The Onion published an article on 7/14/08 article titled "Recession-Plagued Nation Demands New Bubble To Invest In". Apparently the demand is being met.
The FHA has been cranking out new government-insured subprime loans, which it packages into government guaranteed securities for sale to banks. They let let banks swap toxic Fannie and Freddie securities for new toxic debt that is 100% guaranteed by U.S. taxpayers.
The FHA and its mortgage-backed securities broker, Ginnie Mae, have taken up where Fannie and Freddie left off, and are now the dumping ground for toxic mortgages.
Because Ginnie Maes are explicitly 100% guaranteed, they are considered “risk free,” and on par with U.S. Treasury bonds, notes and bills. There is no reserve requirement, or haircut, on Ginnie Mae securities. It’s such a good deal for the banks and actively promoted by the Fed and Treasury, that banks are using Troubled Assets Relief Program (TARP) money to buy Ginnie Maes. It’s all a sham. Capital reseeve ratios are being manipulated and insolvent banks are being propped up.
The bubble is being reinflated.
Some of the players may have changed since the first subprime-mortgage crisis, but the game apparently remains the same. With banks currently unwilling to lend, the new federal triumvirate of the Obama administration, the Treasury and the Fed are trying to inflate the moribund U.S. housing market. This time around, however, the FHA is the weapon of choice.
Obama & Co. are making an all-or-nothing bet that the U.S. economy will recover and bail out the housing market before the final bill for this ill-advised gambit comes due.
When this bubble bursts – and it will – U.S. taxpayers will be on the hook for more than $1 trillion in government-guaranteed debt.
Special Report: How the Government is Setting Us Up for a Second Subprime CrisisA year after the financial system nearly collapsed, the nation's biggest banks are bigger and regaining their appetite for risk.
Goldman Sachs, JPMorgan Chase and others, which have received tens of billions of dollars in federal aid, are once more betting big on bonds, commodities and exotic financial products -- trading that nearly stopped during the financial crisis.
That Wall Street is making money again in essentially the same ways that thrust the banking system into chaos last fall is reason for concern on several levels, financial analysts and government officials say.
Banks go back to their risky waysBernanke, Paulson and Geithner ... They avoided another great depression? It's more accurate to say they've done a handsome job of delaying the day of reckoning.
Problem is, you can't keep problems this big under the rug for long, nor can you cure one bubble by blowing up another - yet that seems to be the only solution the fed knows.
The Fed is apparently purchasing as much as 80% of mortgage backed securities (MBS). 80%! What happens when they pull out of that market? Likely a total collapse - where will interest rates go then?
Everything that is being done to solve the housing crisis is only delaying, and exacerbating, the problem. Rather than letting the huge bubble that formed over 2000-2006 deflate all the way to sustainable prices the government keeps trying to reinflate it (or at least keep it half inflated).
A New Bubble of the Fed's Creation.