July 2008

There were 9 posts published in July 2008 (this is page 2 of 2).

Bold-Faced Lies Doing Little To Save Sinking Financials

Yesterday (emphasis added):

Mortgage financiers Fannie Mae and Freddie Mac are adequately capitalized and continue to be active in the mortgage market, said James Lockhart, director of the Office of Federal Housing Enterprise, which regulates the two enterprises.
“Both of these companies are adequately capitalized, which is our highest criteria,” Lockhart said in an interview with CNBC. “They have been very active in the mortgage market, and they are continuing to be. And, in fact, Congress has put on them the requirement to do jumbo mortgages and they have been doing those as well.”

This comment was a desperate effort to reassure nervous investors about the financial health of these companies. How successful has it been thus far? Not very. You can only lie your way out of a bad balance sheet for so long:

Shares of Fannie Mae and Freddie Mac tumbled Wednesday amid continuing fears the mortgage finance companies will be forced to sell more new shares than anticipated to compensate for losses from the housing slump.
. . .
Freddie Mac shares fell $3.20, or 23.8 percent, to $10.26 Wednesday after earlier sinking to a 16-year low of $9.88. Shares of Fannie Mae fell $2.31, or 13.1 percent, to $15.31.
. . .
Investors are finally realizing that the housing market’s troubles are not confined to subprime loans made to borrowers with poor credit and will increasingly affect loans bought or guaranteed by Fannie and Freddie, said Joshua Rosner, managing director of research firm Graham, Fisher & Co.

I wonder what too them so long?
Fortune ponders the doomsday scenario of Fannie Mae and/or Freddie Mac folding. I smell a massive, taxpayer-funded rescue in the air.
Elsewhere, Nouriel Roubini appeared on CNBC this morning and predicted that the credit crisis will get worse, with losses surpassing $1 trillion. Watch the video.

Pickens’ Energy Plan

Texas oil mogul T. Boone Pickens has unleashed a public relations campaign promoting his plan to reduce U.S. oil consumption.

In short, Pickens proposes a large-scale increase in the production of wind power in the great plains. This would free up the natural gas, currently used to produce electricity, for transportation use. According to Pickens, this resource allocation shift could reduce America’s oil importation by 38% in a decade.
It’s notable that an oilman is explicitly acknowledging that more oil drilling will not be enough to stave off the developing energy crisis. Although self-interest may be at play with Pickens’ proposal, it rightly advocates a massive expansion in alternative energy generation. I hope the publicity for this plan will help more people see the need for immediate action.