GSE Failures are Actually a Massive Regional Bank Bailout in Disguise: How the FED is planning to get the Lipstick on this Pig

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GSE Failures are Actually a Massive Regional Bank Bailout in Disguise:  How the FED is planning to get the Lipstick on this Pig

Step right up folks and witness for yourselves actual feats of magic as performed by the amazing El Federale – the Master of Illusions, Keeper of the Secrets of the Temple of the Bull, and Royal Jester to the Fiefdom of Finance…”

 But seriously everybody – I think They are all about to pull a big, bad, fast one on all of Us. Worse than that, They are going to make you and me and our kids (and their kids too) pay for their clever schemes and malpractice by subjecting Us to decades of runaway inflation, unfathomable national debt levels, and higher personal taxes – particularly through the elimination of the coveted homeowner mortgage interest right-off, the only real right-off available to all of us work-a-day folks.

 

When I say They I am talking about all of Them: The Bureaucrats in DC; the Lenders big and small who chose profits over protocols; the Politicians who were all way too financially cozy with the Robber-Barons; the Bond Insurers and raters who were complicit in the sale of toxic securities; Wall Street with their insatiable greed; Municipalities who blew it all on vanity projects; the Traders with their cut throat nihilism; the Special Interests with their hands in everyone else’s pockets; the Financial Centers of Power with loyalties to no country, no people; and most everyone else who are not you and me – the regular people who will soon feel the sting of Their ready skewers.

 

The genesis of this orchestrated fleecing of You and I resides in what will reveal itself to be the greatest problem facing our nation : The imminent failure of a record number of banks – some national like Indy Mac – but the vast majority being the Regional Banks who are the primary source of capital for small businesses. Small businesses who provide the overwhelming majority of our jobs. Our jobs that pay our bills and provide the majority of the local tax revenues for schools, fire, police and public works. Are you starting to see the picture?

 

When some more of the big banks fail – and a few will – there will be plenty of ill effects we will be able to point to, but in the long run the other financial giants will really have no problem absorbing the extra business, but they will not be able to replace the role of the Regional in their respective communities, nor do they want to.

 

There are certain activities that the Nationals do not find to be profitable endeavors, like SBA loans and other small business services. That is why the Regionals have any kind business model to implement in the first place – they function specifically to take advantage of the niches in their local footprint that have been left underserved by the Nationals.

 

The problems the Regional banks are facing today are much the same as those of the National banks – their portfolios are stuffed to the brim with a motley assortment of toxic trash including Jumbos, ALT-A time bombs getting ready to explode, Interest Only non-performers, money losing Construction Financed mega-developments, Piggyback Seconds and Home Equity lines of credit.

 

All of these problems are further complicated by the fact that the majority of the loans and high LTV and now completely underwater. The over-reaching mega development projects are beginning to land back in their laps. Spec homes, unimproved lots, half built residential and commercial development projects -it’s a all a complete mess at the local level, leaving the Regional banks completely paralyzed in the face of it all.

 

The developments they were financing for runaway builders took one or two years to get closed and finally moving – and they were still booking them like there was no tomorrow in 2005-2007 – all while the market was taking a dramatic turn for the worse. Now these projects have gained so much contractual momentum that the banks can’t stop them.

 

The projects continue to be completed, and draws are still going out every month in spite of the fact that the projects are financially doomed albatrosses. The early buyers walked on their contracts a long time ago.

FL, CA, AZ and some of the other ground zero markets have already experienced a severe builder-die-off period, where projects were left unfinished and construction draws have stopped rolling in, saving some banks from sinking even deeper into trouble.

 

Here in Oregon where I live, and in other less-devastated markets, the builders have been able to hang on longer, some eeking it out on the profits from the boom times. But their funds are now nearly exhausted, and you will see them start imploding in these tamer markets when the ‘building season” ends this late fall then the regional banks will start dropping off in earnest after Q1-09 numbers call their collective bluff.

Do the math; Firstly, Regionals are not doing the volume of originations they once were, and they have been saddled with the extra overhead and personnel acquired during the boom time for over two years now. Many of the more aggressive Regional banks have held on to their fatally flawed Wholesale and Correspondent production channels for far too long in a vain effort to gain in market share at the expense of the cumbersome Nationals, and hopefully become the next WAMU.

Regionals were really striving to be the next WAMU?  You bet they were, and now they are really striving to do anything they can to make sure they aren’t – but it’s too late for many.

Secondly, one look at that portfolio and their investors have turned tail too. Municipal Bonds are in bad shape, as are private and public pension funds, economic development projects are over budget and behind schedule, and the expected attrition rate of some of the small business loans is increasing with every new economic forecast.

I believe we will see the Regional Banks really start collapsing in earnest Q1-09, after everyone realizes rolling out Christmas in August did not help the retailers hit their mark and confidence in the markets collapse, interest rates shoot up. Cost of funds increase as available capital is priced further from reach because the big guys can afford to eat it up at prices tier 2 and Tier 3 Regionals can not afford.

Then what will the banks do? Can they all rush to private equity – which is already fairly leveraged – for a quick cash infusion? Some, but not the majority.

The majority will have to crawl on their knees to beg the Sovereign Wealth Funds and other private money magnates – basically tightening the noose around their own necks and giving the thumbs up to a collapse of confidence by investors and depositors and then gobbled up for pennies on the dollar.

The Regional Banks are so much more heavily invested in the local markets than their larger counterparts, and they fund almost all small business activities at a local level. When they crash, it will really hurt.

The foreign money would seem like an economic blessing at first, but would soon reveal itself to be a deep wound to our nation‘s sovereignty, as foreigners will be able to by-pass the Federal government to gain almost direct control of our entire economy from the bottom up. And the Feds let them because they know the only alternative would be nearly complete insolvency of the Regional Banks and a seriously broken link in our financial food chain. 

Yes, the heroes will be the men in black with thick accents and few loyalties to you or me, and we will regret having ever made their acquaintance.

But there is hope, a deviously simple plan that works well on so many different levels. First, have the GSE’s continue buying up all the garbage loans they can get their hands on as fast they can, continuing to undermine their trillion-plus dollar portfolio. Ultimately the GSE’s collapse, and Federal Government steps in with a lulu of a taxpayer funded bailout.

Then, all anyone will be talking about is the GSE bailout. They will slam Fannie and Freddie, take the top brass and beat them up good in the press so everyone knows they are getting their comeuppance. Then congress will pass reforms, and the GSE’s will be restructured. Mission accomplished, the majority of the regional banks are saved (per an analyst who says regional’s own Bonds, protected in a GSE bailout, while shareholders lose all).

Benefits? It is an S&L style bailout of banks and thrifts – but it is disguised as a GSE failure/bailout, which may be a much easier political pill for the public to swallow. Plus this way we won’t have to see ten years of executives from banks and mortgage companies doing the old Ken Lay ‘perp’ walk on the evening news.

Furthermore, I think the decision has already been made to let Fannie and Freddie fail in this attempt to isolate and protect the larger banking framework of the nation, and confine the majority of the damage to the GSE’s, which just by luck are already legally structured for an easy bailout – no new legislation, no bickering in congress over which banks merit being saved and which do not. There seem to be a lot fewer political costs for politicians at home this way too.  

The GSE’s are the perfect patsy for this whole ponzi scheme. I say it will be late November, right after the elections and the spotlights that were once turned on the nation’s problems have dimmed, but before all the problems completely surface for the Regionals.

There is a psychological advantage to keeping this as national of a problem as possible too; the more local this problem becomes, the more agitated the masses will become as well.  Failure of even a large percentage of the Regionals would be devastating to local communities – especially the ones in already hard hit communities.  

And there will be plenty of people defending the honor of the GSE’s too, based on their ‘necessary’ function and the advantage they provide to the banks and borrowers alike by making mortgages more affordable- and that has other positive effects on the economy as a whole. 

So everyone will shrug and say that it’s not a perfect system – and everyone who should be called to the carpet for their transgressions will go to work trying to regulate a fix for the GSE’s, and this will also ensure no one will be looking into all the illicit relationships between government officials and the finance industry: Like how Goldman Sachs runs the FED for instance; and who gave who money for what reasons; or who dropped the ball on oversight; and who got rich and walked away – all those messy questions.

Na. How about a nice tidy package instead, where only a few sacrificial heads will roll.  I can see a lot of advantages to scapegoating the GSE’s.

But then again I could be wrong about most or all of this. I am no Jim Cramer.

 

Recent:

Are These the Forging Fires of the NWO We Feel? 

Did JPMorgan Almost Fail? Jekyll Island Investment Still Paying Dividend

WHO REALLY OWNS YOUR MONEY? Part One: The Depository Trust & Clearing Corporation

WHO REALLY OWNS YOUR MONEY? Part Two: Inherent National Bankruptcy

Liars, and the Lying Lies They Are Telling You

Paulson, Bush and the Grifters – The Manufacturing of a Crisis

 

 

 

 

© Anthony M Freed

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YourMortgageOrYourLife.com

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