Sunday "Surprise" may cost Taxpayers Hundreds of Billions, or even Trillions of Dollars

The New York Times printed an Article in the Sunday edition announcing the probability of a form of Bailout for Fannie Mae and Freddie Mac, the two "Government Sponsored Entities" (GSE's) whose share prices recently dropped to a historical low.  The article is at http://www.nytimes.com/2008/07/15/Washington/15fannie.html?_r=1&hp=&adxnnl=1&oref=slogin&adxnnlx=1216051504-iOrwaIcarT8Bxv7+dhUPmQ .

This bailout will be in the form of "Temporary" access to the "Discount Window" of the Fed.  Similar access was recently granted to Investment Banks, who were then able to borrow from the Federal Government using the toxic "Collateralized Debt Obligations" (CDO's) and the alphabet of related securitized debt instruments they were holding as collateral for the liquidity provided by the Fed, courtesy of 24/7 $Dollar printing presses.

In Fed Speak, "Temporary" can last anywhere from 5 to 50 years.
 
As if the unprecedented access to the Discount Window by Investment Bankers collateralized by their worthless debt were not enough, we have now opened generations of Taxpayers checkbooks to pay for the highly leveraged and bloated portfolios (about half of all mortgages in this country are held between the two GSE entities) and to create future liquidity for mortgages.

Since the bloated bankers are not willing to step up with liquidity for mortgages in any reasonable form and are continuing to dump their toxic waste on the taxpayers through the accommodations made by the Fed.  We are basically seeing the Socialization of Mortgage Lending in America.  We are also seeing a form of Socialism for the very wealthy, since their potential (toxic portfolio) losses are being papered over by the taxpayers courtesy of the Fed taking the dreck as collateral.  What a country to be rich in!

This should infuriate Taxpayers who understand that every excess of the Regulated Banks and now Investment Banks and GSE's is being papered over by the Fed.  Protection of depositors is not as comprehensive. The recent failure of IndyMac Bank will create uninsured losses of over $1Billion for depositors.  Even the FDIC can't save everybody, besides why worry about a few depositors when you have special interests to make whole with taxpayer dollars?

The FDIC is looking to beef up staff in positions that specialize in the disposition of assets (presumably liquidated financial institution assets).  Maybe this is why we are seeing so much growth in Government Employment figures...

All of this news reinforces the role that Private Money will play, particularly in the Sub-Prime market going forward.