More Bailouts

by Larry Levin

Only in the current Bizzaro World of the global Ponzi-economy could today have happened. We were witness to the European central bankers declaring that they will take a play out of Benron Bernanke's playbook: bailouts for all their banks. NOBODY with connections...anywhere on the planet...is allowed to fail.

Of course YOU are allowed to fail. The central bankers only want you to keep your mouth SHUT and fund the never ending bailouts through taxation that will come soon, and certainly a lower standard of living for several generations. They have degrees from Harvard and Oxford you see, which makes them beyond reproach. Since you you do not, you should not question their Keynesian MADNESS. Yeah, shut up and take it they say. They know what's best.

The Europeans have essentially said they will, like Ben "Sir Prints a Lot" Bernanke and his ownership of the US mortgage market, throw away nearly $1 TRILLION to back up all of their banks. A massive bailout indeed. But that's not all - Fannie Mae needs ANOTHER BAILOUT - and says it may fail despite more of your money.

With such fantastic news, the Dow exploded to more than a 400 point gain.

According to Bloomberg, Fannie Mae (FNM) lost another $11.5 billion last quarter. Fannie Mae has posted $136.8 billion in losses in the preceding 10 quarters, and the new aid request would bring its total draw from the Treasury to $84.6 billion since April 2009. This is why you never want the government to run private companies: it only gets worse.

“We expect our foreclosures to increase in 2010 as a result of the adverse impact that the weak economy and high unemployment have had and are expected to have on the financial condition of borrowers,” the company said in a press release.

The full story can be found here:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a3PxBY.a8Tt4&pos=6

but it's worse than this. In the FNM quarterly report it fessed up to the truth: FNM is in such bad shape, it may go out of business even after all of your money has been stolen to support it.

When Treasury provides the requested funds, the aggregate liquidation preference on the senior preferred stock will be $84.6billion, which will require an annualized dividend of approximately $8.5 billion. This amount exceeds our reported annual net income for each of the last eight fiscal years, in most cases by a significant margin.

Although Treasury’s funds under the senior preferred stock purchase agreement permit us to remain solvent and avoid receivership, the resulting dividend payments are substantial. Given our expectations regarding future losses and draws from Treasury, we do not expect to earn profits in excess of our annual dividend obligation to Treasury for the indefinite future. As a result of these factors, there is significant uncertainty as to our long-term financial sustainability.

Said another way, FNM cannot even pay the interest on its handouts outs...err, ah, bailout funds.

What does a garden variety idiot in Congress have to say about this? Exactly what you might expect - no big deal. “We haven’t had any substantive discussion as to what the future picture of Fannie and Freddie should be,” Representative Scott Garrett of New Jersey, a Republican, said in an interview. “I see absolutely nothing happening in the area of GSEs of any substance between now and the end of the year.”

In addition to this bailout there is the massive European bailout, which is essentially saving French banks from their terrible loan decisions. But that's all across the pond right? We have nothing to do with it - right? WRONG! Of the nearly $1 trillion bailout package, the IMF portion is E220 billion, or $287 billion at today's exchange rate. Since the US and its taxpayers represent roughly 20% of total IMF funding, the middle class will - WITHOUT VOTING - fund about $57 billion of the Euro/French/Greek/Spain bailout. This isn't a new phenomenon but I thought you should know where even more of your dollars are going.

In addition to this, the Federal Reserve of Benron Bernanke is (already) reopening its massive currency swaps to help bail out its brothers-in-theft: Euro trash bankers. The Fed says these are 100% riskless transactions but somehow I just don't believe it. When the Fed's balance sheet is expected to grow by $500 billion, I get nervous. If anything happens that isn't approved by the Fed, it will send more of your money there to stop it. It's a done deal.

If the economy was as healthy as the dimwits in Washington DC claim, would FNM still be broke and raising the possibility of its own end? Would GM lie about paying back its loans? Would FRE need another bailout? Would Europe need a bailout?

The current spike in volatility and nobody-can-fail crowd reminds me a lot of the days in 2008 when TARP was finally passed. The Dow skyrocketed nearly 1,000 points...before the "fit hit the shan."



Previous Day's Trading Room Results:

Trade Date: 5/10/10

E-Mini S&P Trades*
(before fees and commissions):

1) No "Secrets" trades filled today.

2) Algorithm positions (23)

3) “Reading the Tape” positions (24) …combined Secret’s, Algo, & “Reading the Tape” total…+17.25



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