companies. The two companies back or own $5 trillion in U.S. mortgages - nearly half the nation's total.

- Allow qualified homeowners facing foreclosure to apply for lower fixed-rate, 30-year mortgages backed by loan guarantees from the Federal Housing Administration. The original lenders would have to agree to take a loss on their loans.

- Create an independent regulator to oversee Fannie Mae and Freddie Mac. The regulator could establish minimum capital requirements for the two companies and limits on their portfolios. It would also have approval power over the pay packages of Fannie Mae and Freddie Mac executives.

I like the oversight that the lenders will now have and I like that the plan also forces the lenders to take a loss on helping the borrowers, which will re-enforce the financial penalty for their mistakes. Hopefully with time this crisis will be a good lesson for America that we have to take our borrowing (and lending) more seriously. I continue to wonder if something like this is on the horizon for the credit card companies as well.

I must admit that I am satisfied by the level of truth and sincerity on the Kudlow & Company show on CNBC. I was equally pleased with thoughtful guests on the show from both sides of the aisle in Congress, Sen. Mitch McConnell (R-KY) and Sen. Byron Dorgan (D-ND).

Kudlow admitted point blank that half of the cause of oil prices is dollar devaluation as he explored immediate means of addressing the other half of the problem. The Democrat admitted the dollar devaluation problem and gave reasonable numbers of the impact of speculation on current oil prices.

Kudlow! Kudlow! Kudlow! Truth in the MSM has scored a 3-pointer.

The Republican Party representative was talking compromise, talking about the demands of the people, and talking about the need for drilling as well as addressing concerns with alternative energy.

While I must admit I like the Democratic Party representative who talked favorably of a compromise and the need to allow legitimate hedging of oil while limiting illegitimate hedging of oil, I believe he left out two key points of the speculation debate.

The Iran War may have led to legitimate hedging of oil, if not by the American government itself. Also, illegitimate speculation driven by pure profit may even have sinister motives beyond just pure profit.

Kudlow didn’t go into ways of solving dollar devaluation. However, admitting we even have a problem there is a good first step towards recovery.

I missed the first part of the show. I hope there was debate on the Fannie Mae and Freddie Mac bailout. I hope that if there is a bailout, it comes with punishment. I believe the CEOs should be fined and fired for their irresponsible behavior that resulted in a tax payer bail out. We must let CEOs know there are consequences for their actions.

Overall, I was quite pleased with the talk from the MSM. There was a new level of sincerity and truth achieved.

--jeepndesert

Damn, I hate moving.

Needless to say, I’ve been swamped lately, contributing to the lack of updates. Not that that’s any excuse to lapse in my keeping up with the news, but I have nonetheless.

Another source for today’s title is news from one of my favorite sectors, the imploding housing market. The latest victims (if they can be called that) in the housing downturn (which has apparently become the new buzzword for “recession” in this country) are Fannie Mae and Freddie Mac, apparently (although previously unbeknownst to me) two of the largest mortgage and housing lenders in the country.

It would make sense then that these two entities would be hard hit by the falling sales and prices, and rising rates of foreclosure in the U.S. real estate market.

Shares of these two giants had been dropping significantly over the last several weeks, on the speculation that they would be unable to cover their operational expenses and obligations given the lack of incoming revenue, prompting the Bush administration and Congress to weight the pros and cons of stepping in to bail them out as detailed in this article from July 11^th. (NY Times Article on the Dangers Facing Both).

The following day, the New York Times reported that both entities had been allowed to continue borrowing the finances they needed for their day-to-day operations, affording the stocks an opportunity to rebound following an early-day drop. (Another NY Times Article Covering the Situation)

The Federal Reserve and Treasury Officials continue to monitor the situation as it progresses, in the event that a bailout is warranted (as far as they are concerned, anyway).

Additional coverage earlier today estimated that a proposed federal rescue of the two mortgage companies could cost up to $25 billion (Estimated Taxpayer Cost of a Fed Bailout for Fannie Mae and Freddie Mac).

Without the irreparable damage that a collapse of this magnitude would do to the already floundering U.S. economy, I would say that there is no justification for yet another Fed bailout (this following closely on the assistance awarded to Bear Stearns, among others). But given that the value of the dollar has been in steady decline for months, and given that revenue is down across the board (for the most part), I can see where preventing this sort of collapse is imperative to keeping the economy afloat (even if precariously).

Finally, in the same “Long Way Home” theme, Senator and Democratic Presidential candidate Barack Obama made his first major step onto the world political stage with his trip to the Middle East, including meeting with U.S. military and officials in Iraq, as well as the King of Jordan and several prime ministers and officials from the region. (Obama's Visit to Jordan)

This one trip foretells perhaps one of the biggest advantages for Senator Obama’s campaign – the fact that he is the exact opposite of the present administration. While McCain has little choice but to be associated with (and perhaps entangled by) the Bush Administration, Obama has already begun further separating himself from the anti-diplomacy league that currently dominates U.S. foreign policy.

And we already have evidence that Obama’s diplomatic abilities are ruffling the feathers of the administration. Iraqi Prime Minister Nouri al-Maliki, who endorsed Senator Obama’s proposed 16-month plan for troop withdrawal from Iraq, was reportedly “strong-armed” by the Bush Administration into making a vague and sudden retraction of that statement. (Bush Admin. "Strong-Arms" Withdrawal of Support for Obama's Timetable)

Granted this should come as no shock, as the administration is still in charge of Iraq for the time being (181 days and counting, as of this writing). But what it does come as is an additional “gold star” on Sen. Obama’s credibility resume. Put simply, if the current administration, the one that no one likes, dislikes you, you must be doing something right.

Sen. Obama’s trip includes stops in several European countries as well, no doubt garnering international support for his campaign, and stocking up a few extra bonus points with his progressive voters stateside. And, if all goes according to plan, this trip may just help quell the McCain campaign’s fevered rhetoric that McCain would be a much better diplomat, given his years of experience versus Obama’s relative lack thereof.

What the McCain campaign fails to realize is that they have already (and irreparably) aligned themselves with Bush and the current incarnation of Republican office holders, the majority of whom are almost vehemently opposed to foreign relations and diplomacy.

That’s going to be one tough mold to break out of.

Karl Denninger at the Market Ticker, one of the most accurate finance blogs on the internet, has created a petition to let our government know that we will not stand for a bailout of Fannie and Freddie -- or rather, the greedy investors looking for ridiculous profits and the foreign governments (the housing bailout bill would give them at least $100 billion) who were explicitly told on their prospectus that these quasi-governmental corporations would NEVER be backed by the government. Yet contrary to that statement, Congress is looking to save the hides of investors who knew better and who should suffer the own consequences of their actions.

We are approaching the point where the truth simply cannot be hidden -- yet had action been taken last year from the signs clearly present then, the situation we are in now would be much less worse. Therefore I implore you, before it is too late, for the sake of you and your family, to read Mr. Denninger's summary of all the events that have led us up to this point and to sign the petition. His letter explains not only the history that has brought about our situation but what actions must be taken in order to protect our economy and we taxpayers.

If these actions are not taken, the effects of this debt upon the American family will last for generations as this $5 trillion in debt will immediately add to our federal liabilities by half! Will you allow your children, your children's children, and even further on in your family's line to be saddled with this debt in order to save greedy investors and foreign governments? Will the 80% of people who had nothing to do with this bubble be sacrificed for the 20% who willingly took on the risk of their investment, knowing full well that no government bailout was ever implied, yet alone promised?

It is up to YOU to stop this. By signing the petition you will have it faxed to your Senate and House representatives, along with President Bush, Treasury Secretary Paulson, John McCain, and Barack Obama. These faxes will be sent in batches of signatures automatically at no cost to you. If you don't entirely understand what is going on, please read Mr. Denninger's explanation.

I beseech you to use your voice in our democracy. Show the President, Congress, the Federal Reserve, and the Treasury that we the people run this country -- not banks, foreign governments, and corporations!

Supposedly Fannie/Freddie hold about 5 trillion dollars worth of mortgages.   Surely you have noticed how that estimate has bounced around in the media; I have seen it as high as 9 trillion and as low as 4 trillion.  But whatever the number you must remember that the overwhelming majority of those loans are current.   The borrower is performing and paying off the loan.   If Fannie/Freddie went under "we" would not lose trillions.   The loss would only be for the bad loans.  Yes, it might be a pretty big number but manageable.   Of course if we didn't do anything then we taxpayers would have no loss at all.  During the Savings and Loan crisis of the late '80's we had a lot of them fold and the loss was in the billions but only on the bad loans and most of the loss was due to Government regulators coming in and demanding revaluations of everything with a very implicit threat that the new values had better be lower to justify the actions of the politicians.   Guess what, the values were lower and the losses aggravated.

Does the Government really need to be in the mortgage business?   There is and always has been ample money for mortgages in the private sector.   That mortgage business has to compete for money just like any other business and that is as it should be.   The Government "implicit" guarantee of the business of Fannie/Freddie will now become explict it appears and that will cost all of us money.   It is a private company even though chartered by Congress.   Those investors in Fannie/Freddie knew what they are buying.   I am not excited about anyone having to take a loss but exactly why am I responsible for the private business decisions of others.   If the Government ends up buying stock it will take the majority position and control the companies and then we face a "busines" that is existing to promote the agenda of one party or the other; rather than a company doing what it thinks is best for its shareholders.   Just another variation of Bread and Circuses for the masses is what it will become.

If you have dealt with the IRS, SSA, HUD or any other Government agency, can you just imagine having to go to a Government office when you have issues with your mortgage, take a number, and then findly meet with  a low level bureaucrat who is more interested in watching the clock than offering a service.  After all they can't be fired as a practical matter.

If they did fail please think through what the actual results would be as opposed to the alarums of the Politicians.  Their assets would be liquidated.   There would be buyers who would want to get that stream of income from all those millions of performing loans.  The shareholders would lose.  They made a bad bet.   The average Joe who remains  current on his mortgage would not notice any difference except  maybe a new place to make his payment and a new holder of his mortgage note.   The failure of Fannie/Freddie would not "cause" a  foreclosure crisis.   Don't believe that for one minute.  That is pure balderdash.   If the note is paid there is no foreclosure.    Yes the mortgage market might well be smaller for a couple years but that is the offset to the thousands of imprudent loans made earlier and those shaky subprime notes bought by Fannie/Freddie.  They didn't have to buy those notes.  Our economic well being is best served by prudent business decisions made by both the consumers and the businesses serving them.   Bailing out Fannie/Freddie does not promote those  good  decisions.  It encourages people to make unsound decisions and rely on Mother Government to fix everything if things don't go well.   Failure is not always a bad thing.  Hell, it is the cornerstone  of Darwinian theory.

Most importantly it would send the right message to the market place and the buying public.  I don't like Socialism in any of its forms whether for business or the masses.   It brings a loss of individual freedom as its price.  Your options are reeduced in any area that is dominated by the Government.  I don't want the Government to have a monopoly on the mortgage business.

"Stand Tall", my mom  used to say that to me  when I was a boy and teen.   Those two words carry more than one message and all of them are worth heeding.     First, it is good for your body as my mom said.  Secondly, it evokes the right attitude toward difficulties we face in life.  No matter the problem or  how low we feel about them we must and should stand tall.   Think about the alternative.  It implies being a good soldier and "soldiering on" in the face of adversity.  Lastly, it means to be a good person with dignity and integrity.   All those messages were worth hearing.  Thanks Mom.

This weekend Big Ben got together with his govt. cronies and they whipped up a wicked brew that is the antidote to the housing crisis and savior of all things financial. The SEC put the clamps on the shorts, the Treasury got into the mortgage underwriting business and Big Ben opened the Fed money faucet a little wider.

Hooray!??

Let's see, that's $30B for Bear Stearns, $8B for Indy Mac & now $5T worth of mortgages at Fannie and Freddie. I wonder if the cost of printing dollars has gone up with the increased raw material costs?

Our LD President Bush danced on the scene with an empty promise to drill the OCS for a few hundred thousand Bpd in 10 years and the world was right again.

Oil plunged, bank stocks soared. It must have brought a smile to their faces.

But is it reality? Have the finance gods truly been appeased?

First the good news. The market has now gone up violently for 2 straight days. Oil has now dropped for 3 days in a row! Techs and small caps are showing relative strength and the financials are leading the way higher. The put/call ratio (CPC) and the volatility index (VIX) have given buy signals. Sentiment is overwhelmingly bearish and the market is coming out of an extremely oversold condition. We even had a mild washout day on Tuesday with the NASDAQ showing the way higher with a positive close. Per our notes in the Public Chart List, we started entering select longs on Friday (7/11) during the Fannie/Freddie panic. We have had further confirmation with the VIX spike over 30 on Tuesday (7/15) followed by a sharp pullback in volatility the following day (7/16). Volatility closed flat today, but the put/call ratio rolled over giving its own new buy signal (7/17). While the March lows were violated in the SPX and Dow Jones, they held solid in both the Russell 2000 and the NASDAQ, possibly forming the illusive head and shoulders bottom in both. This relative strength in the riskier, more aggressive markets is something to watch.

So what could go wrong? I don't have the space in this post, so let's just say nothing has changed other than investor psychology. The market was scared and shorted to death and everyone was long in the oil/commodity trade. Ben, Bush and the G-men at least caused everyone to blink. Changing minds, and possibly realities, is an entirely different matter. Just breaking a few trendlines would be a nice start. At this point, this rally is nothing more than a bear market bounce. But don't sell this bounce short as it could provide a nice opportunity for gain on the long side in something other than commodities and energy stocks.

We expect this rally to challenge the 1340-1360 area on the SPX, with additional upside to the 1400-1420 area possible on an extended recovery. Until the SPX exceeds the 80 week (400 day) moving average, (currently around 1430 and dropping), this is a bear market bounce only. We recommend taking profits in the 1340-1420 area and we will add further details to this call as available. Let's not overlook the fact that the Dow, SPX and Wilshire 5000 all cut their rallies short today in the area of the previous lows. This is obviously resistance level number one. Equally intriguing is the proximity of the commodity indices to first level support. We will be buying select commodity stocks on this weakness as it doesn't come around very often and history has shown these corrections to be violent but short lived.

The government bailout of the mortgage giants Fannie Mae and Freddie Mac announced Sunday goes well beyond the $29 billion injection of Federal Reserve funds used to subsidize the takeover of Bear Stearns last March by JPMorgan Chase.

The plan outlined by Treasury Secretary Henry Paulson would give him virtually unlimited and unilateral authority to pump tens of billions of dollars of public funds into the mortgage finance companies. At the same time, the Federal Reserve Board announced that it would allow the companies to directly borrow Fed funds.

It is generally conceded that a failure of the two government-chartered mortgage finance companies would have consequences even more cataclysmic than those which would have likely followed a collapse of Bear Stearns. Between them, Fannie Mae and Freddie Mac, which purchase mortgage loans from banks and other lenders, bundle them into securities and sell them to financial institutions and big investors around the world, hold or guarantee more than $5 trillion in mortgage debt. They currently account for some 80 percent of all new mortgages in the US. Were they to lose the ability to borrow at a discount, the US housing market would come to a grinding halt.

The bailout with public funds of Fannie Mae and Freddie Mac will set a precedent for a far broader use of taxpayer money to rescue major financial companies. Last week Paulson and Bernanke went before the House Financial Services Committee to demand legislation institutionalizing federal intervention to bail out failing Wall Street firms. The response of key Democrats such as Frank was to urge the regulators to call for such measures now, rather than after the new Congress takes office next year.

Will you allow your tax dollars to be used to bailout these speculators, which btw, your president said he was not going to bailout speculators--so much for that promise.

"Why should the FED (ie, the Govt) buy Fannie Mae and Freddie Mac stocks with our money?"

A lot of debate on how much should the Govt intervene has been around since the beggining of times... I'll just let here an interesting argument on how dangerous it is to give power to the regulators.

"Now the Fed wants to be the systemic risk regulator. But the Fed is the systemic risk. Giving the Fed more power is like giving the neighborhood kid who broke your window playing baseball in the street a bigger bat and thinking that will fix the problem."

The surprise, which also shouldn't be one, is how our government often seemingly overlooks potential troublespots until they become climatic.  The succession of failing mortgage lenders, both private and public, is but just one example of where government oversight has failed.  It's especially hard to accept that Congress had no idea that Fannie and Freddie were in trouble given the freedom with which these two mortgage giants took on some of the nation's most extreme lending risks in the housing market.

More on the story at www.npr.org.