Custom Search

Friday, August 22, 2008

Trillion Dollar Mortgage Time Bomb, US May Lose AAA

Uh oh. The U.S. could lose it's AAA rating...

The trillion-dollar mortgage time bomb: “S&P added that saving Fannie (FNM) and Freddie (FRE, Fortune 500) might cost so much that the federal government's AAA credit rating, the top possible rating, might even be at risk. If that was lost, then all federal government borrowing would become more expensive.”

This next part is kind of funny…

“Although few are predicting an imminent need for a bailout just yet, credit rating agency Standard & Poor's recently placed an estimated price tag on this worst case scenario -- $420 billion to $1.1 trillion of taxpayer's money.”

Few? I believe the market has made quite clear that more than a few are predicting an imminent need for a bailout.

No matter. This bubble was so big and handled so poorly thus far, that it is more likely that costs will hit the high end of the range.

So, US GDP for 2007 was about $13.79 trillion. $420 billion would be 3.0% of GDP. $1.1 trillion would be about 7.9% of GDP. Considering the giant budget deficit that is currently being projected, even the low end of the range would be difficult to digest.

“This dwarfs how much it cost to help banks during the savings and loan crisis of the late 1980's and early 1990's. That cost taxpayers about $250 billion in today's dollars.”

The Savings and Loans Crisis resulted in the failure of 747 banks and contributed significantly to the large budget deficits of the early 1990’s.

U.S. Budget Deficit Hit $102.77 Billion in July: “The U.S. government's budget deficit nearly tripled in July from a year earlier, pushed in part by aftershocks from failed financial institutions.

The Treasury Department on Tuesday said the government ran a monthly deficit of $102.77 billion in July, up 182% from $36.45 billion in July 2007.

Outlays were $263.26 billion last month, up 27% from July 2007's $206.89 billion. Spending rose on a $15 billion disbursement by the Federal Deposit Insurance Corp. to cover deposits at failed financial institutions. Calendar shifts also contributed to the figures, causing the July 2007 figure to be lower by $19 billion. The $263.26 billion spending number was a record for the month of July.

Government receipts were $160.49 billion, down 6% from the $170.44 billion recorded in the same month a year earlier.”

So, revenues down, expenses up. On a chart, that would mean the wrong lines are going the wrong way.

“Year to date, the deficit for fiscal 2008 totaled $371.44 billion, 136% higher than the $157.42 billion for the same 10-month period a year earlier. Year-to-date outlays were $2.47 trillion, up 8% over the same period, and revenues were $2.09 trillion, 1% lower.”

Think about it. That's right now. The economy isn't even in a recession YET...


Anonymous said...

Why o why do people give a rats ass about what Moody's and S&P say anymore? It's not like they have endeared themselves with credibility over the past 12 months. The EXACT opposite. They have been exposed to be completely unreliable, late, and negligently complicit at best or a willing accomplice at worse in this whole tired financial mess. Jesus Murphy, these scam firms are in the epicenter of this debacle and people give them the time of day to re-print or repeat one of their opinions. I wouldn't slow down 1 second to pay attention to them.

Anonymous said...

Unrelated question:

What feed aggregator do you use? Is it something based on feed burner or specific to

Matt said...

If one looks at real statistics, statistics that have not been fudged and adjusted, the economy has been in a recession since 2007. See for the details.

Anonymous said...

This sounds dollar negative.

Friendly request: the bottom of posts in your feed does not have a "Comments" link

Anonymous said...

Good Grief!

With all this bad news, China had better find some new customers to buy all their products....cuz folks in the US sure don't have the cash (ooops...we never really had any cash)...uh...I mean credit as they had before.

Ben: Any idea of how much US debt China owns...and what the rate is on those loans we are trying to pay off?

I often wonder how much in $$$ our need for instant gratification (buying on credit) is going to cost us.

NO, wait, the people aren't going to pay off the loans....the US GOVT is going to have to pay China off...since banks/people don't have the capital to make the payments.

And when the US can't make its payments to China.... I'd hate to see that REPO!

Anonymous said...

It doesn`t matter to the government what is faced by the tax payers. We are paying taxes and then they spend it for the welfare of the their friends. We are here deprived. I was planning for buying a home but see the mortgage rate trends & tell is that possible to have a house for us?

Unknown said...

nice post!!
We do kinds of casual clothing wholesale online, welcome to visit!!
Polo Shirts On Sale
Cheap Polo Shirts
Burberry Polo Shirts
ski jackets
The North Face Clothing
Mens ski jackets
Womens ski jackets
Ralph Lauren Polo Shirts
men's down jackets
cotton polo shirts
polo shirts
cheap polo shirts
discount polo shirts
polo shirts wholesale
womens polo shirts
mens polo shirts
polo clothing
polo long sleeve shirt
short sleeve polo shirt
long sleeve polo shirts
embroidered shirts
discount north face jackets
winter jackets
short sleeve polo shirt