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Friday, September 18, 2009
Is another $1 trillion mortgage lender failing?

Bud Conrad, an investment pro who claims a Harvard MBA, a past corporate career and the title Chief Economist at Casey Research up in Vermont, says he's worried the $1.2 trillion-asset Federal Home Loan Bank system, which funds home lending for more than 8,000 U.S. banks, will follow Fannie Mae and Freddie Mac into expensive default and government bailout.

With piles of California adjustable-rate mortgages up for repricing over the next couple of years, "if, in total, the FHLB ultimately suffers defaults equal to just 10% of the face value of their assets, a reasonable expectation, they'll be forced to write down more than $110 billion" - which is double the system's $46 billion capital reserve, Conrad wrote in the current Casey Report. "That sets the stage for another government takeover... more bailouts, and eventual Fed monetization to fund it."

I ran Conrad's report past John von Seggern at the Federal Home Loan Bank Board. He said the home loan banks "are well reserved" against the losses they face, and have already written off several billion dollars in capital to cover bad loans.

Conrad responds, "Fannie and Freddie didn't tell us they were bankrupt... The FHLB is not going to tell us that they have the same kinds of problems because that would put them out of business." If FHLB's member banks have made loans similar to Freddie's and Fannie's, they're facing similar losses. "My opinion is that they have not recognized all the problems." Obama says he'll take up mortgage-finance reform early next year.

Posted by Joseph N. DiStefano @ 7:06 PM  Permalink | 2 comments
Comments   
Posted 08:13 AM, 09/21/2009
Fernando08
I think capitalism should just go out of business so we can move on to the next pragmatic level of efficiency in our political economy. The billionaire caste that just grants itself more and more economic privileges is killing the economy that generates the wealth that allows them to exist in the first place. Cutting them out of the equation and reinvesting their wealth back into the economy in the form of higher wages, lower prices and better education and health care will allow for a more rational accumulation and reinvestment of capital for businesses and general economic development for the 21st century technology driven industrial state.
Posted 10:48 AM, 09/21/2009
howard snyder
Fernando08 - With all due respect, are you serious? Higher wages, better education, better healthcare...AND lower prices? You do realize that you're simply suggesting that government nationalize the assets of its private citizens? Actually, that does happen in a few places in the world already - Cuba, Venezuala, China. While all systems have faults, it comes down to people and their own view of responsibility and ethics. Sadly, we have seen that more and more people in this country (at all levels) are greedy. It comes down to ethics whether it be the CEO who bacdates stock options or the hourly cafeteria worker who mistakenly receives a paycheck for $26,807 instead of $268.07, knowingly spends it and has the gall to say they're not responsible since it was the company's fault (true recent case). unfortunately, you can't legislate ethics, you can't regulate ethics, you can't demand ethics. If someone chooses to be unethical, they will to the loss of all those who act with honor and integrity. If you can possibly be open to another thought, please don't begin to say or believe that the problem begins and ends with the billionaire caste even though they bear responsibility. It might sound good and make you feel good to blame someone else for all the problems but fixing the system starts with all the people in the system. Sorry its just not that easy.
2 comments
About Joseph N. DiStefano
Joseph N. DiStefano writes this blog to feed his PhillyDeals column, which is printed in the business pages of The Philadelphia Inquirer every Sunday, Tuesday, Wednesday, Thursday and Friday. Joe has worked at the Inquirer, mostly, since 1988. He has also written for Bloomberg and Gannett, authored the book Comcasted, majored in economics at Penn, and fathered six children. Reach Joe at 215-854-5194 and JoeD@phillynews.com

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