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October 9, 2009 (LPAC)—One of the key aspects of the futile effort to "rescue" the global monetary system, has been the effort to prop up the values of U.S. real estate by having the Federal government guarantee mortgages and mortgage-related securities. We warned, when Fannie Mae and Freddie Mac were taken over by the government last year, that they would be turned into bail-out facilities, and that the move would ultimately destroy them. Together, the two companies have already been given $96 billion in Federal funds, and now they need more.

Testifying before the Senate Banking Committee Thursday, Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), said that Fannie Mae and Freddie Mac "likely will require additional draws" of Federal funds, and described their outlook as "troubled." The FHFA regulates Fannie and Freddie, which own or guarantee half of all U.S. residential mortgages.

Another victim of the bail-out scam is the Federal Housing Administration (FHA), an agency that insures mortgages. The FHA's loan-insurance volume has soared since the crisis began, with the agency insuring a fifth of all new mortgages issued in the first half of the year. In testimony prepared to be delivered to Congress tomorrow, former Fannie Mae executive Edward Pinto said that the FHA "appears destined for a taxpayer bail-out in the next 24 to 36 months," noting that it faced $54 billion more in losses than it had the funds to cover.

Reality is even worse than these dire statements suggest. The Federal government is desperately trying to prop up the value of real estate in the hope of saving the value of trillions of dollars of mortgage-related securities held by banks and other financial institutions, and has turned the FHA, Fannie Mae, and Freddie Mac into insurance mills which guarantee the inflated values of properties even as the market values of those properties continue to fall. This is a scheme which is guaranteed to produce huge losses for the Federal government, and the taxpayers. On top of that, it will fail to save the fictitious values of all the mortgage-backed securities, CDOs, and related toxic waste, and thus fail to save the zombie financial institutions which hold that waste. It would be far better to put the whole mess through bankruptcy reorganization and turn our attention to rebuilding our productive base. Let the zombies die, so that we may save the living.