See the section I bolded below – Now we know who is going to step up to the plate and buy Fannie and Freddie debt seeing that the custodial account reports have shown that Foreign Central Banks have been disgorging nearly $100 billion worth of their paper since July of this year! I find it no coincidence that is the exact amount the Fed has announced that they will purchase! We knew it was just a matter of time before the Fed had to come in and buy FNM and FRE debt since no one else was willing to do so – without that debt having a market there is no way to backstop home mortgages!
Fed Commits $800 Billion More to Unfreeze Lending (Update2)
By Scott Lanman and Dawn Kopecki
Nov. 25 (Bloomberg) — The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.
The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.
With today’s announcement, the central bank is starting to use some of the unorthodox policy tools that Chairman Ben S. Bernanke outlined as a Fed governor six years ago. Policy makers are aiming to prevent a financial collapse and stamp out the threat of deflation.
“They’re trying to put funds into the system, trying to unfreeze these markets,” said William Poole, the former St. Louis Fed president, in an interview with Bloomberg Television. “Clearly, the Fed and the Treasury are beginning to take a large amount of credit risk.”
The Fed will purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae, the statement said.
Help for Housing
“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Fed said.
Fannie and Freddie bonds rallied. The yield premium on Fannie Mae’s five-year debt over similar-maturity Treasuries tumbled 21.5 basis points to 114.7 basis points as of 8:35 a.m. in New York, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
Jim Sinclair’s Commentary
You know it is worse than this. They know it is worse than this. It is almost embarrassing to report to you what we all know is pure fabrication.
FDIC Shows Massive Growth In Problem Banks, But The Data Is Still Wishful Thinking
Today, the FDIC issued banking data from the third quarter ended September 30, which showed that the number of insured institutions on the FDIC’s "Problem List" increased from 117 to 171 and the assets of "problem" institutions rose from $78.3 billion to $115.6 billion during the quarter. The FDIC said this is the first time since the middle of 1994 that assets of "problem" institutions have exceeded $100 billion.
The FDIC said during the third quarter 73 institutions were absorbed in mergers, and 9 institutions failed. This was the largest number of failures in a quarter since the third quarter of 1993, when 16 insured institutions failed. Among the failures was Washington Mutual Bank, an insured savings institution with $307 billion in assets and the largest insured institution to fail in the FDIC’s 75-year history. The number of insured commercial banks and savings institutions fell to 8,384 in the third quarter, down from 8,451 at midyear.
The FDIC data also showed that net income of $1.7 billion was the second-lowest since 1990, and loan-loss rates rose to a 17-year high. On a positive note, net interest margins registered improvement.
Like it was in the second quarter (they left-out WaMu), the data the FDIC is issuing on the problem bank assets in the third quarter is misleading. We all know now that Wachovia (NYSE: WB) was near failure at the end of the third quarter and at the very start of the fourth quarter it was merged with Citi (NYSE: C) then later Wells Fargo (NYSE: WFC). Wachovia’s assets base would have easily surpassed the $115.6 billion the FDIC mentioned as the total in the problem list. In addition, yesterday Citi (NYSE: C) needed a U.S. government rescue plan. How can it be that this data is so wrong? Is it the fear factor that they feel would be created if they were truthful. Maybe certain institution don’t qualify as "troubled" but should. They need to look at how they qualify a troubled bank. Assets of troubled institutions should be in the trillions not $100 billion.
Jim Sinclair’s Commentary
FDIC will guarantee even for a day? Their cash is crashing. They can’t.
They haven’t got the money, just like credit default derivatives guaranteed without any chance of performing.
Who IS FDIC kidding? You?
Goldman to sell $2 billion in FDIC-backed bonds: source
Mon Nov 24, 2008 5:25pm EST
NEW YORK (Reuters) – Goldman Sachs (GS.N) plans to sell at least $2 billion of new debt that will be guaranteed by the Federal Deposit Insurance Corp, with pricing expected Tuesday, according to a market source familiar with the sale.
The debt will mature no later than June 30, 2012, the source said. Goldman Sachs is the sole bookrunner, while Citigroup and Morgan Stanley are joint leads, the source said.
The debt is guaranteed under the FDIC’s Temporary Liquidity Guarantee Program, and investors are watching the deal as a test case for demand under the new program.
The new debt is expected to price at 85 basis points over midswaps, plus or minus 3 basis points, the source said.
Goldman is expected to be the first firm to tap the FDIC’s new program. The FDIC on Friday approved a program to guarantee to banks’ new senior unsecured debt, potentially allowing the firms to issue debt with top "AAA" ratings.
Jim Sinclair’s Commentary
Don’t compare what is happening now to the Japanese zero bound conditions.
What is below did not happen in Japan on any scale near what has already occurred in the USA and is bound to grow by orders of magnitude.
That comparison is total nonsense that reveals ignorance, not intelligence.
U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit (Update2)
By Mark Pittman and Bob Ivry
Nov. 24 (Bloomberg) — The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.
The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.
When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in.
“Whether it’s lending or spending, it’s tax dollars that are going out the window and we end up holding collateral we don’t know anything about,” said Congressman Scott Garrett, a New Jersey Republican who serves on the House Financial Services Committee. “The time has come that we consider what sort of limitations we should be placing on the Fed so that authority returns to elected officials as opposed to appointed ones.”