As the Credit Crisis continues to cause financial institutions to plunge in a downward descent toward the abyss, banks continue to borrow record amounts of money from the privately held and controlled "Federal" Reserve. The rate of borrowing from the "Fed" is now averaging close to $17.5 Billion PER DAY through the "Fed's" various auction facilities such as the Term Auction Facility, the Discount Window, or other methods.

Doesn't the general public understand that banks are essentially being "nationalized", and / or that their power and control is being transferred to those people who own and control the "Federal" Reserve? Remember, the "Federal" Reserve is privately held and controlled. They are a private monopoly that circumvents the U.S. Constitution by controlling our money supply through a variety of ways. 

The Fannie Mae and Freddie Mac bailouts will probably end up being controlled by the privately held "Fed". This represents between 50% and 70% of the U.S. mortgage market depending upon whose numbers you believe. The monopoly of power and money, and the continued centralization of our "corporatist" government / private leadership is completely changing the landscape of America. 

"Corporatism" is replacing capitalism as the leaders of our country continue to follow the horrific economic policies created by Milton Friedman (the deceased Nobel Prize winning economist from the University of Chicago). Friedman had a history of creating newly formed economic models in countries like Brazil, Chile, Argentina, Poland, and even Russia in the '90s. 

His economic models usually wiped out the middle class, devalued their respective currencies so much that the governments were "forced" to create new currency forms, sold off prime government assets to privately held U.S. and international, and created somewhat privately controlled centralized (or "corporatist") governments. Friedman's economic "shock" policies usually hit the citizens so fast that they didn't have time to react or protest against the new economic and governmental abuses. 

Are Friedman's "shock" policies being created here in the U.S. now with the Credit Crisis meltdown, the reduction of citizens' rights, the transfer of prime government assets to more private entities, the massively declining U.S. Dollar, and the real possibility of a newly created currency in the near term such as the proposed "Amero" as part of the new North American Union (U.S., Mexico, and Canada)? 

If you get a chance, please read the excellent book by Naomi Klein entitled The Shock Doctrine: The Rise of Disaster Capitalism. This book brilliantly outlines what has happened to the U.S. and world over the past 30 years. It is one of the best books that I have ever read. Please educate yourselves in regard to what is happening around the world as the world is changing dramatically.

As recently seen by the purchase of Merrill Lynch's $30 Billion + CDO Mortgage Pool by a Texas Hedge Fund at potentially 5 or 6 cents on the dollar, Hedge Funds and private equity funds are continuing their raid on discounted real estate assets and mortgage pools.

Small to large investment funds are actively purchasing mortgage pools in amounts of $100 million and up in many cases. Each month, the number of new investors to the discounted mortgage pool arena continues to increase as banks and investment banks are doing whatever they can to find much needed cash. 

Cash is king in today's Credit Crisis world. Wealth will be created the most for those investors who know how to find the best discounted mortgage and REO property pools. If you can find assets for 5% - 50% of the most recent conservative values, then your odds of profiting both now and down the road are quite good. 

When our nation's banks and investment firms finally decide to acknowledge how bad their financial situations really are in the very near future, then expect to see incredible deals as everyone will scramble to find cash anyway possible.

Merrill Lynch announces more record losses and writedowns for the 2nd quarter of '08. In addition, they are supposedly planning to sell a large CDO (Collaterized Debt Obligation) mortgage pool (mainly prime 1st mortgages) for almost 5.5% of the face amount (or 5 1/2 cents on the dollar) for one of their massive $30 billion CDOs.

In addition, the FASB Board (Financial Accounting Standards Board) is being pressure to modify, delay, or eliminate their new accounting standards established a few months ago.  These new rules (FAS 140 & FIN 46R) force banks and investment banks to add their "off balance sheet investments" back on to their respective company's main balance sheets by the end of this year. 

If the new accounting rules are repealed or revoked completely, then our nation's banks and Wall Street investment firms may not have to truly acknowledge all of their hiddent losses in SIV, CDO, and Credit Default Swaps. These losses may amount to tens of trillions which may wipe out many of these financial entities completely. The unwinding of financial assets continues as the ongoing Credit Crisis causes more damage.

Most of the 20 largest metropolitan areas nationwide experienced price drops near 1% just for the month of May. Of the largest markets nationwide, the biggest one year losses were as follows:

1.) Las Vegas - 28.4%
2.) Miami - 28.3%
3.) Phoenix - 26.5%
4.) Los Angeles - 24.5%
5.) San Diego - 23.2%
6.) San Francisco - 22.9%
7.) Tampa - 20.2%

In California statewide, the median price dropped closer to 35% between May '07 and May '08. The June price numbers may be even worse as the Credit Crisis begins its downward descent into the financial abyss. 

The implosion of both Fannie Mae and Freddie Mac may also adversely impact price levels around the country for years to come. Buying opportunities will be everywhere if you know where to look for them.

National Australian Bank (NAB) just announced that it had written off up to 90% of its investments in a U.S. mortgage pool in the amount of close to $850 million (U.S.). NAB had acquired these investments by way of off balance sheet investments such as SIVs (Structured Investment Vehicles). 

NAB had recently sold off their investments in their complicated derivatives to other investors. Those same investors are now screaming for the repayment of their money as they allege that NAB should have known about the forthcoming 90% writedowns. 

Remember, there was a new law recently passed a few months ago that is supposedly "forcing" banks and investment banks here in the U.S. and around the world to place their "off balance sheet" investments back on to their main company's balance sheets by the end of this year. If this rule is followed by many banks, then they will have to acknowledge their true losses which have been hidden from the general public. According to multiple insiders, the true losses may be well over $1.5 Trillion. 

However, I personally think the losses will be significantly higher than $1.5 Trillion as the exposure to the estimated $62 Trillion + in Credit Default Swaps may begin to really unwind in the very near future. Once the "daisy chain" (or dominos) of complicated derivative investments really begins to escalate, the reverse leveraging of these SIVs, CDOs, and Credit Default Swaps may cause the losses to escalate to the tune of Trillions and Trillions.

Yesterday (Thurs., 7/24/08), Congress passed the national "housing bailout bill" to "supposedly" save the national housing market as well as the U.S. economy. The details of the new bill are as follows:

1.) The existing $2.5 Billion dollar line of credit to both Fannie Mae and Freddie Mac is now OPEN ENDED from the U.S. Treasury.
2.) Congress in NO LONGER involved in appropriating funds. The U.S. Treasury (or is it the privately held 'Federal" Reserve") is now in charge.
3.) The U.S. National debt ceiling is now increased to $800 Billion.
4.) U.S. Treasury Bills now may be exchanged for "unwanted" Fannie and Freddie Notes. Remember, Treasury Bills back up the U.S. Dollar. The Fannie and Freddie Notes are massively falling in value. The U.S. has replaced both gold and silver to back the U.S. Dollar with these horrendously declining "assets".

What happens now is that massive hyperinflation (think Argentina, Bolivia, and Brazil in the early '80s) may happen here in America. The dollar becomes so weak that our government may consider repacing it with a new form of currency like what happened in many South American nations. With unwinding financial markets, a dwindling or newly created currency, and other chaotic issues seemingly approaching in the near term, you need to protect your assets anyway possible.

According to Dataquick (La Jolla, CA), foreclosure filings in California are up 261% in just one year. The scary thing about these numbers is that they are probably on the low estimate side. There were over 121,000 Notice of Default foreclosure filings in the 2nd quarter alone in California.

My sources in various locations around the state tell me that the true number of non-performing mortgage loans may be 2 - 5 times higher. Most banks, whether privately held or publicly traded, are very slow to file their initial Notice of Default documents (begins the approximate 111 day foreclosure process in California) as they don't want to flood the REO / foreclosure market even more. The increase in foreclosures will hurt the existing sales comparables even more in just about every region in the state.

They are very slow to begin foreclosure whether they are in 1st or 2nd lien position. Many 2nd lenders (lines of credits, fixed rate mortgages) do not even bother to file the foreclosure filings as they don't want the extra legal and filing fees as many of them are secured by homes that are "upside down" with negative equity. 

Many U.S. banks are technically insolvent right now. This is especially true of banks with high exposures to "bubble regions" like California, Arizona, Nevada, and Florida. I expect many more small, mid-sized, and large banks to go bust within the next few months. 

This increase in bank takeovers by the FDIC may completely wipe out their reserve capital base. Please protect your cash reserves by thoroughly analyzing the existing "safety" of your current bank.

IndyMac Bank (the 2nd largest takeover in U.S. history) wasn't even on the recent "negative watch list" of the FDIC before the government took them over a few weeks ago. There are at least 90 banks currently on the "negative watch list" according to the FDIC, but they will not tell us who is on that list. The website at www.ambest.com is a good place to start reviewing the potential safety of banks around the country.

The privately owned and controlled "Federal" Reserve wants a blank check from American taxpayers along with the U.S. Treasury in order to bail out both Fannie Mae & Freddie Mac. As Fannie and Freddie currently control upwards of 70% to 80% of the U.S. mortgage market, the potential insolvency of these government sponsored enterprises (GSE) is critically important as it relates to both the U.S. housing market as well as the domestic and international financial markets.

We did not elect the "Federal" Reserve. As Congressman Ron Paul from Texas has said for years, we need to abolish the Federal Reserve. We do not need to give them more power. THEY ARE NOT A PART OF THE U.S. GOVERNMENT (Please watch videos #1 and #2 for more infomation in the "Videos" section). Our elected leaders in Congress should have the power to print our national currency and regulate important entities like Fannie and Freddie.

As the proposed bailout plans continue to surface, we are learning more about the risky investments that both Fannie Mae and Freddie Mac were making over the years. I have been writing in Creative Real Estate Magazine for years about the "risky" on and off balance sheet investments that both Fannie and Freddie were making as well as the fact that they have been on the verge of insolvency for years.

Fannie and Freddie were initially set up as government agencies, and later they were converted into "quasi-private" entities with an "implied" backing by the U.S. government. The 'implied" backing allowed them to both have AAA ratings as they were considered "safe" companies. The AAA ratings allowed them to borrow money from investors in both equities and bonds at extremely low rates.

Fannie and Freddie, in turn, purchased pools of residential backed mortgages as based upon their primary business models of providing capital to banks around the U.S. in exchange for their mortgages. Fannie and Freddie then ventured off into derivative invesments which can be very highly leveraged (6, 30, or 50+ times their capital investments). 

If their investments in on and off balance sheet investments are solid, then their returns are fairly high. Fannie and Freddie both gambled that they may earn a nice spread between their low borrowing costs and their higher returns from more agressive investments. Sadly, many of their investments turned out to be horrible. As a result, both Fannie and Freddie are in search of some form of bailout from the government or the "Federal" Reserve (a consortium of U.S. and international bankers and business owners).

I will have a detailed article in regard to the "rise and fall of Fannie and Freddie" in the September issue of Creative Real Estate Magazine.  The potential collapse of both Fannie and Freddie in their current organizational structures is potentially the worst thing to happen to the U.S. real estate market since the "Banking Crisis of 1932" during The Great Depression.  

The REO (Bank owned foreclosures) market is fast becoming the true real estate marketplace for the state of California. The lower priced REO homes are setting much lower sales comparables numbers for most neighborhoods in the state. 

* There were 42,151 Notice of Default filings in June alone. The Notice of Default filing begins the 111 day foreclosure process in Trust Deed states like California.
* There were an ALL TIME record 35,544 Notice of Trustee Sales (NTS) filed in June. The NTS is typically filed an average of 21 days prior to the final Trustee's Sale (auction on the court steps).
* There were 24,286 homes which went to the final Trustee's Sale auction in June as well.

Lenders discounted their prices at the scheduled Trustee's Sales at a another record pace in order to generate more interest from outside investors. According to Foreclosure Radar (& Mr. Mortgage's Blog), over 80% of these properties were discounted an average of 30%+. While 25% of the homes scheduled to be sold at auction were discounted OVER 50%. 

Even with all of these massive price discounts by the banks, only about 2% - 4% are actually being purchased at the final Trustee's Sale by outside investors. Most 2nd mortgages are being completely wiped out at these auctions if the loan in 1st position is the one who started the foreclosure process. 

The total number of 1st mortgages that went back to banks with California properties exceeded $10 BILLION for the 2nd month in a row. These numbers do not even factor in the usually wiped out 2nd mortgages (or other junior liens). You may want to avoid placing your money in banks with large exposures to California real estate (1sts, 2nds, construction loans, etc.) as these record losses will continue to destroy many financial institutions. The recent takeover of IndyMac Bank (Pasadena, CA) may just be the start of the California-based bank bailouts.