-->
...................................................................................................................................................................................
Fannie Mae & Freddie Mac are the two Government Sponsored Enterprises (GSEs)charged with creating mortgages for lower-income Americans.....
--------------------------------------------------------------------------------

The GSEs are the credit engine of the US Economy. They constitute the largest, most liquid bond market in the world. In 2003 they issued more than $1 trillion worth of new debt. All told they own or guarantee 42% of the $7 trillion US mortgage market, which now surpasses the US Treasury Bond market in size.

--------------------------------------------------------------------------------

Fannie & Freddie hired a combined 46 lobbying firms in 2003, to go along with permanent staffs of 20. According to politicalmoney.com, the two spent $9.7 million on lobbyists in the first half of the year alone. And just two weeks before the House Financial Services Committee postponed a planned meeting on tighter regulation of the GSEs, Fannie donated $1 million to the Congressional Hispanic Caucus Institute. There are five members of the Congressional Hispanic Caucus Institute on the Financial Services Committee.

If interest rates rise even 1% in 2004, the entire financial system could be shaken to its paper foundations.

--------------------------------------------------------------------------------

According to Federal Reserve data, there's $32 trillion of debt in America-- $9 trillion held by households -- over $10 trillion by the financial sector, 75% of that in mortgage-related paper.

--------------------------------------------------------------------------------

The GSEs issue bonds. The bond proceeds go to buy up mortgages from commercial banks, and the banks go out and make more loans. By buying a mortgage and selling a bond, a GSE adds both an asset and a liability..... As long as the interest rate on the mortgage held is higher than the interest rate on the bond sold, the GSE makes money. They have found a way to expand the balance sheet almost infinitely.

--------------------------------------------------------------------------------

GSE bonds or GSE-guaranteed mortgage-backed securities are NOT backed by the full taxing authority of the United States Government. But they are being treated as if they were.
--------------------------------------------------------------------------------

Just so we're clear, over $5 trillion in corporate assets now depends on the ability of American homeowners to pay the monthly mortgage.
--------------------------------------------------------------------------------

If mortgage payments to GSEs stop coming in, where will the money come from to pay the bondholders? From the second barrel come the angry owners of mortgage-backed securities, the ones the GSEs packaged up, guaranteed, and sold off as normal"bonds".
--------------------------------------------------------------------------------
A series of domino defaults begins. First the homeowner on his mortgage. Next the GSEs to bondholders and to owners of mortgage-backed securities. And finally, if they were counting too much on income from GSE bonds or mortgage-backed securites, any entity that derives a significant percentage of its income from (or counts among its assets) the GSE bonds and mortgage-backed securities is in serious financial danger.
--------------------------------------------------------------------------------
In the event of a crisis in the GSEs, the entire financial community is in jeopardy, including the firms and institutions charged with the retirement savings of millions of Americans.
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Through the inadulterated credit creation machine of the GSEs, the entire system is jeopardized. The exposure? Default, plain & simple.
--------------------------------------------------------------------------------
The Housing Market is like a Ponzi Scheme --- There must be a constant stream of new homebuyers. Without new demand, there is no market for existing homeowners to sell their current home and"trade up" for a new one.