Release the Kraken 
(or Damn the Gods)

Appeasing the Bond Gods by Paul Krugman

Release the Kraken Part Deux 

Floyd Norris on government controlled behemoth zombies Fannie and Freddie:

Already the four big commercial banks -- JPMorgan Chase, Bank of America, Wells Fargo and Citigroup -- have taken losses of $9.8 billion on loans they have repurchased or expect to be forced to repurchase. Moshe Orenbuch, an analyst at Credit Suisse, says he thinks that figure will rise to $20 billion or $30 billion before the wave is over. Other analysts think the number could be significantly higher.

...  

So far, most of the money the banks have paid has gone to Fannie Mae and Freddie Mac, which used to be government-sponsored enterprises and now, after the bailouts, are government-controlled. But even though they have collected billions, Fannie and Freddie are getting increasingly frustrated with the banks for what they see as foot-dragging.

Freddie, in its quarterly report filed this month, said it was now requiring banks "to commit to plans for completing repurchases, with financial consequences or with stated remedies for noncompliance, as part of the annual renewals of our contracts with them."

A spokesman for Freddie would not say just what those remedies or financial consequences might be. But any bank that wants to keep offering mortgages must have contracts with Fannie and Freddie. Tying the repurchases to contract renewals could be a strong bargaining chip.

The mortgages sold to Fannie and Freddie were supposed to conform to specified requirements. Those requirements did get weaker as the credit bubble intensified -- a fact some bankers privately mutter the government now wants to forget -- but they were still of higher quality than many mortgages sold into private securitizations.