Financial Institutions Collapsing
Sean Brodrick takes a closer look at how financial institutions are collapsing and the damage has now spread into the prime mortgage market. In this issue of Money and Markets, Mr. Brodrick discusses how Fannie Mae and Freddie Mac’s liabilities add up to $5.3 billion dollars.
Jupiter, FL (PRWEB) July 18, 2008 — Sean Brodrick takes a closer look at how financial institutions are collapsing and the damage has now spread into the prime mortgage market. Mr. Brodrick also discusses how Fannie Mae and Freddie Mac’s liabilities add up to $5.3 billion dollars.
Financial institutions are collapsing like dominoes: Countrywide Financial and New Century Financial collapsed in 2007, Bear Stearns in early 2008 and just recently IndyMac. Even big regional banks are small enough to fail, which is why National City and Washington Mutual both saw their stocks get 25% cuts on July 14. According to a Bridgewater study, total financial losses from the current credit crisis will hit $1.6-trillion. It’s not just the losses on banks’ books. A recent Bank of America study said that the meltdown in the U.S. subprime real estate market had led to a global loss of $7.7 trillion dollars in stock market values just since October.
The damage has spread into the prime mortgage market. Two million homes are vacant across America even as tent cities of the dispossessed spring up in urban areas. RealtyTrac, the leading online marketplace for foreclosure properties, said that in June, U.S. foreclosure filings jumped 53% year over year. One in every 501 U.S. households received a foreclosure filing during the month.
Fannie Mae and Freddie Mac are among the largest financial companies in the world and their liabilities add up to some $5.3 trillion. Total U.S. federal debt is about $9.6 trillion; about $5.4 trillion of that debt is held by the public, while $4.2 trillion is debt such as Social Security IOUs. This is the liability side of America’s federal balance sheet, and its condition influences how much the government can borrow and at what rates. The liabilities of Fannie Mae and Freddie Mac are currently not on this U.S. balance sheet. But if there is a run on the debt of either company, that would put tremendous pressure on the Treasury and Federal Reserve to publicly guarantee that debt to prevent a systemic financial collapse. According to Brodrick, that seems to be what is happening now. The Fed said it would lend to the two companies “should such lending prove necessary.” Secretary Paulson said his department is asking Congress for quick approval of a plan to expand its line of credit to the two companies and to buy their stock if necessary. What has long been an implicit taxpayer guarantee for both companies seems to be becoming explicit, committing American taxpayers to honoring as much as $5 trillion in new liabilities. Therefore, U.S. debt held by the public would more than double, and the national balance sheet would look very ugly.
“And that should weigh on the U.S. dollar like a millstone. Indeed, the action in Treasuries on July 11 shows this may already be happening. What happened July 11? Bonds got routed, with long bond futures falling and 2-year Treasury Note yields soaring. Every single time before this phase of the credit crisis, traders aggressively bought Treasuries as a safe haven when the stock market cracked. This time, they did not. There are a lot of ifs here, but if this trend continues, I think the U.S. dollar could be heading for a breakdown, one for the history books,” Brodrick states.
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About SEAN BRODRICK & MONEY AND MARKETS
Sean Brodrick joined Weiss Research in 2000 as an analyst, bringing more than 25 years experience as a journalist and financial analyst to the position. He is Weiss Research’s small-caps specialist, especially in natural resources, and is the editor of the company’s Red-Hot Canadian Small-Caps, as well as a regular contributor to its daily e-letter, Money and Markets.
Previously, Mr. Brodrick was the investment director of The Sovereign Society, the world’s leading publisher of offshore asset protection strategies and global investment opportunities.
Recognized for his expertise on Canadian and Australian investment opportunities, Mr. Brodrick has been featured on many financial talk shows, including CNBC Squawk Box and Bloomberg Market Line. He is a weekly guest on Market Matters Radio, a contributing columnist to MarketWatch.com and a frequent commentator on one of Canada’s premiere financial websites, HoweStreet.com. His report, “70 Days to Empty,” has garnered acclaim for its analysis of the forces pushing America toward its next oil crisis and was described by
The Daily Reckoning as “the most important report you’re likely to read this year,” while his knowledge of uranium has helped investors earn solid gains on the commodity.
Mr. Brodrick holds a B.A. degree from the University of Maine.
Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.
