In 2004, reports the International Herald Tribune, Cheil Excec Richard Syron received a memo from the Chief Risk Officer warning of a threat to the financial health of Freddie Mac if it kept on taking such questionable and high risk loans. When you are a company that owns or has insured a protfolio of debt equal to the national debt, you are so big that a serious misstep can tip the boat. And that is exactly what is happening....the firms held mortgages worth more than $1.4 trillion combined, and guaranteed payments on loans worth $3.5 trillion more.
The Size of the Problem
Bloomberg reports that Freddie has 22,000 properties in foreclosure, the most since the company was created in 1970 during the Vietnam War, and now anticipates losing 26 percent on each loan, up from 22 percent.
Freddie has plunged 76 percent this year on concern the company may not have enough capital to overcome delinquencies on the $2.2 trillion of mortgages it owns and guarantees. Freddie doubled its reserves for future home-loan losses to $2.8 billion, signaling Chief Executive Officer Richard Syron sees no end in sight to the worst housing slump since the Great Depression.
This is such a huge problem that it will change the way the rest of the world perceives us. Will the dollar still be the currency of choice or will the world decide that a basket of stable currencies is a better and more stable approach to world finances.
Further, if we were heading to a multipolar world, this disaster will push us to that much faster. I do think this will cost us our solo spot on the world stage. Its really that big. Much of the world realizes that they will have to pay for the excesses of one American industry and that is not the safe.
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