The pols have chosen to cover up the problem

The disgraceful and unsustainable government sham continues. Rather than face up to problems, the government tries to hide them and create another credit bubble. This extend and pretend strategy cannot work although was easily predicted. Previous posts dealt with what was happening. This one, US Government Has Become Fannie and Freddie, is one example.

Political cowardice and the need to cover-up criminal activity made such predictions easy. Rather than face up, politicians and the Fed are trying to bluff their way through. This approach cannot work because the government is bankrupt and nearly out of options. Trying to add more credit to the system is like changing the title of an old movie and then being surprised when the ending is the same. There is no exit that doesn’t involve pain. Recognizing that and dealing with it involves the least economic pain. Avoiding the problem involves the least, short-term, political pain.
The pols have chosen to cover up the problem, hoping it goes away. In poker terms, markets hold 4 aces and the pols have a busted hand but think they can win the pot by bluffing. No chance! Unfortunately their all-in play will bankrupt the government and the country. The sources of new money to sustain this Ponzi scheme are drying up.
What we are witnessing at this point is a cornered and wounded animal, desperate to survive and willing to do ANYTHING to do so. Accounting gimmickry, cover-ups, lying about how bad the situation really is and other measures to perpetuate the scam are not working. As things become more desperate, more dangerous tactics will follow. This ending will not be pretty and will have historical ramifications that will reverberate for decades.

Former Fannie Chief Credit Officer Says FHA Is $54 Billion Underwater

In keeping with the warnings presented by Kyle Bass warned that the entire housing bubble is now being ported over to the taxpayer’s balance sheet, Edward Pinto, a former chief credit officer for Fannie Mae claims that the Federal Housing Administration will likely require a major taxpayer bailout “in the next 24 to 36 months” as it is likely to incur $56 billion more in losses than it can withstand.
For those that think the NINJA loans are a thing of the past, think again – the Fed is now actively encouraging just those same reckless standards that brought America to the brink:

The FHA program’s volumes have quadrupled since 2006 as private lenders and insurers pulled back amid the U.S. housing slump, Pinto said. The trend has left the agency backing risky loans and exposed to fraud in a “market where prices have yet to stabilize,” he said. The program insures loans with down payments as low as 3.5 percent and has no formal credit-score requirements.

The FHA Commissioner, David Stevens, is keeping to his side of the story, which is that everything is being properly accounted for, and there is no risk in the future of the Administration. Don’t expect this story to change until the next time the handout hat startrs getting tossed around legislators. In the meantime, the deterioration in loan standards keeps accelerating:

About 14.4 percent of FHA loans were delinquent as of June 30 and 2.98 percent were already being foreclosed upon, according to the Mortgage Bankers Association. The combined percentage for all mortgages was a record 13.16 percent, according to data from the Washington-based trade group, which said in releasing the figures the share of FHA loans past due is being suppressed by the large amount new debt.