Today Obama had some interesting comments on the growing Freddie and Fannie MESS.

"As president I don’t think we can allow Fannie Mae and Freddie Mac to collapse," Obama said. "I’d like to be able to punish them for their bad decisions. But the problem is they’re too [big] right now not to cause more damage."

This is a short and not so sweet diary on the Freddie and Fannie situation that tries to explain, in as simple terms a possible, the immense dangers lurking just below the surface, for everyone.

Here is the money quote today from the world's richest man:

Fannie Mae and Freddie Mac, the two largest mortgage finance companies, ``don't have any net worth,'' billionaire investor Warren Buffett said.

What does this mean for all those involved...see below....

In a hard-hitting Op-Ed in this morning's Financial Times, Singapore's Kishore Mahbubani writes that The West is strategically wrong on Georgia

... most of the world is bemused by western moralising on Georgia. America would not tolerate Russia intruding into its geopolitical sphere in Latin America. Hence Latin Americans see American double standards clearly. So do all the Muslim commentaries that note that the US invaded Iraq illegally, too. Neither India nor China is moved to protest against Russia. It shows how isolated is the western view on Georgia: that the world should support the underdog, Georgia, against Russia. In reality, most support Russia against the bullying west. The gap between the western narrative and the rest of the world could not be greater.

He extends that diagnosis to our overall approach to the world (as quoted below the fold) and makes a convincing case that the West has an incoherent strategy towards the rest of the world. I would like to suggest, however, that the current 'strategy' has a narrow rationality intimately linked to our current dysfunctional politics.

As we see news of the possible (and increasingly likely) bailout of Freddie Mac and Fannie Mae by the US Treasury, I am reminded of something that I have been writing about nuclear energy, ie that it should be financed by the State, and I'd like to extend on why I think there are fascinating similarities between the two topics, however distinct they may seem.

As a preliminary note: yes, I know, I'm due a diary on oil prices. But why? Just go take a look at this to see why I have not bothered yet.

Alan Greenspan, the man who has done more than anybody - even including the Bush administration - to empoverish the middle classes for the profit of the ultra-rich, has been given yet another tribune in a Serious Business Newspaper (in this case, the Financial Times of London) to try to provide justification for his past hackdom. That one is particularly rich in jargon, so I thought it would be worth doing a full translation and commentary.

Follow me below the fold.

In blockquotes: the actual text
In italics: the translation in normal language of his words
In normal: my comments.

 As I recently reported I’m finally put back together well enough that I can go back to work and I am going at it with a will.

  I’ve been thinking about the genesis of the Stranded Wind Initiative, the work that has been done under its banner so far, and my history of startup involvement and management.

 Someone I work with has more than once mentioned "They’re venture capitalists ... and they’re absolutely ruthless." Reviewing the last twelve years of my personal experiences I know why this is the case ... and I think I’m ready to join the ranks of the ruthless.

As if Bear Stearns ($50 billion in loans plus $29 billion in loss guarantees to JP Morgan) and Fannie Mae/Freddie Mac ($4 trillion in liabilities dumped back on the government's balance sheet) stories were not enough, investment bankers seem to have come up with a new scheme to loot those smallers banks that are about to go bankrup in droves in the near future, and leave the bill with the taxpayer.

The magic tool is "covered bonds." Here's how it goes.

with thanks to ARGeezer for pointing out the links and the scenario

... for a very simple reason: that's the day when the White House will finally stop digging and making the hole bigger. Which means that things will keep on getting worse until then.

It's only after that point that things have a chance of changing and, finally, start moving in a better direction. But it also means that things on the ground are likely to be worse during Obama's first 100 days than they are today.

And that things that were broken (like trust in the USA, or the Constitution) will still be broken when Obama comes to power, and will not be magically be repaired as he does.

I'm back in Paris, and trying belatedly to organise my thoughts after the last 5 days in Austin. Beyond the obvious pleasure for me to see friends I can meet only once a year, I've been trying to get an general impression of what happened at Netroots Nation. I was much impressed by Hunter's wistful and rather pessimistic musings on Thursday, but came reassured by what transpired throughout, and which, in my view, was eloquently summarised by Van Jones in his keynote speech on Sunday morning (it can be viewed here).

I remember 3 core points from what was a truly inspirational moment:

1. they had their chance, they messed up, "it's our turn (to clean up)"

2. consequently, the netroots need to move from a (successful) force of opposition to a force of proposition

3. energy and climate policy is at the heart of the clean up

After seeing Lava20's diary on how to beat the credit card companies at their own game, and reading the comments from people who had ideas of their own about how to eliminate credit card debt -- and the laments of some commenters who needed more help -- I didn't see anyone who had tried the method that I used.

I started to write it into a comment, but it was so long, it merited its own diary.

Let me preface by saying, I am awful with finances and something of a procrastinator, so it's easy for me to get into trouble managing debt.  This method worked for me because it was so damn simple, and entirely goal-driven.  Follow me below the fold for the explanation.

We need to equip our nation to succeed in life.

The Fannie and Freddie show is not over yet.

In an article in the Telegraph today, Ambrose Evans-Pritchard warns that the the US Treasury may have just days to act before foreign patience snaps

Merrill Lynch has warned that the United States could face a foreign "financing crisis" within months as the full consequences of the Fannie Mae and Freddie Mac mortgage debacle spread through the world.

Brian Bethune, chief financial economist at Global Insight, said the US Treasury had two or three days to put real money behind its rescue plan for Fannie and Freddie or face a dangerous crisis that could spiral out of control.

Please read the full article. It is enlightening, and scary.

US Treasury rescue for Fannie Mae and Freddie Mac

US TREASURY secretary Hank Paulson is working on plans to inject up to $15 billion (£7.5 billion) of capital into Fannie Mae and Freddie Mac to stem the crisis at America’s biggest mortgage firms.

The two companies lost almost half their market value last week as rumours of a government bail-out swept the stock markets, hammering share prices around the world.

Together, the two stockholder-owned, government-sponsored companies own or guarantee almost half of America’s $12 trillion home-loan market and are vital to the functioning of the housing market.

Friday:

U.S. banking regulators swooped in to seize mortgage lender IndyMac Bancorp Inc (IMB.N) on Friday after withdrawals by panicked depositors led to the third-largest banking failure in U.S. history.

California-based IndyMac, which specialized in a type of mortgage that often required minimal documents from borrowers, became the fifth U.S. bank to fail this year as a housing bust and credit crunch strain financial institutions.

John McCain:

[A] lot of our problems today, as you know, are psychological — the confidence, trust, the uncertainty about our economic future, ability to keep our own home.

And top McCain advisor Phil Gramm, echoing that McCain talking point:

"We have sort of become a nation of whiners," he said. "You just hear this constant whining, complaining about a loss of competitiveness, America in decline" despite a major export boom that is the primary reason that growth continues in the economy, he said.

"We've never been more dominant; we've never had more natural advantages than we have today," he said. "We have benefited greatly" from the globalization of the economy in the last 30 years. ...

"Misery sells newspapers," Mr. Gramm said. "Thank God the economy is not as bad as you read in the newspaper every day."

Who knew psychology was powerful enough to wipe out five banks in one year, including the third largest collapse in US history?

Besides the IndyMac collapse, the big business news story this week has been the future fate of Freddie Mac and Fannie Mae, the government sponsored mortgage lenders.

If Freddie and Fannie go under, then obviously the shareholders would get nothing, but there is also talk about bailing out the bondholders (the people who own their debt). Who are these bondholdersthat could be bailed out by the government (and taxpayers)?

The top five foreign holders of Freddie and Fannie long-term debt are China, Japan, the Cayman Islands, Luxembourg, and Belgium. In total foreign investors hold over $1.3 trillion in these agency bonds, according to the U.S. Treasury's most recent "Report on Foreign Portfolio Holdings of U.S. Securities."

China alone holds $376 billion!

The Clinton campaign is $23M in the hole. With $11M being a debt back to the Clintons for their loans, that leaves $12M in debts to other vendors. The Clintons are smart people, and knew in the last months of the campaign that there was a significant risk that they would be in this situation.

Bloomberg sez:

MBIA Inc. and Ambac Financial Group Inc. lost their AAA credit ratings. The biggest hospital in Sarasota, Florida, is paying the price.

David Verinder, chief financial officer of the Sarasota Memorial Health Care System, received daily e-mail messages last month informing him that interest costs on an $83 million bond issue were rising to 1.45 percent, to 1.75 percent, to 3.25 percent, to 5.9 percent, and finally to 9 percent by June 24, a more than fivefold increase.

In March, the Sarasota health network had tried to escape high rates by converting the bonds from auction-rate securities. The February collapse of the $330 billion market where rates are determined through periodic bidding drove interest costs as high as 11 percent.