Yesterdays allegations of US regulator intervention with Freddie and Fannie were reported to be necessary to avert a worsening of the credit market instability. Traders on all the major exchanges alleged to have seen this intervention as a positive indicator of the global financial markets. However, consistent with Dr. David Martin’s scenarios/reports (click on each date for corresponding report), July 2006, November 2007, December 2007, May/July 2008, a greater threat now looms, further destabilizing the global financial markets.

In the last 52 weeks these mortgage industry giants have lost a collective $161 Billion in investor value (Freddie Mac $59.7 B, Fannie May $101.2 B) affecting over 1,500 mutual funds and over 1,300 institutional and capital investors (e.g. banks and insurance companies). A woeful inadequacy on the part of the federal government is the failure to report to the American people and the global markets the actual consequences of the market capital erosion which has already adversely impacted pension funds, retirement funds, insurance and bank liquidity reserves and international sovereign investments. Similar to the Nixon administration’s removal of the Gold Standard, based on international liquidity demands, the erosion of this market value has both economic and political consequence as international investments in these corporations now have significant altered capital stability around the world.

The actual cost to the US taxpayer will be far in excess of the $100B now estimated to be required to stabilize these mortgage giants. The tax for fiscal irresponsibility levied by the current administration will include higher costs of capital for borrowers, less access to credit for consumers, and a remarkable increase in the cost of insurance. While the first two consequences are self evident, the third is due to the fact that the reserve accounts for insurance companies have been severely and adversely devalued. This effective loss of leverage (leverage is the ratio of retained capital to credit or insurance exposure) in the past 52 weeks is a $2.1 Trillion drain on the industries. This $2 Trillion loss of leverage is additive to the already illiquid reserves seen over the last ten months in the banking crisis and will actually accelerate the global virus of the US consumer credit crisis.

While the data is inadequate at this moment, it is conceivable that this “intervention” is actually an offensive move to undermine sovereign reserves in foreign countries so that their economic stability would be compromised by the loss of investment value.

By the beginning of October, TAI will be holding Spring Side Chat #2. This chat will be convened to examine potential personal, community, national and global actions in regards to this situation. We will post the location, date and time shortly. We look forward to having you join us.