And the Holder of that New Mortgage Liability is.... You

A nice piece of deduction by Yves Smith over at Naked Capitalism.

If you are holding US dollars, you are exposed to this.


So Much For Free Markets: Federally Sponsored Mortgages at 90% Share

The US government has gone from being the biggest player in the mortgage market
to being just about the only player. Per recent reports sent by an alert reader, Freddie Mac and Fannie Mae now finance 80% of all mortgages, and the FHA guarnatees another 10%, so these entities now come close to having mortgage finance all to themselves.

Having Fannie and Freddie, be this large, as we mentioned before, is disruptive to the credit markets. The GSE hedging of their derivatives book is pro-cyclical, increasing the amplitude of bond market price moves. Indeed, the Fed was worried that the scale of these operations in 2001, seeing possible systemic risk, but the
restrictions imposes as a result of accounting scandals took care of that problem for a while.

First, on Fannie and Freddie, from Associated Press:

Freddie Mac and its fellow GSE Fannie Mae are now financing more than 80 percent
of all mortgages in the U.S., up from 40 percent a year ago.

As lenders rely on Freddie Mac to buy their loans, the company is charging higher prices and increasing market share. Freddie Mac, which has a $738 billion portfolio of mortgage bonds and guarantees $1.78 trillion in home loans, is raising prices next month for the fourth time.

"We are nearly the only game in town, and we think we are going to be able to enjoy that position for a number of years," Piszel said....

Real Estate Values Never Really Decline

.....except in a post-bubble environment.

Lehman CFO and COO Resign

Two top operating officers of Lehman Brothers resigned this morning.

Erin Callan, the CFO, has resigned. She is reported to be returning to investment banking. She was noted on Wall Street for her frankness and credibility. She was involved in some controversy in her handling of David Einhorn and the Lehman short sellers.

Joseph Gregory, the President and COO, is also reported to have resigned and will be leaving the company to pursue other interests. He had been the president since 2004. He has been with Lehman for 34 years.

They will be replaced by Lowitt and McDade respectively. Details to follow.

The stock dropped sharply on the initial news reports trading down to $22, three days after a secondary offering at $28.

LEHMAN NAMES HERBERT H. MCDADE III PRESIDENT, COO
(The following is a reformatted version of a press release issued by Lehman Brothers and received via electronic mail. The release was confirmed by the sender.)

HERBERT (BART) H. MCDADE III NAMED PRESIDENT AND CHIEF OPERATING OFFICER
IAN LOWITT NAMED CHIEF FINANCIAL OFFICER

NEW YORK, June 12, 2008 -- Lehman Brothers, the global investment bank, today announced that Herbert (Bart) H. McDade III will succeed Joseph Gregory as president and chief operating officer of the Firm, and Ian Lowitt will succeed Erin Callan as the Firm's chief financial officer. Mr. Lowitt will join the Firm's Executive Committee. These management changes are effective immediately.

"Bart, who has been my partner for 25 years and has proven himself to be the Firm's best operator, is the right individual to take on this responsibility and lead the Firm to the next level. His experience in both Fixed Income and Equities Capital Markets will benefit the Firm, especially during these challenging times," said Richard S. Fuld, Jr., Lehman Brothers' chairman and chief executive officer.

"Joe has been my partner for over 30 years and has been a driving force behind who we are today and what we have achieved as a Firm. This has been one of the most difficult decisions either of us has ever had to make," Mr. Fuld continued.

Ms. Callan, who has served as the Firm's chief financial officer since December 2007, will be rejoining the Investment Banking Division in a senior capacity.

Two Corrections in the Gold Bull Market