| Volume 16, Issue 04 | For the week of January 30, 2012 |
| What Really Happened to Housing? |
| The Setup By the mid-2008 Fannie and Freddie ("GSEs") owned over $5.4 trillion in outstanding mortgage securities and all of them were backed by the full faith and credit of the GSEs, and by proxy the US Government. This totaled 45% of all the residential mortgage debt was aggressively marketed worldwide with the implicit guaranty of the US government. | |
| The Patsies Next investors in GSE securities were led to believe that the vast majority of the loans backing these securities were low risk. | |
| The Truth Reveled Following the SEC's investigation, the GSEs have, for the first time, acknowledged the magnitude of their efforts to mislead investors with regard the true nature of their exposure to subprime and Alt-A loans. It was revealed that the credit guaranty portfolios contained over $1.6 trillion in subprime and Alt-A loans, not the $600 billion previously reported. This meant that 80% of each mortgage was backed by the GSEs' high leveraged game, a true setup for disaster. | |
| Now, it was impossible to fully ascertain the true value of the entire $5.4 trillion in outstanding GSE securities. A panic could have created a estimated market loss nearing 20% or $1 trillion. | |
| Washington had encouraged low capital requirements for the GSEs and mandated marginal credit and equity underwriting through programs including "affordable housing" and the Community Reinvestment Act. | |
| Facing Insolvency The impact on the FDIC alone would have been catastrophic since depository institutions held about $1 trillion in GSE securities. | |
| So the federal government was forced to acknowledge full responsibility for the GSEs' liabilities. Furthermore, Washington kept the GSEs off the books, believing that taxpayer s were ultimately responsible. Thus the $11 trillion residential debt market was seriously infected by Fannie, Freddie, Countrywide, and many of the nation's largest banks. | |
| And that's what led us to today's bailout fiasco. |
Key Economic Reports Released This Week
|
RELEASE DATE |
ECONOMIC INDICATORS |
RELEASED BY |
CONSENSUS | Wt. |
INFLUENCE ON INTEREST RATES |
| Mon 01/30 8:30 am et | Personal Income & Outlays for December '11 | Bur. of Econ. Analysis Dept. of Commerce | Income 0.4% | *** |  If above consensus  If below consensus |
| Mon 01/30 1:00 pm et | Weekly Bill Auction | Dept. of the Treasury | N/A | ** | If strong demand If weak demand |
| Tue 01/31 8:30 am et | Employment Cost Index for Q4 '11 | Bur. of Labor Statistics Department of Labor | 0.4% | **** | If above consensus If below consensus |
| Tue 01/31 9:00 am et | Case-Shiller HPI for November '11 Y/Y | S&P Case-Shiller HPI | -3.2% | ** | If strong demand If weak demand |
| Tue 01/31 10:00 am et | Chicago PMI for January '12 | Chicago Purchasing Managers Index | 63.0% | ** | If above consensus If below consensus |
| Tue 01/31 1:00 pm et | Consumer Confidence for January '12 | Conference Board | 68.5% | ** | If above consensus If below consensus |
| Wed 02/01 | Motor Vehicle Sales for January '12 | Automobile Manufacturers | Vehicles 13.5M | ** | Undetermined |
| Wed 02/01 7:00 am et | MBA Mtg Apps Survey for week ending 01/27 | Mortgage Bankers Association of America | N/A | * | Undetermined |
| Wed 02/01 8:15 am et | ADP Employment Report for January '12 | Automatic Data Prod & Macroeconomic Adv | 175K | **** | If strong demand If weak demand |
| Wed 02/01 10:00 am et | Construction Spending for December '11 | Bureau of the Census Dept. of Commerce | 0.3% | ** | If above consensus If below consensus |
| Wed 02/01 10:00 am et | ISM (NAPM) Index for January '12 | National Association of Purchasing Mgt. | 54.5% | ** | If above consensus If below consensus |
| Thu 02/02 8:30 am et | Jobless Claims for week ending 01/28 | Bur. of Labor Statistics Department of Labor | 375k | * | If above consensus If below consensus |
| Thu 02/02 8:30 am et | Productivity & Costs Q4 '11 Preliminary | Labor Department | Prod 0.9% | ** | If above consensus If below consensus |
| Fri 01/03 8:30 am et | Employment Situation for January '12 | Bur. of Labor Statistics Department of Labor | Payrolls 160k | **** | If above consensus If below consensus |
| Fri 01/03 10:00 am et | Factory Orders for December '11 | Bureau of the Census Dept. of Commerce | 1.8% | * | If above consensus If below consensus |
| Fri 01/03 10:00 am et | ISM Index (Non-Mfg) for January '12 | National Association of Purchasing Mgt. | 53.5% | ** | If above consensus If below consensus |
| * Low Importance | ** Moderate Importance | *** Important | **** Very Important |