27 02 2008

Merrill, Lynch analyst says Fannie Mae and Freddie Mae are in trouble…not deep doodoo yet, but trouble:

Shares of Fannie Mae and Freddie Mac fell Friday after a Merrill Lynch & Co. analyst said the housing and debt market slumps would stifle earnings at the mortgage-finance companies through 2011.

Fannie Mae, the largest source of money for U.S. home loans, declined 27 cents to $28.72 after the Merrill analyst said investors should sell their shares in both companies. Freddie Mac, the second-largest provider, fell $1.14 to $26.61.

The companies, which own or guarantee about 45% of the $11.5 trillion in U.S. residential mortgages outstanding, may need to raise more money to cope with loan defaults, the analysts wrote in a report.

Fannie Mae and Freddie Mac reported $3.4 billion in combined third-quarter losses and are expected next week to report similar results for the fourth quarter.

“We do not think the stocks fully reflect the severity or duration of the financial headwinds facing the companies,” Merrill analyst Kenneth Bruce in San Francisco wrote in a note to clients. There is “more pain than gain.”

the nervousness is spreading:

Frightened financiers are pulling back from credit markets — going on strike, if you will — to escape the unraveling daisy chain of securitized assets and promissory notes that binds the global financial system. As each financier tries to protect against the next one’s mistakes, the whole system begins to sag. That’s what we’re seeing now, as credit market troubles spread from bundles of subprime residential mortgages to bundles of other kinds of debt — from student loans to retailers’ receivables to municipal bonds.

Investors are nervous because they aren’t sure how to value these bundles of securitized assets. So buyers stay away, prices fall further, and the damage spreads.

The public, fortunately, doesn’t understand how bad the situation is. If it did, we might have a real panic on our hands.

And the worsening credit market is starting to affect the ability of city and state governments to function:

In recent weeks, many larger governments – and other credit issuers – have faced unexpected interest rate spikes when auctions of their debt drew no bidders. The interest rate on this debt is variable so it soared after the auctions failed. For example, the Port Authority of New York & New Jersey saw its interest rate skyrocket to 20%, up from 4%.

not to mention the livelihoods of thousands, if not millions, of people:

(washington post is loading verrrrry slowly and i’m ready to go to bed…will add a quote in the morning!)

food prices are starting to rise and the possibility of scarcity is drifting into focus…

A new crisis is emerging, a global food catastrophe that will reach further and be more crippling than anything the world has ever seen. The credit crunch and the reverberations of soaring oil prices around the world will pale in comparison to what is about to transpire, Donald Coxe, global portfolio strategist at BMO Financial Group said at the Empire Club’s 14th annual investment outlook in Toronto on Thursday.

“It’s not a matter of if, but when,” he warned investors. “It’s going to hit this year hard.”

Mr. Coxe said the sharp rise in raw food prices in the past year will intensify in the next few years amid increased demand for meat and dairy products from the growing middle classes of countries such as China and India as well as heavy demand from the biofuels industry.

“The greatest challenge to the world is not US$100 oil; it’s getting enough food so that the new middle class can eat the way our middle class does, and that means we’ve got to expand food output dramatically,” he said.

The impact of tighter food supply is already evident in raw food prices, which have risen 22% in the past year.

while Carolyn Baker reviews how the Russians dealt with something similiar in the 90’s:

The old normal is that life will go on just like before. The new normal is that nothing will ever be the same Rather than attempting to undertake the Herculean task of mitigating the unmitigatable-attempting to stop the world and point it in a different direction-it seems far better to turn inward and work to transform yourself into someone who might stand a chance, given the world’s assumed trajectory. Much of this transformation is psychological and involves letting go of many notions that we have been conditioned to accept unquestioningly. Some if it involves acquiring new skills and a different set of habits. Some of it is even physiological, changing one’s body to prepare it for a life that has far fewer creature comforts and conveniences, while requiring far more physical labor.


During this hour of national election mania in the United States, I cannot resist Dmitry’s sardonic observation that “The two capitalist parties offer a choice between two placebos,” (55) later noting that “…all successful adaptations to the new circumstances will have to be made at the local level, and will have to rely on existing infrastructure, inventory and locally available talents and skills.” (61) In pondering his analysis of collapse-how it manifested in the S.U. (Soviet Union) and is now manifesting in the U.S., one is dumfounded with the utter vacuousness of all American political party platforms in the face of a crumbling empire. The Soviet experience confirms that when societies collapse, all issues become acutely and intensely local, and communities and neighborhoods-or large numbers of the dispossessed in a particular venue–must address them.

Whereas some may feel guilty about political apathy or their unwillingness to participate in the national election charade, Dmitry argues that “Although people often bemoan political apathy as if it were a grave social ill, it seems to me that this is just as it should be. Why should essentially powerless people want to engage in a humiliating farce designed to demonstrate the legitimacy of those who wield the power?” (114) Thank you Dmitry; you’ve just described how I’ve felt after departing a voting booth every four years for the past three decades.

 yeah, i know this is a Green Party blog, but I’ve got a lot more faith in localism than nationalism at this point….



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