Open Thread: Bad Sign on Fannie & Freddie Comes True
Last month, Rex Nutting had a surefire contrary indicator: He noted that the Bush administration DOES NOT expect the GSEs to fail, and that no rescue plan is imminent.
He wrote at the time that this made the government takeover a Phoney and Fraudy pretty much a sure thing.
Why?
"Is there any surer sign of an impending disaster than a reassurance from the White House that it doesn't expect it to happen?"
That seems to be more or less an eventuality at this point. But it raises an interesting question:
Recession? Housing Slowdown? Credit Crunch? Been there, done that.
What other impending disasters are out there? What aren't people expecting? What possible surprises are there -- upside as well as down -- that could shake things up even more?
What say ye?
Thursday, August 21, 2008 | 08:30 PM | Permalink
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Russia
Posted by: portland Refugee | Aug 21, 2008 8:36:04 PM
Our Economy is Strong!
Our Infrasturcture is sound!
Our Military is fine!
My 401K Mutual Funds will rebound!
All is well, all is well.
Posted by: Sheeple | Aug 21, 2008 8:43:17 PM
A Russian-led boycott of U.S. bonds in retaliation for the Poland-US missile defense shield pact could cause yields to skyrocket, just at a time when tax revenues are falling and U.S. borrowing intesifying.
The competition for cash from the shortfall from the U.S. Treasury could drive the U.S. into a severe and prolonged L-shaped recession.
Posted by: Winston Munn | Aug 21, 2008 8:54:49 PM
I've gotta think all this lightning-fast "sector rotation" between commodities and financials is going to cause the blow-up of some hedge funds, with a spectrum of possible consequences proportional to their size and leverage. There was much talk of this earlier in the year, but not so much lately.
Posted by: Namazu | Aug 21, 2008 8:55:18 PM
Defaults migrate up the economic chain. The Fed cuts rates to zero. All possible damage ensues.
Posted by: rww | Aug 21, 2008 9:03:53 PM
According to the Stern Review, "one percent of global gross domestic product (GDP) per annum is required to be invested in order to avoid the worst effects of climate change, and that failure to do so could risk global GDP being up to twenty percent lower than it otherwise might be."
I'll accept that the science of climate change remains imperfect, but this administration's do nothing approach is putting the future wealth of all nations in peril.
http://en.wikipedia.org/wiki/Stern_Review
Posted by: Brian | Aug 21, 2008 9:04:18 PM
Anyone expecting Fan and Fred shareholders to be wiped out is going to be sorely disappointed. CDS counterparty risk means that bailouts will always be done leaving shareholders with something.
Posted by: gloomy | Aug 21, 2008 9:06:27 PM
Did anyone notice the details within the initial claims release by DoL?
"States reported 1,284,252 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending Aug. 2, an increase of 570,284 from the prior week."
I looked at prior initial claims news releases and could NOT find any reference to the "570k prior week" statistic.
Looks like the employment picture (or lack thereof) seems very ominous.
What say ye?
Posted by: JimmyY | Aug 21, 2008 9:14:04 PM
Foreign governments currently use the procedes of our trade deficit to purchase 600 billion dollars per year of our debt. As the recession deepens and we purchase less foreign goods and oil, these countries will have less funds with which to purchase our debt. This will mean skyrocketing treasury rates and trash the dollar.
Posted by: gloomy | Aug 21, 2008 9:17:02 PM
Every morning when I drive to work, I pass by the FNMA headquarters in Washington DC. They have stopped watering the grass in front of the building, and it has withered and turned brown.
If that is a sign that collapse is imminent, I don't know what is.
Posted by: JC | Aug 21, 2008 9:22:24 PM
There is some (more) unexpected trouble in housing I don't hear anyone talking about. Starting October 1 anyone taking out an FHA mortgage will actually have to come up with a down payment instead of the often used down payment gift assistance programs.
These gift assisted no down payment FHA loans make up more than 50% of the closings in my market. When they disappear.... so will a lot of the "qualified" buyers. I predict this will cause another 5-10% leg down in prices on top of the already existing problems.
Posted by: Steve Dussault | Aug 21, 2008 9:25:19 PM
I concur with gloomy. The rise in Treasury rates is the next shoe to drop. And this shoe is like a big ole army boot with spikes on the bottom. It is gonna hurt. The tight credit market will get even tighter; housing will come under greater pressure as affordability falls; more adjustable rate mortgages fall to foreclosure due to higher rates; and the dollar falls further.
Posted by: Kirk | Aug 21, 2008 9:26:25 PM
Is this a call for black swans?
Maybe a Russian oil embargo, or an oil embargo from non-aligned state-run oil producers. That would be far worse than the 70's since we produce much less.
A bond boycott from our trade partners would be interesting.
Does anyone know what the credit default swap implosion would do?
Posted by: Rich_Lather | Aug 21, 2008 9:28:08 PM
"CDS counterparty risk means that bailouts will always be done leaving shareholders with something."
I am not too sure about that.
http://www.reuters.com/article/bondsNews/idUSL1142498520080111?pageNumber=2&virtualBrandChannel=0
Was it not one of the problems that got Fannie and Freddie in trouble in the first place, that the CDS folks were using a broken risk formula that was also based on inaccurate data? I suspect that the something that the shareholders will be left with will be pretty close to nothing.
Posted by: Blackhalo | Aug 21, 2008 9:30:52 PM
Iran, if it looks like Obama will win. Israel may see the last days of the Bushies as the last chance to strike. Who knows, they may figure McCain isn't as crazy as the Bushies and he won't be any better than Obama for them.
BTW, just finished a very interesting book, The Shia Revival, by Ali Nasr. The kind of book that should have been read by those like Condi and W who didn't know that the Sunni's and Shia' had issues before the invasion. It more or less confirmed my opinion that we should have made an alliance with Iran and told the Sunni's, e.g. Saudi's and Pakistani's to go to hell. The Saudi's and Pakistani's were the ones supplying the terrorists. From reading the book, one gets the strong impression that the Iranians envision any nuclear weapons they eventually build as a counterbalance to the Sunni bomb that Pakistan has as much as it is a deterrent to us or the Israeli's.
Another one: The Chinese bubble bursts and one of the biggest purchasers of our debt is out of the picture. According to Michael Pettis' blog, there are the beginnings of a real estate slowdown, much like our mess started with 18 months ago. We've already seen a huge amount of their public's wealth evaporate in the collapse of the Chinese stock markets.
Posted by: Mike in NOLa | Aug 21, 2008 9:32:17 PM
If the scenerio posted by Kirk comes true than rental property is worth buying.
Posted by: alexd | Aug 21, 2008 9:41:21 PM
Commodity swaps and related derivatives that have no futures backup
Posted by: crabbybill | Aug 21, 2008 9:41:36 PM
GM, Ford bankruptcy. Citibank imploding.
Posted by: Bodz | Aug 21, 2008 9:42:00 PM
"The Chinese bubble bursts..."
"This will mean skyrocketing treasury rates..."
What an awesome blog.
I think this doom and gloom game would be a lot more fun and informative if posters were to include a corresponding hedge.
Posted by: Blackhalo | Aug 21, 2008 9:43:32 PM
I believe that a significant/deep GLOBAL recession is not being discussed widely enough. Global equity/credit markets are certainly not pricing in such a scenario, which seems to be increasing in probability by the day based on all that I analyze/know.
Posted by: James Dailey | Aug 21, 2008 9:44:31 PM
Russia and China each airlift 100,000 troops to the border of Iran and Iraq to match our quarter MM on the ground.
Posted by: scorpio | Aug 21, 2008 9:44:53 PM
Anyone holding treasuries at the long end of the curve must be breaking into a cold sweat.
Posted by: Stuart | Aug 21, 2008 9:49:21 PM
Gov't entities start defaulting on bonds as tax revenues dry up. They also cut pension and medical benefits.
Posted by: johnnyvee | Aug 21, 2008 9:50:58 PM
Any one would be enough:
Russia, Iran, Turkey, Pakistan, Taiwan
Posted by: ct | Aug 21, 2008 9:53:57 PM
The commodity bubble completely implodes and takes its fair share of financial casualties with it. All of the swill and lies surrounding it are exposed. Oil drops to at least $35 a barrel in the greatest asset implosion since the Great Depression.
Posted by: bdg123 | Aug 21, 2008 9:53:59 PM
