Solarbird (solarbird) wrote,

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The New Reality, Day One

The Congressional Budget Office says that Freddie Mac and Fannie Mae can no longer be considered public companies in any meaningful sense and should be incorporated into the Federal budget. What's that mean? "The two mortgage companies have between them $5,400bn in liabilities," along with what is thought of as a "relatively" equal-valued assets. Except that the whole reason they needed bailing out is that those assets aren't equal, or even really all that close to it.

What's the credit market think of that, girls and boys?
The price of credit default swaps on five-year US government debt hit a record 18 basis points in early trading, according to CMA Datavision. This means that it costs $18,000 a year to buy insurance on $10m of US government debt. Tim Backshall, chief strategist at Credit Derivatives Research, said the price implied that the US was more likely to default on its obligations than Japan, Germany, France, Quebec, the Netherlands and several Scandinavian countries.
But nobody, and I mean nobody, is crankier about this than Nouriel Roubini:
Today instead the US has performed the greatest nationalization in the history of humanity. By nationalizing Fannie and Freddie the US has increased its public assets by almost $6 trillion and has increased its public debt/liabilities by another $6 trillion. The US has also turned itself into the largest government-owned hedge fund in the world: by injecting a likely $200 billion of capital into Fannie and Freddie and taking on almost $6 trillion of liabilities of such GSEs the US has also undertaken the biggest and most levered LBO (“leveraged buy-out”) in human history that has a debt to equity ratio of 30 ($6,000 billion of debt against $200 billion of equity). ...

Like scores of evangelists and hypocrites and moralists who spew and praise family values and pretend to be holier than thou and are then regularly caught cheating or cross dressing or found to be perverts these Bush hypocrites who spewed for years the glory of unfettered wild west laissez faire jungle capitalism (and never believed in any sensible and appropriate regulation and supervision of financial markets) allowed the biggest debt bubble ever to fester without any control, have caused the biggest financial crisis since the Great Depression and are now forced to perform the biggest government intervention and nationalizations in the recent history of humanity, all for the benefit of the rich and the well connected.
In possibly other news, this version is so far Russian-press only, but Russian language press is reporting that Russia is getting out of Treasuries. They're being significantly less aggressive about it in English. I wonder which, if either, is correct? Separately, and I can't find the link right now, sorry - Brazil and Argentina have decided to stop conducting their trade in US dollars and start trading in local currencies instead. On the other hand, the apparent "bear flag" in the US dollar completely failed to prove out, and support levels have a bit more meaning, and said dollar is testing one of them now. If it breaks through, well, that'd be very interestingly bullish.

Minyanville's Todd Harrison says everyone is on edge, so take a deep breath and step back a second, even though the market is running out of fixes.

Finally, it looks like OPEC wants to defend $100+/barrel oil, agreeing to cut production. We'll see how that goes.

eta: Marketwatch's Paul Ferrell? Also very cranky. He's listing his 75 Trillion Dollar Frightfest.
Tags: economics
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