[Marxism] The Other Shoe

[S. Artesian]

The one not being thrown at Bush, Bloomberg, Israeli basketball players... the other shoe, that Gucci slip-on bankers' wear, is falling.

The Federal Home Loan Bank of Seattle has reported that its balance sheet will show that it has fallen below its mandatory capital requirements due to the continued decline in mortgage values, and values of mortgage backed securities.

The FHLB System, founded in 1932, is made up of 12 regional cooperative banks formed by 8000 commercial banks, S&Ls, credit unions, etc.  The banks loan money to the members accepting mortgages and MBSs as collateral.  Because of their origins in an act of Congress, the FHLB benefits from an implied "full faith and credit" of the US when issuing debt in the capital markets to provide funds for continued purchases from member banks.

Starting in 2007, accelerating throughout the latter part of that year and through 2008, the FHLB became the primary source of funds for the big mortgage and MBS issuers in their membership pools, as the "normal" capital markets seized up, and limited access by these mortgage market players.    As of  September 30, 2008, FHLB debt outstanding reached $1.3 trillion.

The US Treasury has opened a special credit vehicle "just in case" for the FHLB system.

Meanwhile, yesterday's hero and genius of targeted government intervention through direct capital injections, Gordon Brown, doesn't look quite so heroic or smart a mere 4 months after his anointing as the new Keynes.  

The direct capital injections have failed to reanimate  British bank lending, big surpise. Brown and Alistair Downing are proposing another program to provide direct government loans to small and medium sized businesses unable to obtain bank credit.

In a sign that the markets are less than impressed with Brown's original bank bailout, investors of the targeted banks, HBOS, Lloyds TSB, etc. did NOT  buy the newly issued shares marketed as part of the recapitalizations leaving Brown and Darling Darling with the obligation, as chief underwriters, of having the British govt. purchase more than 90 percent of the issues.

Word to Brown's and Darling Darling's current proven idiot--  Bush and Paulson, and future don't matter how smart you are, history will make you look stupid-- Obama, Geithner [provided he pays his taxes]  cousins.