These Sub-Prime and Alternative-A loans were packaged and re-sold to investors as CDO’s (Collateralized Debt Obligations) where investors bought dollar denominated blocks of “generic” debt that were NOT property specific. The losses, write-downs, and write-offs on these already tally in the hundreds of BILLIONS and we are only getting started. The rush to unload properties keeps impacting the reselling and market values of an ever larger block of homes - originally financed by borrowers who HAD met the more stringent income and down payment requirements of a Fannie Mae and a Freddie Mac. These two had packaged the paper on what “were” a higher quality of mortgage backed derivative investment paper. These, too, are now in the tank and sinking fast.

The on-the-market glut of properties for sale has pushed prices down pretty much across the nation - the largest price declines occurring on the two coasts and in the sunbelt. Households who had enjoyed paper equity gains in double digits saw those completely evaporate and became saddled with mortgage obligations far in excess of their properties sales (recoup) value. They, too, are upside down/ underwater. Fannie Mae and Freddie Mac hold about half of the $12 TRILLION outstanding mortgage paper and now look at write-offs/ write-downs in the TRILLIONS for their investors. They can’t re-sell or redeem the paper they have out there, much less re-market more for yet new or take-out loans. The system is not only in crisis, it is tottering on the brink of a complete meltdown.

Last week saw Congress railroad through The American Housing Rescue & Foreclosure Prevention Act of 2008. This has been dubbed the “bailout of Fannie and Freddie.” If you TH*NK this 700 page bill actually “reimburses” borrowers/ lenders for “any to-date or future losses” with Uncle $ugar picking up the tab, you are dead wrong! For now the Act authorizes the Treasury/FED to buy up upwards to some $25 BILLION of Fannie and Freddie paper to fund NEW mortgages for home buyers who meet established criteria. Another bureaucratic watchdog agency is established to keep the forward moving Fannie and Freddie on the up and up. Existing homes owners (and those up beyond their eyeballs in debt) qualify for some new tax credits on the property taxes they pay – even if they don’t itemize deductions. The National Debt ceiling is goosed up $800+ BILLION more!

The brouhaha behind the bill is pretty much spin, hype, and hot air. It doesn’t “fix” anything and certainly won’t even mitigate many of the pain. It only buys some time. Its caveats stress the liability/costs to the taxpayers won’t exceed the $25 BILLION figure, so why is the ceiling on the National Debt being raised 32 times that amount? Oh yeah… it’s an election year so here is your umbrella, cheers! I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.

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