The cost of the Bailout so far? How about $2.5 trillion..!

Bailout Sleuth:

By Chris Carey on November 10, 2008 6:50 PM

Although the price tag on the Treasury Department's Troubled Asset Relief Program is $700 billion, the full amount that the government has invested in its rescue effort for struggling financial institutions appears to be closer to $2.5 trillion.

Bloomberg L.P., the parent company of Bloomberg News, said last week that it filed a lawsuit seeking information on the collateral that a group of banks pledged for some $2 trillion in emergency loans from the Federal Reserve.

Bloomberg asked a federal court in New York to require the Federal Reserve to disclose the identity of the banks that borrowed money through certain financing mechanisms, and to disclose what assets they pledged against those loans.

Bloomberg filed the suit after the Federal Reserve said that it would deny Bloomberg's request for the information under the Freedom of Information Act.

The financial firms that were eligible for some of the loans through the Federal Reserve included many of the same firms that split $125 billion in the first round of the Treasury Department's relief program.

The Treasury Department has approved more than $170 billion in capital injections for banks that applied to sell preferred stock to the government. It has about $80 billion remaining for additional participants, who must submit their applications by Friday.

The Treasury Department announced Monday that it also is investing $40 billion in the preferred shares of American International Group Inc. The financing it part of a new plan to salvage an earlier rescue plan that was going awry.

The revised plan brings the total assistance that AIG has received from the Federal Reserve and the Treasury Department to $150 billion.

Bloomberg reported that the Federal Reserve made its $2 trillion in emergency loans under 11 different programs, eight of which were created in the past 15 months.

The Treasury Department also made a little-noticed change to tax policy that experts say could save banks that merge with other banks as much as $140 billion in taxes. One of the biggest beneficiaries of the change would be Wells Fargo & Co., which is absorbing Wachovia Corp. in a deal spurred by the Federal Deposit Insurance Corp.'s concerns about Wachovia's solvency. According to an article Sunday in the Washington Post, Wells Fargo stands to save about $25 billion in taxes.

Adding together the $170 billion that the Treasury Department has currently agreed to provide banks in additional capital, the $150 billion that the Treasury Department and the Federal Reserve are providing to AIG and the $2 trillion that the Federal Reserve has provided banks in emergency loans brings the total assistance to $2.32 trillion.

If the estimated savings from the new tax breaks are included, the assistance would climb to $2.46 trillion. That total does not include other measures not focused directly on banks, such as Treasury Department's $200 billion in support for Fannie Mae and Freddie Mac, and the Federal Housing the Administration's $300 billion HOPE for Homeowners program.

The Housing and Economic Recovery Act of 2008: An Analysis by Catherine Austin Fitts

Scoop.co.nz:

The US Housing Bill 2008: Parts I - IV

Thursday, 21 August 2008, 5:40 pm
Column: Catherine Austin Fitts

Catherine Austin Fitts' Mapping the Real Deal series
See also: Parts I, II, III IV, V, VI, VII, VIII and IX

Part I – Overview

I have had several requests to comment on the Housing and Economic Recovery Act of 2008.

This afternoon, I read hundreds of pages of bill language. Essentially, my take on the bill is that Fannie Mae and Freddie Mac have issued more debt than can be paid back, so the "solution" is to have the United States government essentially assume responsibility for this debt until the fact that the government cannot service its own debt is addressed.

By clearly signaling to the market that the U.S. government stands behind Fannie Mae and Freddie Mac, this new law increases the national debt from $9.5 trillion to $14.8 trillion overnight (that is a $5.3 trillion increase as opposed to the $800 billion increase provided for in the debt-limit increase accompanying the bill). Not surprisingly, a lot of pork needs to be added to pay a lot of people to go along.

A more appropriate bill title would be the Housing and Economic Takeover Act of 2008. Rather than declaring the New World Order, we are apparently going to legislate it sector by sector.

Here is the bill language:

Housing and Economic Recovery Act of 2008

Here is a rosy summary from the Senate Finance Committee:

Senate Finance Summary – Housing and Economic Recovery Act of 2008

The best overview so far is from Larry Lindsey. Lindsey was one of the more excellent governors of the Federal Reserve. Lindsay had to resign from the Bush Administration in 2002 as director of the National Economic Council when he had the good sense to warn that the Iraq War would be expensive.

Hank Paulson's Fannie Gamble

As Lindsay points out, the number of porky add-ons in this bill are stupefying. Bloomberg provides a review of one:

Fed Loans to Banks Made Easier By Fannie Mae Rescue

Part II – Nation State or Investment Syndicate?

One of the instructive features of the housing bill is the nature of creditor politics that is a subtext on housing and mortgage politics these days. One investment newsletter this weekend reported that there are $947 billion of Fannie and Freddie paper listed as being held in foreign exchange reserves worldwide, of which $100 billion is held by Russia.

That sounds low to me. However, since these are "reported" figures, we will work with them. Can you imagine the politics of a Fannie Mae or Freddie Mac bankruptcy when their largest investor also has nuclear bombs, submarines, and satellites? Also, can you imagine the politics if the Russians bought their Fannie Mae and Freddie Mac securities with IMF and other foreign-engineered "bailout" loans arranged contingent on a secret agreement that a portion of the proceeds would be used to buy Fannie Mae and Freddie Mac debt?

I once had a senior Russian official encourage me to switch sides, so to speak. I told him that no one ever accomplished anything by betraying their country, and that working inside is the best way to address policies gone off kilter. It was not until we parted company that I realized that I had been speaking with a representative of one of Fannie Mae's largest investors.

Chinese Government Is Top Foreign Holder of Fannie Mae, Freddie Mac Bonds

Report on Foreign Portfolio Holdings of U.S. Securities, as of June 30, 2007, published April 30, 2008 by U.S. Treasury, Federal Reserve Bank of New York, Board of Governors of the Federal Reserve System

Part III – Your House Is Bigger Than My House

When I was Assistant Secretary of Housing and Federal Housing Commissioner, then Secretary of HUD Jack Kemp asked me to his office for a private discussion. He explained that he was concerned that I was standoffish and did not socialize with the other political appointees, the "principal staff," at the agency.

I was surprised and noted that I had invited the principal staff to my house for cocktails or brunch five times, and with one exception none of them had ever reciprocated. I noted, in fact, that I had invited Jack all five times and he had never once come. He looked at me with shock and said,

"I would never come to your house. Your house is bigger than my house. I would find it castrating."

I tell you this story because it is very difficult for hardworking, busy people who are subject to the discipline of market forces to fathom what is going on in Washington these days.

It is not in most people's experience to witness a complete breakdown of financial controls that does not impair one's ability to continue to borrow more money—indeed, access to more money is near infinite (see "The Military Holds the Dollar Up"). And this situation is combined with decision making driven by personal profit and imagined sexual potency.

This state of affairs can exist only when it serves the interests of those who are quite clear-thinking and far more powerful than those who work in the Administration. You can attack and take over a country. Or you can simply let it borrow itself to death in a financial coup d'etat. Recent history suggests that the second is infinitely more profitable for the victor.

Part IV – The Profits of Playing Ball

The housing bill brings up a number of important questions about the risks and rewards that result from government subsidy and bailouts.

One recent market commentator pointed out that Fannie Mae and Freddie Mac executives were allowed to keep the big bonuses they made engineering the housing bubble and bankrupting the companies.

One of the examples given was Jamie Gorelick, (1, 2) who joined Fannie Mae as vice chairman from 1997 to 2003 after engineering the move to private for-profit prisons as deputy attorney general in the Clinton Administration. Gorelick's name received national attention as a member of the 9-11 Commission and close advisor to Hillary Clinton.

Gorelick got Fannie Mae compensation and bonus payments of $26 million, which she gets to keep.

However, the bill stipulates that Americans at risk of foreclosure who get a mortgage workout must share future equity capital gains with the government.

Mainland Chine Lenders Ordered to Halt Interbank Deals with U.S. Firms

This could be serious...There's not a lot of money involved, yet... but it indicates a trend...

By Jane Cai and Adam Chen

South China Morning Post, Hong Kong
Thursday, September 25, 2008

BEIJING -- Mainland regulators have told domestic banks to stop lending to United States financial institutions in the interbank market in a bid to prevent possible losses during the financial crisis, industry sources said yesterday.

The ban from the China Banking Regulatory Commission (CBRC) applied to interbank lending of all currencies to US banks but not to banks from other countries, a source said.

The CBRC was not available for comment yesterday.

The decree appears to be Beijing's first attempt to erect defences against the deepening US financial meltdown after the mainland's major lenders reported billions of US dollars in exposure to the credit crisis.

Lending transactions on the mainland interbank market totalled 10.65 trillion yuan (HK$12.17 trillion) last year, according to the People's Bank of China.

In the first eight months of this year, transactions totalled 10.11 trillion yuan, up 104 per cent from a year earlier.

At the end of last year, the mainland interbank market had 717 members, including banks, securities companies and trust companies.

Another banking source said the CBRC issued the ban after obtaining data about the exposure of mainland banks to bonds issued by bankrupt Lehman Brothers Holdings.

Top officials said they were keeping a close watch on the crisis and warned mainland financial institutions to be cautious in their daily business and overseas expansion.

"The international transaction volume of Chinese banks is not big. Those concerning subprime loans are probably lower than US$10 billion," deputy central bank governor Ma Delun wrote this week in the China Business Post, a People's Bank of China-affiliated newspaper.

But the deteriorating situation in the US has shocked top officials.

Mr Ma said that among the unexpected developments was the effect the crisis was having on normal assets, not just problematic assets; its impact on the whole credit market, not just single products; and its effect on Europe and other nations, not only the US.

The exposure of seven listed mainland banks to bonds related to Lehman Brothers totalled US$721 million.

Mainland banks had US$9.8 billion in exposure to US subprime loans at the end of last year and US$25 billion to Fannie Mae and Freddie Mac by June 30.

Ekaine Supkis explains the Inflationary Aspect of the Fannie Mae Bailout

I have a sinking feeling that this lady knows what she's talking about. Maybe.

Elaine Supkis at Culture of Life News:

...The rescue of Fannie Mae is very inflationary. Note that ALL the news stories boast about his this legendary rescue will mean CHEAPER LOANS. Oh, goodie. The goddess of Inflation is licking her chops.

Dell said to consider sale of factories

(MarketWatch) -- Dell Inc. reportedly might sell its factories as part of a strategy to overhaul its production model to cut more than $3 billion in annual costs within the next two years.

The Wall Street Journal reported Friday that Dell could sell its factories within the next 18 months to contract manufacturers, most of which are based in lower-cost Asian countries. Dell has about 60 manufacturing or research facilities in 20 countries.

The sale of its factories would suggest Dell is still groping for ways to accomplish its goal of improved profits despite the return last year of founder Michael Dell to the role of chief executive.

Venancio Figueroa, a Dell spokesman, said the company wouldn't comment on "rumors and speculation." Figueroa repeated that Dell has said it wants to work more closely with manufacturers in order to "reduce costs and make products in a timely fashion."

Dell is selling all its factories to...THE CHINESE! Oh, lord. I remember talking to the Chinese officials about this in the 1980's. We agreed that ownership always evolves into the hands of the people who hold the physical manufacturing base. And so it is: the Chinese had no money and had to nearly enslave themselves to the G7 powers to gain these factories. But being very hard working and extremely intelligent and well-educated, they used their mental pry bars to separate the G7 capitalists from their own factories and even their own research facilities!

One by one, US or European ownership of things in China is collapsing. The fall of the Chinese stock market is actually part of this process. The Chinese government doesn't want foreign money pouring into Chinese futures markets! The US begs for this money. China forbids it. The US is going bankrupt. China is getting richer.

Japan's Bonds Decline on U.S. Rescue of Fannie Mae, Freddie Mac

(Bloomberg) -- Japan's 10-year bonds declined the most since May after the U.S. government seized control of the two largest U.S. mortgage-financing companies, easing concern that a yearlong credit crisis will worsen.

The takeover of Fannie Mae and Freddie Mac set off a surge in Asian stocks and a drop in government debt, lifting Japan's 10-year yields to the highest in almost five weeks. Treasury yields had the biggest gain in two months. Demand for debt was also limited before the Ministry of Finance sells 1.9 trillion yen ($17.5 billion) in five-year notes at an auction tomorrow.

``We are closer to seeing the end'' of the credit crisis, said Takashi Nishimura, an analyst in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets. ``It was a good step in the right direction and the stock market reacted positively and the bond market reacted negatively.''
*snip*
``There will be an unwinding of flight-to-quality and that will translate into selling pressure in the JGB market,'' said Eiji Dohke, chief strategist at UBS Securities Japan Ltd. in Tokyo. The plans to buy Fannie and Freddie ``may put the brakes on the financial market turmoil.''

Japan's bonds are the poor men of the bond world. Since these bonds are trapped in a 0% interest system from hell, they are basically worthless to anyone but the insane. This is why Japan's government is falling, by the way. The LDP can't keep creepy sons of former war criminals in office for more than a year! HAHAHA. Kiss them all goodbye and good riddance.

Mitsubishi Chemical: Ready To Accept Investment From Middle East

TOKYO (Nikkei)--To secure a stable supply of crude oil at low cost, the company is prepared to accept investments from oil-producing countries in the Middle East as long as the Japanese firm retains management control.

Japan has one of the largest trade profits on earth. And are going bankrupt due to this 0% interest banking system. Now, they are reduced to begging OPEC to buy them up, please! This is funny as hell. Oil is very expensive in Japan because of the fake depression which enables the cheap lending. And now, Japan pays a heavy premium for oil. They are desperate to fix this while keeping the yen weak! Note how their stocks shot up today due to the yen weakening against the dollar.

This is PURE BUNK: the dollar is NOT stronger due to the US government now taking on trillions more in obligations. Yet, this is how our trade rivals have shoved things into a backwards system that works totally contrary to the monetarist theories of Floating Currencies!

Wall Street Trading Gets Zero Value From Lehman, Merrill Owners

(Bloomberg) -- Lehman Brothers Holdings Inc. is trying to sell its fund-management unit to cover further mortgage- related writedowns. If it does, what's left won't be worth much, based on how investors value the firm.

Lehman's market capitalization of $11.2 billion is almost equal to the value of its asset-management arm, which includes Neuberger Berman Inc. That leaves its main business of trading stocks and bonds as having little worth. The numbers are similar for Merrill Lynch & Co.: Take out its retail-brokerage and asset- management businesses, and the investors' valuation of the rest of the third-biggest U.S. securities firm is zero.

After being the most profitable business on Wall Street, generating more than $65 billion in pretax profits for the four largest U.S. securities firms between 2002 and 2006, trading has become a black hole. It still accounts for about half of the revenue at the Wall Street firms. Yet Lehman Chief Executive Officer Richard Fuld and Merrill CEO John Thain have been unable to convince shareholders to attach a value to the businesses.

Now Lehman will be zeroed-out. The Silver State Bank which babysat McCain's son, Andrew, has just gone bankrupt. Many banks will declare bankruptcy soon. And all will flock to the Federal Reserve and the US government to be funded, saved or given vast powers to create even more credit out of thin air. I don't see any sane resolution of all this. Each banking collapse of the last 60 years has been worse than the ones before it to the point, we are now comparing this series of collapses to the Great Depression.

This is because nothing is ever fixed. The fix is not in the banking system, it is in the nature of our own empire. We cannot afford to have the world's biggest military spending. We can't afford thousands of bases all over the planet. We can't afford to run the US like the Soviet Union. We are in trouble and the only door to safety is to drop this notion of ruling the earth.

It is no shock to me to see that one of the cities with the highest crime rates is Washington, DC. Once we leave all the government buildings, we enter vast, dying slums filled with abandoned buildings. Virtually no businesses. No hope. Wave after wave of 'prosperity' washes over America and our national capital remains mired in poverty. Now, the backlash of all this wild spending that gave the illusion of wealth will crash over our entire nation. Soon, we may all be living in clones of the Washington, DC slums.

Mike Morgan chronicles the end of the free market

The two most recent posts by f in full:

Saturday, September 6, 2008

Paulson's Grand Scheme

I've received hundreds of phone calls and emails since Friday afternoon. I was going to wait until after hearing what Paulson dumps on us before commenting, but I need to get a short piece out to try to stem the flow of emails and phone calls.

It is anyone's guess what he is going to do. I've heard from contacts around the globe, and everyone seems to be wondering . . . but for the most part, everyone agrees Paulson is going to reward his fraternity Pals from Goldman Sachs and provide guys like Bill Gross and Wilbur Ross with a huge bail out . . . and even bigger profits.

There appears to be two ways of looking at this.

1 - The Dark Side - Paulson is going to provide a bail out that will cost the taxpayers hundreds of billions, but he will do it in pieces and hide the real story until he is long gone. The scheme will be so enriching to his Pals, that the market will rally hundreds of points on Monday, as Paulson's Pals force the market higher to give the world a false sense of security. Paulson does not care about the public, the taxpayer or the how this effects the world. He is simply under too much pressure from his Pals, and guys like Bill Gross who have buried retirement accounts and pension funds in toxic waste. In the end, it will all blow up in our faces, but Paulson will be long gone and the traders reaping the profits on Monday will be selling to the unwitting masses that will be wiped out a year or two down the road. Think 1929 on steroids.

In fact, this group believes Paulson has already cut a deals with John Mack, Vikram Pandit, Bob Steel, Jamie Dimon, Lloyd Blanfein, Bill Gross, John Thain and their counterparts throughout the Goldman Sachs controlled financial world to invest in Fannie and Freddie alongside the Fed. What escapes the public eye, is that eventually these investments fail . . . and the only losers will be the public. Guys like Gross, Mack, Dimon and Paulson's Pals in high positions at the major financial institutions will be long gone when the fall out destroys the American dream, economy and the very fabric of who we are.

2 - The Lighter Side - The alternative thinkers believe the markets will come down hard on Paulson, beginning with the Asian markets and following through to Europe and America. In fact, they believe the markets have been waiting for this for moment. These folks note that Fannie and Freddie were up sharply when the bail out was first announced Friday, but they turned down and fell sharply. Unfortunately, we can't say the same for the financials and the builders, so I am thinking this group is going to come up short. After all, the two groups that should be 50-75% lower, rose sharply on the news. That's where these thinkers start to think twice. The Plunge Protection Team may have been juiced up over the weekend with some foreign thugs, and Paulson might just overwhelm this group as well.

In this group, about half think Paulson will prevail with his PPT on steroids, while the other half believe the markets will react violently on Monday and finish sharply lower . . . even if they don't start out that way. The hard core group that want to see Paulson pummeled, believe it will start ugly and end ugly. Some even believe the markets will be forced to close and Paulson will resign before finishing his term. Since my clients are on the short side of the market, I like this group . . . but I believe Paulson has already indicated he is going to pull a scheme to reward his Pals.

Criminal - That is the only way to describe what we are witnessing. And the criminals get bolder by the day. For Bill Gross to come out with the commentary he has injected this week, is simply outrageous when you consider what he has been saying and doing for years. And for Paulson to have gained so much power, while still making back room deals with his Pals, is sickening. Our politicians basically gave this one man control over the destiny of the United States of America . . . with no back stop to control his bazooka.

Not Just Fannie and Freddie - What the financial world seems to have forgotten, is the problems don't stop with Fannie and Freddie. First of all, this bail out only involves about half of the US mortgages, and it doesn't even come anywhere close to preventing it from happening again. Second, we are witnessing the demise of the free market system, where we are protecting the greedy bastards at the top, but throwing the system and the financial future of everyone else to the wolves. The right thing to do, would have been to follow the money and go after the thieves. Even Cuomo made it clear he was only in it to secure his spot as Governor of New York.
Doing the right thing was never an option. We saw that in July, when instead of locking up his buddies for violating the short selling rules, Paulson decided to test his control over the world's financial masrkets.

Since Paulson will not do the right thing, the next best thing to do would be to let Fannie and Freddie fail along with the banks. Yes, there would be global pain, but it would be a lot less than what we will experience by trying to protect a few thousand greedy bastards like Paulson and his Pals. I want to say something creative right now, but all I can think of is . . . God Save Us.

Thursday, September 4, 2008

Pasulson - Thief of the Century

History's Greatest Thief - In July when Hank Paulson decided to put an end to naked short selling, he could have simply enforced the rules and sent dozens of traders to jail. But that would have meant sending many of his frat boys to jail. Instead, he decided to give his boys a heads up, and then pull one of the financial world's most successful scams, simply to enrich his friends. He essentially killed the free markets.

End of the Free Market - His excuse was how he wanted to protect the banks being shorted. That's a free market decision. And if people are not following the rules, you throw them in jail. You don't change the rules. Changing the rules was the end of the free market as we know it.

Burning Out of Control - When the wild fires burn through forests, the forests that burn out of control, are the fires where we have not cleaned out the dead wood and brush. This is done in one of two ways. First, we can physically go in and remove it periodically. Second, we can let nature take its course and allow small fires to burn through the brush, doing no damage to the forest. In fact, this makes the forest healthier.

SAME THING FOR BANKS - Yes, absolutely. If we let the free market shut down bad banks, we get rid of the dead wood. If we try to save the bad banks . . . as Paulson and the Fed are doing, we eventually will face a wild fire that we cannot control. It is coming, and the more games Paulson plays, the worse the fire.

Fannie and Freddie are perfect examples. Wachovia, Washington Mutual, Corus, Downey, Vineyard, Regions and hundreds of other banks are also in the dead wood pile. Paulson has been very quiet now for a few weeks. Some say he is trying to hold things together until Election Day. Others say he is scheming with his frat boys to pull off yet another financial coup for his boys . . . at the expense of the American public.

The man is dangerous. He has already proven that, but he also has the magic ring . . . and Bush and the Congress and the Senate are all kissing it.

Bear Stearns - Why was there only one institution willing to step up to the plate? Why did Paulson offer $30B of our money? It wasn't because Bear was too big to fail. We must let the dead wood burn off, no matter how painful it is in the short term. What I am hearing now, is JP Morgan was the bank most exposed to the counter side of Bear Stearn AND many of Paulson's Pals would have been wiped out by letting Bear Stearns fail. Whatever the reason, we should have never bailed out Bear Stearns. That should have been the beginning of the burn off of the dead wood. That might have been the critical point to avoid a complete conflagration.

Markets Will Correct - Despite Paulson's manipulation tricks, the markets will correct. When the markets correct, it will be a violent correction, far worse than the mini-corrections we are seeing roll through the markets now. Paulson will win, because he will line the pockets of all of the big boys on Wall Street. Our pension funds and IRAs will be devastated. Our country will spend 15-25 years recovering. We will recover, but the damage Paulson is doing by allowing the prior corruption of Greenspan and his handlers to continue, will be devastating. In closing, I use the word handlers, because Greenspan was not stupid enough or devious enough to come with his mistakes on his own. And since he is not off in a private jet or lounging on his private island, he probably never realized what Paulson and guys like Paulson running the big institutions were puppeteering Greenspan to do . . . or not do.

The most lucid explanation of Fannie Mae and Freddy Mac I've seen

Another long but revealing post...

Asia Times Online:

Foreign spigot off for US consumers
By Max Fraad Wolff

As US public attention shifts from the Olympics to running mates and the celebrity "news" de jour, the infrastructure beneath your house is termite-infested. Just beneath the nicely painted exterior and behind all the new appliances, doubt is boring through the beams, gnawing at the studs.

Alongside falling prices, rising mortgage rates, stricter credit conditions and general malaise, the structure that supports American home ownership is being condemned by market valuation. Fannie Mae and Freddie Mac have nose dived and been downgraded toward a smaller future - and these are more important names for your future than Joe, Sam, Kathy, Mitt, Meg ...

Fannie Mae was created in the depths of the Great Depression to decrease foreclosure and increase home ownership. In 1968, it was re-chartered as a public company, removed from within official government agency status. Freddie Mac, since its inception in 1970, has financed 50 million homes.

Fannie and Freddie mission statements make clear, they exist to facilitate, ease and cheapen home ownership. They do this by acting as liaisons between international capital markets and mortgage seekers. They borrow at preferential rates - based on the implicit/explicit - assurance of the US government. Borrowed funds are used to buy mortgages and bundles of mortgages. They provide credit guidelines and purchase mortgage issued by banks. This reduces banks' risk and provides banks with more cash, more quickly to make more loans at lower costs. These firms, then, exist to facilitate, ease and accelerate bank lending for home purchase.

Fannie and Freddie form a central hub between lenders and investors. After they buy American mortgages, they bundle sell and guarantee repayment. This transforms mortgages into investments for banks, corporations and governments all over the world. Your home mortgage, bundled with many other folks' mortgages, is sold, repackaged and assured by Fannie and Freddie. This reduces risk and assures global savings flow in to support American purchases of homes. International investment is the foundation on which our home ownership was built.

Well over US$1 trillion of our mortgages have been sold to foreign investors this way in the recent past. As you sit down and read this, your mortgage may well be "owned" by a firm, individual or central bank thousands of miles away. This relationship is neither healthy nor sustainable in its present form. Rising defaults, falling dollars and the sheer size of past borrowing are turning people off to American mortgages. The foundation below our houses is shifting.

What we are witnessing is the breakdown of the link between middle-class America and the global financial markets it has over-tapped across the last several decades. Fannie and Freddie were the support infrastructure connecting houses to capital market access. They have been caught with weak financials, swollen balance sheets and escalating default, just like the home owners they assist. The size of their retained mortgage portfolios is truly gigantic.

The extent of the firms' guarantee commitments is global in scope. Sixty-six global central banks buy loans bundled and or backed with Freddie Mac and Fannie Mae involvement. As of June 30, 2007 foreign entities and individuals held over $1.4 trillion in securities of US agencies such as Freddie and Fannie.

Fannie Mae's June 2008 statement declares a gross mortgage portfolio of $750 billion and guarantees of mortgage backed securities and loans of $2.6 trillion. Freddie Mac's June statement details a retained portfolio balance of $792 billion and a total mortgage portfolio balance of $2.2 trillion. These two giants have retained interest in over $1.5 trillion and guaranteed over $4.5 trillion in mortgages, mortgage backed securities and loans. There are $11 trillion in outstanding mortgage liabilities in the US.

The US housing market continues to melt down with dire consequence. In the seven years from 2001 through late 2007, household real estate value increased by $8.873 trillion to $22.495 trillion. It has since fallen by $426 billion. Many claim we are at or a near a bottom. These claims should be viewed with extreme weariness. The housing downturn is not over and it will take a while after it is over to judge the damage.

The search for parallels with today yields little. The closest one finds is the interesting decline in home ownership across the period 1905-1920 followed by a surging rise across the '20s and then collapse across the 1930s. Fannie was born of this collapse, the ideology of The New Deal and sense that government-driven market interventions could broaden home ownership in America. This was a success. Home ownership did grow spectacularly across the period from 1938-2007. It is falling now as Fannie and Freddie flounder.

In 1940, US home ownership stood just below 44%. At the start of 2008 68% of Americans owned their home. Over the decades, Fannie and Freddie changed, middle-class America changed and the global financial realm underwent several revolutions. The last and most transformative revolution involved the rise of securitization and integration of global financial markets.

Securitization involves transforming assets and promises of future payment into financial products for sale to investors. International financial integration tears down the walls between national banking systems and allows savings, loans and payments to be gathered and transferred across international boundaries.

A world of wealth poured into US real estate through securitization and deregulation. This flow was channeled and molded by the actions of Fannie Mae and Freddie Mac. The decline of these firms will have dramatic and long-lasting implications for home mortgage finance. This will impact the price of American homes, the cost and ease of borrowing for home ownership.

Housing prices have further to fall and global savings will likely never be lent to American consumers at recent percentage levels. Across the past few years America has been borrowing over 50% of the world's internationally available savings. The diminishing role of Fannie and Freddie will impact more people, for far longer than presidential running-mate selections. Policy makers and managements in Fannie and Freddie are stuck. Today's consumer strength, their missions and international financial realities no longer align.

We face a housing finance future different from the recent past. Fannie and Freddie will not be able to function in the same way, or to the same extent. The debates about and plans for these firms will touch millions of families through housing prices, finance terms and cost. Fannie and Freddie are much more important than Joe, Sam, Kathy, Mitt, Meg ...

Max Fraad Wolff is a doctoral candidate in economics at the University of Massachusetts, Amherst, and editor of the website GlobalMacroScope.

(Copyright 2008 Max Fraad Wolff.)