The real issue here is that this has been caused by Bill Gross. If the US government doesn't have as much as credibility as the head of PIMCO, it's hard to predict where this crisis will end.

The bailout means less mortgage credit, and less housing activity. While in the short run the Treasury may get away with low interest as result of panicky financial markets, in the long run this will cause more taxes. Or of course, if the politicians decide so, it may mean less taxes, but lower dollar. And if they decide to do nothing, it may as well bring about bankruptcy of the US.

I believe that the dollar will be the victim.

When you want to view the Fannie and Freddie events that led to this historical event, just look here for Fannie and here for Freddie .  Follow the OLDER link when you want travel back in time. You ca initiate directed searches yourseld, for instance by typing in "paulson freddie" without the quotes in the search box.

This event was also a signal to update the guided analysis. This covers by now over 500 credit crisis events! You can use this facility to analyze the credit crisis categorized events yourself.

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Breaking News Sunday  9-7-08 3:15pm PST:  

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Saturday  9-6-08 7:40pm PST: 

Treasury Secretary Henry Paulson is poised to announce that he is Taking Over Fannie Mae and Freddie Mac, and placing them under government conservatorship.  This means they are going to make you pay for other peoples criminal activities.  More analysis will be added to this post as news is released - So Keep Coming Back!  YourMortgageOrYourLife.com

They got rich, you get the bill.  And your kids.  And their kids.  And their kids, etc.... 

From Feed Reports: 

Paulson met with Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron yesterday to tell them of the decision to put the companies into a conservatorship, where they would be removed from their jobs, according to a person briefed on the discussions. A public announcement is expected this weekend, the person said.

The decision follows the Treasury chief's repeated comments to lawmakers in July that he wasn't likely to use taxpayer funds to prop up the federally chartered, shareholder-owned firms hit by $14.9 billion in losses the past year. The shares of both companies slid since Paulson won powers to inject unlimited funds in the companies, and their borrowing costs rose.

Pacific Investment Management Co., manager of the world's biggest bond fund, and other large investors may put in their own money once the Treasury decides to inject government funds, Bill Gross, co-chief investment officer at Newport Beach, California-based Pimco, saidyesterday in a Bloomberg Television interview.

``They have to open their wallet,'' Gross said, predicting that the Treasury will act this weekend before the Federal Housing Finance Agency releases an assessment of Fannie's and Freddie's capital.

About 61 percent of Gross's holdings were mortgage-backed securities as of June 30, mostly debt guaranteed by Fannie, Freddie or government agency Ginnie Mae, according to data on Pimco's Web site.

So here are these rich assholes salivating at the chance to rip us off again.  They ripped us off when they screwed us on our mortgages.  They ripped us off when they told us to pull our equity out of our homes and spend it.  They ripped us off when they set up the government to bail out their risky investments with our money.

Now they are going to get rich off of the bailout - investing money they stole from us, taking advantage of their access and influence over the Treasury, the Federal Reserve, the FDIC, the SEC, the Commerce Department, and on and on.  Thos same people who like to watch my website, and others (We have have the records if you want to see them...).

They are stealing from us and all of our descendants for as long as you or I can expect to matter to anybody - hundreds of years or more. 

You and I, our names and our lives will long be forgotten before the American People will pay off these debts they are foisting upon us today.  They are laughing at us and counting their money, they laugh because they know we are lazy, complacent fools who will not lift a finger to defend ourselves from their thievery.

They know we are all more captivated by the prospects of electing the first Black President - even though Barack Obamais not experienced enough. They need to flip that ticket and put Joe Biden on top, or it's all just a show.  Experience needs to be the requirement, not camera appeal.

They know we are all too preoccupied with the pretty, bombastic Redneck babe who unexpectedly emerged from the woods of Alaska to burst on to the national political scene - who could be one (very old) heartbeat from the most powerful posts in the world?  Are we that stupid?  

Are purely superficial qualities like speechifying and good looks more important than knowledge tempered by experience?  Are we that ripe for fascism? 

They laugh at us because they know they stripped our education system it's effectiveness, and left us all full of factoids, but no ability to string them together into a coherent argument, or coherent thought.

They laugh and count their money because they know we will take it in the ass with a smile - just give us a good fall TV schedule.  We'll vote if it's not too inconvenient.  We'll vote for the guys who are screwing us blind.

Expect the unexpected in the markets this week - there may be some big winners, depending on Paulson's plan.  There are definitely some big losers - You and Me.  Read on...

Briefing Campaigns

Paulson gathered with Federal Reserve Chairman Ben S. Bernanke, FHFA director James Lockhart, Syron and Mudd in Washington. The Treasury plans to brief Democratic presidential candidate Barack Obama's campaign team today and has contacted Republican contender John McCain's staff about its intentions.

The meetings come a month after Paulson hired Morgan Stanley to advise on any use of taxpayer funds to recapitalize Fannie and Freddie, which account for almost half of the $12 trillion mortgage market. A government takeover would be the latest attempt to blunt the impact of the yearlong credit crisis, after the Fed provided financing for Bear Stearns Cos.'s takeover by JPMorgan Chase & Co.

Breaking News 9-6-08 7:40pm PST:

Treasury Department's Henry Paulson Taking Over Fannie and Freddie...

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In a conscious effort to produce a website that has useful and poignant content that is open and available to readers of any and all points of view, I try to keep my personal slant to a tolerable level and not interject any of my paranoid delusions into the articles.  I will offer them up to some extent, but I try not to profess too much.

But, when my paranoid delusions start becoming terrifying realities, I feel I have an obligation to point them out and make a plea for your concern and attention.

Case in point,  my YourMortgageOrYourLife.com article from August 25, 2008:

Here is more proof they going full speed in their efforts to Fatten Up the GSE Portfolios before they IMPLODE them!

So as More Banks Teeter on the edge and Fannie and Freddie Stock turns to Junk , the Democrats look like they are going to go ahead and try to Implode the GSE’s soon, and draw attention away from security issues, and make the economy the central issue in an effort to win the election.

The only thing worse than that is that the Republicans are determined to Get Us Into Another War or two in their equally Machiavellian scheme to win your vote. 
 And the Republicans plan kills people.

They knew all along!  

And now they are going to make you  PAY for THEIR MALPRACTICE!

 
Bastards.

Now I would like to amend the sentiments expressed in that post to read: 

They are Killing You - the Republicans and the Democrats - and yet You Vote for Them...

They are Destroying your Country - and yet You Vote for Them...

They Only Want Power, not Peace or Prosperity for You and Me - and yet You Vote for Them...

They are Sending Our Kids to War - and yet You Vote for Them...

They are Robbing You Blind - and yet You Vote for Them...

They are Stealing Your Freedom Through Fear and Debt - and yet You Vote for Them...

 

They are Putting Your Great Grandchildren in Debt to Foreign Powers - and yet You Vote for Them...

 

They are Bankrupting the United States of America - and yet You Vote for Them...

 

Freedom is not a right inherent in your being.  You are neither born free, nor do you live free.

 

Freedom is a privilege you have to earn. everyday.

Freedom is a privilege you earn by educating yourself, and contributing to the education of others.

 

Freedom is a privilege you earn by participating in your Democracy as a Citizen Exercising your Right to a Vote on the course of your future.

 

Freedom is a privilege you earn by being an independent thinker, and a collective agent for change.

 

Freedom was wraught from the Blood Sweat and Tears of Patriots who ripped it from the clutches of Tyrants, and now they have a hold of our Freedom again.

I am not advocating any particular party, movement or philosophy.  I don't like any of them.  I am urging you to seek out knowledge for yourself and stop being a sheep - stop being an armchair citizen - start acting like a genuine American.

They give away your jobs so They can make more profits.  They take away you health insurance so They can make more profits.  They send our kids to war so They can make more more profits.  They make risky investments and then pass legislation to make you bail them out so They can make more profits.  When Their investments do make money, They pass legislation to cut Their own taxes so They can make more profits.  They deny you affordable medicine so They make more profits.  They deny you a decent education so They make more profits.  They let your bridges and highways fall into disrepair so They can make more profits. 

I have had multiple government entities monitoring my website since I started it only weeks ago.  If enough people want to see them, I will post the records of their surveillance for you.  Why is your government spending your money monitoring stuff I freely post for everyone to read?  I am about as dangerous as a rug-burn, but it is happening anyway.  The Constitution also protects us from having our land taken by the government and given to another private party, but it is happening anyway.  Who is policing the government?  Or is it a free-for-all, get yours and to hell with everyone else?

In short, the answer is yes. As previously noted in another post on this website, and as yesterday opined by Bill Gross at PIMCO's website, the danger of a negative feedback loop is very real and after the excesses of the past ten years, if not more, the financial system now appears ill-equipped to deal with the arising complications. As days pass, instead of healing and giving hopes of recovery, the situation of the US economy is giving more and more signs of getting worse. So the economy needs all the remedy it can be afforded; the question is about the price of the medicine.

To see the severity of the crisis, one must be more farsighted than just basing one's assessment on high frequency economic data, such as the PMI's, factory orders, etc., which are boosted by the temporary strength of the export sector, or the illusory strength of the world economy. It's more fitting to look at the underlying causes and dynamics that are driving the developments in markets and the real economy, and a brief analysis of these easily demonstrates how difficult and dangerous the situation is.

We have been through a global real estate bubble of unprecedented size in the history of the world. Bubbles are bursting across the world: in Hong Kong, France, Italy, Ireland, Spain, Turkey, US, Norway, Denmark, UK, China, Balkans, Baltics, real estate activity has either begun contracting, decelerating, or prices are already falling.

Most of the developed world is in a recession, and it's only logical, that in an era of ever increasing correlation between countries' economic activity, we see the trend continued in emerging economies' activity fairly soon. Indeed all over the world activity is slowing: falling commodity prices are likely to dampen activity in commodity producing nations, and increasing risk premiums should see a reduction in money flows to all emerging economies.

So what will be achieved if the US government, for example, buys all the subprime mortgage in the US, and nationalises the GSE's?

First of all, that the US will stand behind agency debt is common knowledge now; there's almost no one who doesn't expect the Treasury to assume the debt of these organisations if they somehow have difficulty meeting their obligations. While it's necessary that they be nationalised at some point, it's absurd to expect that this will provide the end of the crisis, as it will merely confirm what is already assumed in the financial markets.

Secondly, provided that the government buys and nationalises the subprime mortgage paper, and in a way "levels" excess housing, by taking it out of the market, will there be a change to the fundamental issues facing the US consumer?

If he spends the way he spends, and if the Chinese keep overinvesting, commodities keep rising, and the triple bubble in the world, in manufacturing, consumption and real estate is allowed to keep building momentum, what kind of a benefit will be derived from this, apart from moving the problems from one pocket to the other?

Yes, government intervention may succeed if done properly. But the failure of unilateral action by the Fed in easing the lending constraints in the US demonstrates in an unmistakable fashion that the global nature of this crisis allows only a global, concerted effort by central banks any chance of success. It's foolhardy to expect that an independent bailout of the US mortgage market by the government can somehow defuse and resolve all the global excesses that have been building up almost ten years now.

Besides, why would we expect that placing the consumers' and corporations' debt in the government's pocket will necessarily improve our the financial situation? 

Like any other entity, the government must pay back its debt. It's not too much to say that today, rightly or wrongly, the only financial institution with strong credibility in the US is the US government. By burdening its already patchy balance sheet by trillions of worthless mortgage paper, there's a chance that we'll risk perpetuating the crisis, instead of defusing it.

We will have to live through this period of lesser consumption, and lesser economic activity. There doesn't exist a way of evaporating the problems, however much we desire that they would.

Lehman’s Dead Cat Bounce

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While the world and I wait for the shoe to finally drop on this Lehman-KDB deal (Lehman Brothers On the Ropes - KDB Deal May be Ugly, or Not Happen At All) I have been putting together some research to support my supposition that Merrill Lynch is next on the chopping block.

A lot is at stake here, and depending on the terms Lehman is able to secure - assuming they can close a deal at all - Merrill Lynch will have to make some quick decisions regarding their own strategy for shoring up the company portfolio, shedding problem assets, and raising capital with out diluting investor share value unnecessarily.

This list of compounding factors is growing quickly for Merrill Lynch, as illustrated by the following clips that have appeared in print and on the internet in recent weeks:

Merrill Lynch Downgraded to Sell by Goldman Sachs

NEW YORK (MarketWatch) -- Shares of Merrill Lynch & Co. were down more than 5% in pre-trading Friday after Goldman Sachs downgraded the bank to sell from neutral. Goldman also added Merrill to its Conviction Sell list, citing valuation and the likelihood of further write-downs.

MER 25.35, -0.86, -3.3%) to report a loss of $5.75 a share compared to its previous forecast of a loss of $4.75 a share.

As of about 8.30 a.m., Merrill's stock was down 5.23% in pre-trading. The stock fell 7.48% Thursday, closing at $26.21, close to its 52-week low of $22, reached on July 29.

"Merrill currently trades at the highest price-to-book multiple in our large-cap brokerage universe, despite having some of the most significant exposures to troubled assets such as collateralized debt obligations, mortgages and leveraged loans," said the Goldman note.

Merrill losses wipe away longtime profits

Merrill Lynch's losses in the past 18 months amount to about a quarter of the profits it has made in its 36 years as a listed company, according to Financial Times research that highlights the extent of the global banking crisis.

Since the onset of the credit crunch last year, Merrill has suffered after-tax losses of more than $14bn as its balance sheet has been savaged by almost $52bn in writedowns and credit-related losses. Since taking over from Stan O'Neal in November, John Thain, Merrill's chief executive, has sought to shed toxic assets and replenish its balance sheet by raising almost $30bn of capital.

The size of the losses at Merrill and other Wall Street firms underlines the risks of an investment banking model that relied on complex securities and cheap leverage to drive profit growth. Analysts have questioned whether standalone investment banks such as Merrill, Lehman, Morgan Stanley and Goldman will ever top the profit levels reached during the boom in securitisation, leveraged loans and mortgage-backed products.

 Merrill's $7BB ARS Buy-Back

Federal regulators said Friday that investors who bought risky auction-rate securities from Merrill Lynch & Co. before the market for those bonds collapsed will be able to recover up to $7 billion under a new agreement. Merrill agreed to hasten its voluntary buyback plan by repurchasing $10 billion to $12 billion of the securities from investors by Jan. 2.

New York-based Merrill neither admitted nor denied wrongdoing in agreeing to the federal settlement, which is subject to approval by SEC commissioners. The SEC said Merrill "faces the prospect" of a penalty after completing its obligations under the agreement.

"Merrill Lynch's conduct harmed tens of thousands of investors who will have the opportunity to get their money back through this agreement," Linda Thomsen, the agency's enforcement director, said in a statement. "We will continue to aggressively investigate wrongdoing in the marketing and sale of auction-rate securities."

 SEC Enforcement Division Announces Preliminary Settlement With Merrill Lynch to Help Auction Rate Securities Investors

The Securities and Exchange Commission's Division of Enforcement last week announced that a preliminary settlement in principle has been reached with Merrill Lynch... that would enable investors who purchased auction rate securities from the firm to receive a total of up to $7 billion to restore their losses and liquidity.

 The preliminary settlement also would require Merrill Lynch to use its best efforts to provide liquidity for approximately $1.5 billion worth of ARS purchased through Merrill Lynch by other business and institutional customers.

The proposed charges involve alleged misrepresentations by Merrill Lynch to thousands of its customers that ARS were safe, highly liquid investments equivalent to money market instruments and cash. Furthermore, Merrill Lynch continued to tout the purported liquidity of ARS to customers despite its awareness of the escalating liquidity risks in the weeks and months preceding the collapse of the ARS market.

"Merrill Lynch's conduct harmed tens of thousands of investors who will have the opportunity to get their money back through this agreement pending Commission approval," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "We will continue to aggressively investigate wrongdoing in the marketing and sale of auction rate securities, and will seek prompt and meaningful relief to auction rate securities investors as a top priority."

Under the terms of the agreement in principle:

Merrill Lynch faces the prospect of a financial penalty to the SEC after it has completed its obligations under the settlement agreement. A determination as to the amount of the penalty, if any, will take into account, among other things, the extent of Merrill Lynch's misconduct in marketing and selling ARS, an assessment of whether Merrill Lynch has satisfactorily completed its obligations under the settlement, and the costs incurred by Merrill Lynch in meeting those obligations, including penalties incurred and the cost of remediation.

No later than Oct. 1, 2008, Merrill Lynch will offer to liquidate at par all ARS from individual, charitable, and small business investors with account values up to $4 million who purchased ARS from Merrill Lynch prior to the collapse of the ARS market in mid-February 2008.

No later than Jan. 2, 2009, Merrill Lynch will offer to liquidate at par all ARS from remaining individual and charitable investors, and from small businesses with account values up to $100 million who purchased ARS from Merrill Lynch prior to the collapse of the ARS market in mid-February 2008.

Merrill Lynch will provide certain investors no cost loans that will remain outstanding until the ARS are repurchased or until an investor declines Merrill Lynch's offer to repurchase the securities at par.

Merrill Lynch will reimburse customers for costs incurred under any prior loan programs the firm provided to its ARS investors.

Merrill Lynch will make whole any losses sustained by any of the investors described above who sold ARS after Feb. 13, 2008, at a loss.

Merrill Lynch will participate in a special arbitration process that the investor may elect, and that will be overseen by the Financial Industry Regulatory Authority (FINRA).

Merrill Lynch will use its best efforts to provide liquidity to its ARS institutional customers and business customers with accounts of more than $100 million by the end of 2009.

Merrill Lynch will not liquidate its own inventory of a particular ARS before it liquidates investors' holdings in that security.

Merrill Lynch will provide notice to all of its ARS investors of the settlement terms and will establish a telephone assistance line to respond to questions from investors concerning the settlement.

Merrill Lynch will be permanently enjoined from violating the provisions of Section 15(c) of the Securities Exchange Act of 1934, and Rule 15c1-2 thereunder, which prohibit the use of manipulative or deceptive devices by broker-dealers.

The SEC's investigation is continuing.

 Merrill Lynch looking to revise MGM deal terms

Merrill Lynch is examining its contract with Metro-Goldwyn-Mayer's United Artists as the bank looks to revise the deal on more favorable terms, the New York Post reported, citing sources close to the situation. United Artists... last year secured $500 million financing through Merrill Lynch to fund 15 to 18 movies over the next five years.

Merrill is looking for any event that might trigger a default on the loan and open the door to renegotiations, the paper said citing sources. According to a source, the terms of the original financing agreement were so favorable to United Artists that Merrill and its syndicate of lenders would love to get out of it entirely.

 New Credit Hurdle Looms for Banks

U.S. and European banks... face a new challenge: paying off hundreds of billions of dollars of debt coming due.

At issue are so-called floating-rate notes -- securities used heavily by banks in 2006 to borrow money... which typically mature in two years - will come due ... at a time when banks are struggling to raise fresh funds. That's forcing banks to sell assets, compete heavily for deposits and issue expensive new debt.

The crunch will begin next month, when some $95 billion in floating-rate notes mature. J.P. Morgan Chase & Co. analyst Alex Roever estimates that financial institutions will have to pay off at least $787 billion in floating-rate notes and other medium-term obligations before the end of 2009. That's about 43% more than they had to redeem in the previous 16 months....

"It's going to be a bigger problem now than it was in the first half of this year, but it's going to continue on for probably at least a nine-month period," said Guy Stear, credit strategist at Société Générale SA in Paris.

By the end of this year, big banks and investment banks such as... Merrill Lynch & Co and Morgan Stanley... must each redeem more than $5 billion in floating-rate notes. 

 Stock Slides as Others Mostly Gain

Shares of Merrill... fell 62 cents, or 2.2%, to $27.73 in early afternoon trading. Meanwhile, most other major banks gained. Goldman Sachs Group Inc. rose $3.18, or nearly 2%, to $167.15; Citigroup Inc. advanced 48 cents, or 2.5%, to $19.47; Morgan Stanley rose $1.01, or 2.5%, to $41.84.

Merrill in July reported a $4.6 billion loss for the second quarter and booked $9.4 billion in charges and write-downs from mortgage-backed securities, unprofitable hedge positions and home-loan exposure.

Merrill's total inflation-adjusted profits between its 1971 listing and 2006 were about $56bn. The $14bn in losses for 2007 and the first two quarters of 2008 equal half of Merrill's profits since the beginning of the ­decade.

Keep coming back to YourMortgageOrYourLife.com for more details on the ensuing Credit/Mortgage/Housing crisis facing the nation...

**********  Caution:  Language  *********

**********  Caution: Hillary  *********