Skip to comments.Fannie, Freddie bailout triggers credit default swaps($1+ trillion derivative contracts involved)
Posted on 09/08/2008 9:54:53 PM PDT by TigerLikesRooster
Fannie, Freddie bailout triggers credit default swaps
More than $1 trillion of derivative contracts will need to be settled
By Alistair Barr, MarketWatch
Last update: 1:30 p.m. EDT Sept. 8, 2008
SAN FRANCISCO (MarketWatch) - The U.S. government's seizure of Fannie Mae and Freddie Mac has triggered more than $1 trillion of credit default swaps tied to the mortgage giants. The International Swaps and Derivatives Association said in a memo on Monday that 13 major credit default swap dealers unanimously agreed that a credit event had occurred.
(Excerpt) Read more at marketwatch.com ...
Does the other side really have the cash? Or is this $1T that is “out of the money?”
I’ve read an article saying that the likely cost of the bailout will be $2.5 trillion and at least $1.3 trillion.
Glenn Beck had someone on tonight saying $2.7 and $1.3 trillion respectively.
This is going to be a fun ride. For anyone who doesn’t know, $2.7 trillion is roughly the amount the government spends per year already.
Depending on the CDS reactions, this bailout could turn out to be the biggest financial disaster of all time. I wonder how this will affect Collateralized Debt Obligations; I assume CDOs are closely related to the CDS market, but not entirely sure how.
So how many normal people were helped out by this bit of corporate welfare.
Stupid question for you, we (the taxpayers) are only on the hook for the non-performing loans right? The non-performing quite a bit less than the amount stated or am I not understanding the full situation?
If they cannot perform, the Fed will monitize.
JHFC. I know what that means. I’m screwed again.
Just the beginning. Extreme leverage in derivatives. Unknown dependencies to fall out of the sudden shock to the system. Quants never figured in that FNM and FRE would go bankrupt.
A great big house of cards is about to come down. The treasury just pulled a couple of floor level players.
Roll that around on your tongue a few times.
A THOUSAND billion dollars.
Washington don't even measure things in the billions anymore, let alone millions. Now that they've graduated to Trillions, there's no looking back.
A thousand BILLION dollars! On this one transaction alone..
This may be the scarriest thing ever reported on FR. If the OTDs are “insured” by other derivitives, a cascade will begin which will not be easily stopped. This is my greatest fear in regards to this mess. It will ignite a sort of nuclear chain reaction, at worst case scenario. We will see.
The scariest words in the English language are: "I'm from the Government, and I'm here to help."
I have a bad feeling about this. A very bad feeling.
Another bunch of money grabbing sobs trying to cash in. Ok, I have 50 major credit default dealers who unanimously agreed that a credit event did not occur. We will get our lawyers together and talk about it for the next 100 years; at which time, a trillion dollars will be worth a buck ninety five and the debt will be settled!
Welcome to the Socialist States of America where nobody is allowed to fail.
Perhaps Juan should have realized the potential for unintended consequences (!!!) when he advocated a taxpayer-funded FNM/FRE bailout.
But, of course, why should the politician care, since he won't have to pay for any of the damage? And, he still gets votes!
Note well the media reports from way back in July when McCain advocated bailing out Fannie Mae and Freddie Mac with taxpayer money.
And Freepers have the gall to say that voting McCain is a vote against Obama's Socialism, when McCain himself is also advocating Socialism.
1. Government bailout is going to be horrifically expensive. ("Horrific" not even really scratching the surface of how bad it really is.)
2. No government bailout could wind up being even worse.
3. No one has any other options.
Am I missing something, or are we just catastrophically screwed at this point? It seems that the damage has already been done, and that sans some amazing developments in time travel technology, we can't undo a bit of it. As much as I'd like to jump on McCain and Obama about this, I don't really know what else they are supposed to do?
Except small businesses who aren’t politically well connected.
Capitalism is the new Socialism!! Whoo-hoo!!!
It seems to me we’re basically screwed. The fed will either have the money printed or the government will raise our taxes expnoentially. One way the value of our money becomes extremely depreciated and we lose buying power; the other way our money is taken and we lose buying power. I suppose we could add it to the debt, but eventually that’s got to be paid and even then it’s printing money or higher taxes.
What are you going to do about it you pieces of *bleep*? Suck more blood from us?
Bunch of corrupt incompetents.
I’d say 1 out of every 10 loans originated over the past couple years are now either in forclosure, non-performing, or will be in the next year. Rate will probably end up higher. They were loans given to housing gamblers with no-collateral or ability to pay back the loan besides quick flipping. They were also HELOC loans originated so people could use their homes as a personal ATM. They were also loans given to grifters running mortgage fraud and rental schemes.
Then to spread the risk around, the original originators of the loans sold as much of the toxic waste as they could unload onto Fannie and Freddie or others. Loading them up with these trillions in high risk loans.
Now ofcourse the damage of all this could of been lessened if the fed and banking authorities had been doing their jobs. They could of clamped down on Frannie and Freddie standards. They could of done things like tell banks and thrifts they could not continue to book the potential profits from neg-am loans as actual revenue. But instead, they let the ponzi scheme continue. Bush was happy doing speeches about “ownership cultures”.
Now moral hazard is off the charts and we are no better than China or Russia. We are on the hook for everything. Get to work taxpayers.
“McCain himself is also advocating Socialism”
You will not get an argument from me. This decision makes me sick.
As the father of two young children it angers me to see their future being mortgaged by the clowns in D.C. Given the two choices available I am supporting the one who will be best for my children.
I expect to be frustrated with McCain many times in the next few years but please don’t pretend there is no difference in the two candidates.
“Except small businesses who arent politically well connected.”
True. However, the failure of a small business will not collapse the market.
We either have to prevent monopolies or regulate them severely to protect consumers. I don’t think either solution is found in the conservative playbook.
I would rather take the hit now but our government is so fiscally irresponsible they cannot withstand the storm. Anyone surprised they are passing the buck to next generation?
Nobody is allowed to fail as long as they have a credit card.
Hold it! My brain is leaking fluid. I've even done CMO's in the past, but I guess I didn't understand the risk. For the results to have been so horrific, I just don't see that is that bad out there.
Lets say you buy a house for $300 a sq ft, that was $100 a sq ft last year. When the loan resets, you lose the house, the bank takes it and sells it for $125 a sq ft. It's still not ZERO! Even if they get $90 a sq ft, its still not worthless. Take the write down and get on with bidness. We must have loaned money to every wino and illegal alien in Mexico to lose this much money. I don't get it.
And to answer your question, no I’m not surprised Uncle Sam is passing this on to the next generation... which is so conveniently always a generation away.
It's not in the REPUBLICAN play book; why we let that wing of the party pilfer the term "conservative" is beyond me.
I sold my family’s sizable positions in PIMCO 6 weeks ago not knowing jack that this was coming.
Gross has sure turned whiner trying to save his bacon.
if they owe enough money...
I default on my commercial mortgages and I'd have the bank in my living room and they'd try to put my wife on the street corner, sell my kids and then harvest my organs.
I don't like it much either this time...huge exposure here and the doppler effect is dizzying
This residential real estate (and some commercial..Vegas) boom has been so large and it had to come down....and looks like it is. Biggest since 79 I think. Oddly though the rest of economy even with hight energy costs seems to be still uptrending even if slower.
BSCO, now Freddie and Fannie...and let's not forget that UBS, Citi and other huge banks almost have gone under too. UBS basically wrote off their entire previous Owners Equity and did secondaries to foreign national investors
I have friends at UBS..some got their retirement options erased...gone...
The only significant difference I see in them is that one will get us to the end goal sooner.
Vote as you see fit. Some of us can't stomach either candidate, while others, like yourself, can. Let's just hope that, no matter what happens in November, that the U.S. makes it out of the storm in one piece.
It is sad that the rest of us who try to live life within our means and do the right thing get left with the cleanup after the party is over and the lights are turned off.
This is a massive bailout but it pales in comparison to the entitlement bubbles on the horizon. The 100 year storm in our economy is coming. I firmly believe that. We cannot fend off downturns with debt forever.
Saved, today, by the London Stock Exchange which melted down for 7 hrs today. Mostly because of bond trading (currency).
“Vote as you see fit”
I have plenty of heartburn with McCain but I cannot imagine what the future would look like with BO, Reid, and Pelosi. Only McCain has the personality to tackle the tough issues while BO is committed to tax and spend and a Neville Chamberlain foreign policy.
It’s comparable to having cancer. You should not run out and shoot yourself. You fight with what you have and hope for a miracle while trying to enjoy the days that remain. Our nation has risen to the challenge before and we may yet surprise ourselves again.
I am rolling the dice on McCain/Palin for my kids and future grandkids.
Regardless, best wishes
“Could have” equals “could’ve” (which sounds like, but is not, “could of”). “Could of” is wrong.
Apologies. I usually don’t play grammar police. However, this one is a pet peeve of mine and you did it 3 times in a row!
I agree with the sentiments of your post though!
I’d like to see an answer to your questions too. I’ve been puzzled in much the same way.
The Rat friends og Paulsen got a heads up on this last week. So they probably made money big time. Just look at who got paid by FNM. Just look at who got campaign contributions and sweetheart mortgages.
At about a 5000 fold greater theft than the Enron situation, guess we shouldn’t hold our collective breath waiting for investigations and prosecutions of the wrong doers?
This just sickens me.
Wrong. Nobody wealthy is allowed to fail.
It’s not Socialism screwing us over at this point. It’s Laissez-Faire Capitalism.
Oligarchy also greases politicians' palm from profits
If you're not part of the solution, then you must be from the government.
I have a bad feeling about this. A very bad feeling.
I've been expecting extreme nastiness most of my life. The ponzi scheme has run quite a bit longer than I thought it would, and will probably continue longer than I think it can.
One has to suspect that whomever had the losing side (a) had the money, and (b) had reason not to complain.
Perhaps the loser was us.
See MISH'S Global Economic Trend Analysis: Big Non-Event In Fannie, Freddie Credit Default Swaps for further explanations of what's going on here, and why it might blow over so quietly.
My husband and I benefited, as we finally locked our mortgage rate (a boring 30 yr fixed conforming loan with a hefty down payment) after sweating it out all summer.
We close in a few weeks.
I disagree somewhat. The socialist state political class dictates who must loan to who. Also, there has been an assumption for years, if not decades that FNM would ultimately be backed up by the U.S. taxpayer. An assumption, that seems to have been a good one. This allowed people to make loans that made no economic sense whatsoever.
What economic sense does a zero-down interest-only 30 year mortgage make in a sane world?
While there was a speculative bubble, it would have run its course long ago without the guarantees and influences of Uncle Sugar on the markets. It would also be a regional problem. What was happening in real estate in California specifically was obvious insanity to most of the rest of the country.
Time to smell the coffee. This time it is different. Those highly paid shills for mortgage lenders got rich. Wall Street crooks got rich. They will be hiding in gated communities drinking cognac, counting their bonds and clipping coupons. Read my Tag Line: That is my message to all greedy bastards who made millions out of this financial debacle.
In the meantime, Yada, Yada, Yada
Small Banks holding F&F preferreds
Investors holding F&F common or preferreds
Thirteen "major" dealers of credit-default swaps.