So much for money

I just found out about the Fannie Mae/Freddie Mac nationalisation earlier today. Please to consider the shit to have hit the fan; the Bush administration was doing everything it could to punt this until the next officeholder, and apparently couldn't, which is pretty hard core. In overnight Forex, the dollar's taken about a 1% hit off of Friday's close against the index, but is up against the Yen. I have no idea how the credit markets are going to react.

Regardless, this is not the wind-down takeover that might be justifiable; these are the powers that Secretary Paulson promised Congress he wouldn't be using a little while ago when they gave them to him. Here's the Treasury department press release - "well capitalised" continues to be the death knell of a major corporation.

So this is between $200B (initial overt promise) and $1T added to US debt right there. Mish takes the whole thing apart here and explains how to expect more bank failures. Karl Denninger is not happy either - he thinks US debt is going to get a lot more expensive very soon. Dr. Roubini at RGE Monitor calls the action "deeply flawed." Brad Setser says "the threat of a central bank buyers strike was real."Here are more words about how this will probably trigger an assortment of bank failures, when the FDIC was already considering tapping the US Treasury. Alphaville has put together a linkfest here for further reading.

I'd read more but I gotta get to sleep. This is a big deal, okay? So of course I'm in the middle of a huge busy time and so haven't been keeping up quite as closely as I would've been otherwise. Don't ignore this, it matters.

PS: Some of the things I was going to post about before this all broke: the multinational plan to rescue the US dollar; a Dead Banks Walking? article from Minyanville; and the bad debt status of the Federal Reserve. Enjoy.

entirely as expected, but still


      Price  Change  Percent
FNM    1.19   -5.85  -83.10%
FRE    1.11   -3.99  -78.24%

More importantly, here, from Bloomberg:

Thirteen "major" dealers of credit-default swaps agreed "unanimously" that the rescue constitutes a credit event triggering payment or delivery of the companies' bonds, the International Swaps and Derivatives Association said in a memo obtained by Bloomberg News today. Market makers for the privately traded contracts will discuss how to settle them in a conference call at 11 a.m. in New York, the document said.

Now maybe we get to see what some of that financial "dark matter" is made of. Link courtesy Karl, who asks:

What does this mean? Nobody knows. There's never been an event of this size. Remember, what everyone was worried about with Bear Stearns was that a "credit event" could cause a cascade failure in the financial system. Well, now we get to find out if there is really a risk of such a thing, and who gets rammed with the costs when this all winds down.

Everyone has been thinking - well, hoping, really - that in the end, most of these things would cancel each other out and the actual amount of transaction would end up being very small. Certainly I've been hoping that, because the notational value of this market is batshit crazy omg goodbye-to-money large. It still seems inevitable that lots of this will zero out against itself, but not all, and the ten trillion dollar question is... how big is that remainder?

eta: After I went to bed, the dollar recovered its overnight losses. Neat.

politics, religion, economics, it's all one big mess

MSNBC, on orders from NBC, bows to Republican pressure (specifically, complaints from the McCain campaign and White House Counselor Ed Gillespie) and yanks Keith Olbermann and Chris Matthews from political coverage this fall. However, Mr. Olbermann is not being kicked off his regular show, unlike MSNBC's previously best-rated but too-critical-of-the-GOP host, Phil Donahue.

Meanwhile, the fundamentalist Alliance Defense Fund is organising a mass project for explicitly religious endorsements (presumably of the McCain/Palin ticket) from the pulpit, in direct confrontation to the law forbidding tax-exempt organisations - or more specifically, tax-exempt churches - from issuing political endorsements. They want the Supreme Court to rule that churches can keep their tax-exempt status while engaging in partisan political activity. (Currently, all tax-exempt organisations are prohibited from partisan political activity.)

From elfs, a blogger discusses the religious symbolism used by Mike Huckabee in his speech at the GOP convention.

Also, it appears that VP candidate and Gov. Palin is less a "fiscal conservative" and more along the lines of Chief Executive Bush in that respect, with a taxation record CATO calls uninspiring, and running up major debt as mayor. And she supports the nationalisation of Fannie Mae and Freddie Mac, apparently under the mistaken impression that these were already government agencies and that taxpayers were on the hook for the debts. (This is backwards; before, they were private, if government-chartered; now they are taxpayer responsibility.)

Incidentally, US automakers are rushing to Congress for US$50B in loans before the new Congress and administration take over in 2009, specifically on the basis that the money will be more difficult to get next year. And not entirely incidentally, lots of people who haven't been previously speaking up about these things are starting to question official government numbers on things like GDP, with David Rosenberg, Merrill Lynch's North American economist, reacting to the revised-upward second quarter numbers with, "Are you kidding me?"

Back to Governor Palin; her current church, in addition to hosting Jews for Jesus conferences, is busily promoting one of Focus on the Family's bogus ex-gay conferences. dogemperor notes that her home church in Wasilla also has ties to Focus on the Family. No wonder James Dobson is so enthusiastic. eta: wrog posts a letter he received from a friend who works for a major oil company saying that as far as they're concerned, Governor Palin is just plain crazy. As in, insane, as in, insane is a quote. On the other hand, it's an anonymous quote, so.

More on the Fannie Mae/Freddie Mac bailout: Mish looks at the spin-around reaction on Wall Street, specifically in respect to other "troubled" organisations such as Washington Mutual and Lehman Brothers. FNM and FRE's CEOs, by the way, are getting massive severance packages, one instituted just two months ago, and paid for by the taxpayers. Running multibillion dollar mortgage holders into the ground is great work if you can get it. I mentioned this elsewhere, but we're looking at over US$1 trillion, with a T, in credit-default-swap playout from this action.

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