A recent study from the Congressional Budget Office (CBO) has zero credibility. It pegged likely taxpayer losses in the Fannie Mae and Freddie Mac bailouts at $25 billion. For those with a sense of history, it is worth remembering that the S&L bailout had a $160 billion price tag. The numbers diverge so far from reality as to be laugh-out-loud funny. Funny, that is, except that the CBO estimate demonstrates a willful disconnect with the actual consequences of federal government actions.
As demonstrated below, the real cost of the bailouts will easily exceed $1.3 trillion. In fact, the real cost is likely to range between $1.3 trillion to $1.6 trillion, and is not unlikely to reach $2.5 trillion.
Between 2001 and 2007, Fannie and Freddie purchased or guaranteed $700 billion of Alt-A and subprime loans. Given the default rates on these loans — and the fact that the price of the housing that is the ultimate security of the loans will, for reasons demonstrated below, fall by at least thirty percent — this alone implies a loss for Fannie and Freddie on the order of $210 billion.
Fannie and Freddie acknowledge already-impaired loans on the balance sheet of $19 billion, which they have used creative accounting to avoid deleting from the shareholder equity account. This means that Fannie and Freddie have a maximum of $64 billion in capital remaining.
Given the inevitable losses on the Alt-A/subprime portion of their portfolio, it must be the case that if the federal government, as it is doing, guarantees Fannie and Freddie's solvency, the difference between the loss and the capital to be made up by the government (i.e., the taxpayers) must equal, not $25 billion but $147 billion.
That alone would mean that the CBO is blowing smoke with their estimated cost figures, and if you think back to the S&L cost of $160 billion, this is not a surprising result. The real picture is so much worse that it is pretty obvious the CBO is flat out inventing figures just to get the politicians through November.
The real story is simple. We have witnessed the largest asset-price bubble in US history, making the tech-stock bubble seem like an overdone weekly rally.
When you look at the graph of the Case-Shiller residential real-estate index, an index dating from 1890 to the present and an index which measures the cost of housing in comparison to other goods, the first thing you see is that the 2001 to 2006 bubble stands out like a fifty foot saguaro cactus in a patch of daisies. There simply has never been anything like it before.
Okay, now I don't really give a flying foxtrot uniform charlie kilo about John Edwards. But ABCNNBBCBS is running this all over the place like it is the hot story of the year.
Folks, you are being CONDITIZED!
Back in early 2001, when the US Government was already informing other governments of plans to invade Afghanistan in October 2001, the corporate media had turned the sordid tale of Gary Condit and Chandra Levy into the one and only story for the TV sets of America. There were very few reports of the war being planned for Afghanistan, so when the invasion actually happened, right after the convenient events of 9-11 angered America into a war-fever, it was a surprise to nobody bu the American people.
Well, here we are again. The TV sets are tossing John Edwards' love-child right into our faces non-stop, with only the briefest of pauses to shout "RUSSIA INVADES!" so it doesn't look like they are hiding anything from you.
But think. The fact that John Edwards knocked up his mistress is not something that actually affects your life in any material way. It's tabloid scandal at best, yet to ABCNNBBCBS, this is the important news to shove at you. But the outbreak of war gets barely an insert and a screen crawl, and those are actually lies! Russia did NOT invade. The initiating event was the shelling of a Russian installation, presumably by the Georgians, but in fact we really do not know.
But a real war with Russia does affect your life in very material ways. The US is already at economic death's door from the existing wars. Once again we see Israel working to kick off a war they will expect our sons and daughters to clean up.
And the other side actually has nuclear and biological weapons of mass destruction, and faces an enemy they already know has the willingness to use such weapons unless preemptively attacked. FOX NEWS SPINS THE EDWARDS STORY OVER THE RUSSIAN - GEORGIAN WAR