Freddie/Fannie Plans In Motion; Why Are They Being Underplayed?

by: Paul Kedrosky September 05, 2008 | about stocks: FNM / FRE    
Paul Kedrosky

Paul Kedrosky

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Word all over after the market close is that Treasury is finalizing its Fannie/Freddie bailout/backstop plans. The plans allegedly include changing senior management -- you think? maybe? gosh -- as well as putting taxpayers on the hook for a few deci-billion more dollars.

More broadly, this isn't a big surprise, but the timing of this coming after Bill Gross's missive yesterday really rankles. Does everyone have to hop every time Gross complains? Is he the bond market incarnate, or just channeling its animal spirits?

[Update] The WSJ now has out a story on it. Not much more detail, other than the reminder that Treasury had a series of high-level meetings today, something may come this weekend, and that Morgan Stanley remains one architect of the plan. We all know nothing would ever leak from a classy shop like Morgan Stanley (MS)  back into the market. No-ooooo.

[Update^2] When asked on CNBC after the close whether he had been approached about buying preferred stock or debt in any bailout deal, Pimco's Bill Gross declined to comment. Take that as a "yes", which makes yesterday's note from Gross even more Treasury bludgeoning. To spend the first half of the interview spitting watermelon seeds and pretending not to know much, only to demur on answering that crucial question at the end is ... well, remarkable TV.

[Update^3] Bloomberg says Hank Paulson, Ben Bernanke, Fannie Mae CEO Daniel Mudd, Freddie Mac CEO Richard Syron and Federal Housing Finance Agency director James Lockhart met today in Washington. More importantly, perhaps, it says Morgan Stanley and Mudd et al., are continue to meet at the FHFA, with catered food scheduled for delivery all weekend. And as we all know, bailout plans run on their stomachs.

[Update^4] The Washington Post has more detail, with a conservatorship -- essentially, a government takeover -- in Fannie/Freddie's future, as well as complete management team and board wipeouts in both companies. The preceding was mostly as expected, but it is disconcerting to read that while common shares will be diluted, and preferred shares and debt will be protected, the common will not be wiped out. Granted, people who hung on through a near doubling since August 23rd are now in for a pounding, but they should be zapped entirely. The government has no business using my money to bail out lottery ticket holders with my money, which is what FRE/FNM shareholders are at this point.

Underplayed?

Is the Freddie/Fannie bailout plan being underplayed? News late today that Treasury plans are likely to be announced imminently strikes many people, myself included, as one of the biggest financial events in modern memory, and yet it feels underplayed.

Why do I say that? Well, until recently, it was the second story on the front page of the WSJ this afternoon, and it hadn't even made the front page of the NY Times site last I looked. Marketplace on NPR, which I listen to most afternoons, shrugged it off in a 15-second drive-by comment as some late-breaking news that the market may have noticed.

Remarkable stuff. Here is the Federal Government backstopping a massive financial services organization; okay, two of them; okay, the whole frickin' financial services industry plus the stock market, with China and the rest of the world watching nervously, and it's being treated as just another day in those nutty ol' markets.

But it isn't just another day in the markets. This is set to be epochal, a true "Where were you when..." moment, a before/after sort of of thing. You can't make these kinds of massive financial commitments -- more than a trillion dollars, at least in notional terms -- with so many contingencies, without imagining the kinds of consequences, financial and political, that come with it. After all, the current U.S. administration desperately wanted to punt this past November elections, and it now seems clear that it can't.

The underlined point in the prior paragraph is important to understand. As much as the Treasury and the Bush Administration didn't want to get saddled with this bailout baggage at all, put that to the umpteenth power and you'll get how desperate they were to move this past election day in November. Bush, Paulson, et al., wanted it to be the next Administration's problem, not theirs; and they didn't want it to be fodder in the current electoral cycle. They failed on both counts, which tells you fast and out-of-control this apple cart is.

So, how much will the total liability be? Any upside will be sold hard, but will there ever be a chance to exercise whatever convertible paper Treasury (i.e., you and me) end up holding? Where does it go from here, and who else -- I'm looking at you, Wachovia (WB) and you, Washington Mutual (WM) -- is deemed too big to fail? What happens to the dollar with the Fed working overtime to print money? What happens to treasuries? To the dollar? Inflation? Stay tuned.

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This article has 41 comments:

  •  
    Sep 06 06:50 AM
    Yes, the fallout will be interesting to see. Could this be the end, or the triggering event that starts that cascading collapse of faith in all things financial and American? If we just added another $6 trillion to our debt of $9+ trillion with the stroke of a pen, do you think foreigners will continue to lend us their money at low rates? Or will they demand another couple of points to cover the increased risk that we'll never be able to repay them? And if they ask for a greater return, what's that going to do to our federal budget? We're already running huge deficits year after year after year (essentially borrowing more money just to keep up the interest payments). Will the world continue to give us those no-down-payment, interest-only, ARLs (Adjustable Rate Loans)? Or will they view that as a bad way to conduct business, which will inevitably lead to ultimate default?


    I can't wait for Monday!
    Reply | Link to Comment
  •  
    Sep 06 06:51 AM
    Excellent article. Unfortunately it poses more questions than it answers. That's not a criticism, Mr. Kedrosky. It's far too soon to tell what all the ramifications of a bail out will mean to the US economy. While the knee jerk reaction was an after market stock rally, I can't buy into it.

    Opening this Pandora's box will have serious implications for years to come. Rather than comforting me, it heightens my concerns regarding the future of the US economy.
    Reply | Link to Comment
  •  
    Sep 06 07:17 AM
    Leaked to the press 4:30 PM Friday, but who knew at 11 AM Friday????? The banks bottomed at 11:00 am and then climbed all day. Take a look at KBE an etf for biggest banks
    Reply | Link to Comment
  •  
    Sep 06 07:26 AM
    If The Washington Post article is correct,then the Trearury's plan should strenghten the Agencies and finally reinforce the idea of implicit guarantees .While some dilution(preferred and common stock) may occur, the FNM and FRE should be set for a major rally .Now that we know that both agencies will survive the rumors ,soon enough the agencies will return to the profitability given enough time.The "pounding"of the shares had already occurred from the last year's high to the recent lows.Now ,the share holders (common stock) can breath easier knowing that the time is in their favor.By protecting the shareholder ,the Treasury will set up a relevant precedent for the future market funding needs of the both agencies and the others.
    One more time, last year I have advised my clients(including( Central Banks) to liquidate their holdings in both agencies and we did.
    If the Tresaury adds additional capital as outlined in the Washington Post ,then I am bulish on both agencies.Some dilution of the common and preferred stock is irrelevant to the price,after all the, shares in both companies had traded in the 80 dollar range .At the current level the share price in both agencies reflect an Armageddon which never was .Finally the mega shorts are running out of the market punitive rumors and will have to cover their position-perhapswith some degree of pain..The initial knee jerk reaction can not be predicted ,but the shares of both agencies will head substantially higher in the period ahead.The agencies themselves will continue to provide a very important function for a long time. Investors should be reassurred that the Treasury ,the FED the Congress and the Administration will not allow speculators to derail U.S economy and financial sector.
    Finally ,when I have expressed my concerns in the news media as early as two years about the various financial issues which could cause the problems we are addressing today ,I do not recall any gurus supporting that concern.
    Now that the problems have been identified and are being effectively addressed ,the voices of self serving paranoia are being heard.
    Friday's rumor had indicated that the holdersof common stock will be wiped out -not so. Market will adjust accordingly.
    Reply | Link to Comment
  •  
    Sep 06 07:39 AM
    Uhhh, calling common stock holders, 99% American "retail"--lo... ticket holders while insuring Japan, China and Europe "lottery ticket holders" who finance our worthless wars get their money--is not my idea of fair and balanced. Those furriners, thinking this country is like reruns of Leave it to Beaver. Your comments are the kind of self loathing that should have been reserved for your shrink when you made that liar loan.

    Didn't scapegoating go out of style around the days of the Holocaust?
    Does anybody in govt deserve responsibility for deregulation, or wholesale lack of lending standards? Do foreign investors come first, since they finance our worthless wars?

    Seems to be that's a govt role abandoned to the gospel of "free" markets, as in free-for-all. Maybe it is better if they did pull their money, and we actually had to make something in this country, and live with it. You'd miss your made in China slave labor COSTCO shirt though, wouldn't you. $16.95.

    Shareholders are little people with hope. Not all of us are like Dick Cheney, whose Halliburton oil stock is up 500% since the Iraq war started he originally said was a nonstarter in 1994, then sat back playing puppetmaster, while our ex drunk President tried to put two phrases together to make a whole sentence with his alcohol impinged brain.

    The interlocking investments in common in 401K's will not only wipe out many folks, I think you'd better look at all those banks you love, many hold common in FRE/FNM and you should be checking REAL close. Wait till you see what THEY'RE holding....

    Market will crash due to the stampede, just like it did in 1987 till people parse out the difference between conservetorship, and receivership. One preserves, the other is a do over. It'll be lost to the cattle, to include braindead misreporting at CNBC and WSJ, who I may add, can publish any drivel they want, as long as Uncle Fred goes short before the story hits the fan, and those misimpressions hit the blog board in perpetuity. Do your OWN DD, and listening to fast money and Cramer isn't due diligence.

    And get out of the way of the cattle Monday, or run with them. The bulls at Pamploma Spain may be stupid and mean, but when they frighten, run with, not against them, or be trampled.
    Reply | Link to Comment
  •  
    Sep 06 08:06 AM
    Mr borenstein

    You are the poster child of what wrong with this country. While pretending to be capitalist/free markets all you do is take advantage of the corruption inside the government to profit on the backs of taxpayers - Hurray lets celebrate taxpayers will make sure I make money : disgraceful
    Reply | Link to Comment
  •  
    Sep 06 08:40 AM
    Its Over...The GOP has sold us all out...capitalist yesterday, socialist today.
    Reply | Link to Comment
  •  
    Sep 06 09:07 AM
    this never would have happened if we stuck to the traditional American system of moderate regulation. make policy with bumperstickers from 1980 like 'regulation is bad' and eventually the chickens come home. swings to the far right are followed by swings to the far left.
    Reply | Link to Comment
  •  
    Sep 06 09:16 AM
    Has everyone had their opportunity to vent? Can someone find Paul's teeth after yourdeadmeat69 kicked him in the face? Time out?

    Number one, it is both exciting and terrifying that Bernanke and Paulson met with the CEOs and had a come-to-Jesus meeting. It was inevitable that someone blabbed about it to the press, what with the theme to the Godfather playing in the background and the mood lighting and all.

    But we really don't know what happened yet because they haven't announced the plan. Yes, I felt the acid eating into my esophagus last night but then I realized that there are so many competing interests in this transaction - foreign investment, financial companies, individual shareholders - that any plan can't wipe out one interest for the benefit of another. While this is a financial bailout, it will still be political.

    Gabe Borenstein gave a reasoned post concerning the situation. I would add that the GSE restructuring may resemble the airlines coming out of bankruptcy. But all this speculation is over the top.

    I know there are some parents out there. You may have had kids that were born a little early. Ex-athletes, you may have played on a football team and watched your star running back go down on the field and carried off to the hospital for an MRI. You may have had a friend or a loved one get in a car crash and taken to the hospital in critical condition. In this internet age where information is seemingly always at our fingertips, it underlines how frustrating it is to hear a rumor and not know what is going on.

    But there is nothing you can do. You can freak out in the hospital waiting room, or be still in the knowledge that the Lord is with you. Please don't vow to sell everything you own on Monday or dive into a buying frenzy. Just try to relax and trust me, the doctor will let you know the patient's condition and their prognosis. It is then up to each of you to cope with the news, take each day one step at a time, and revel in the good news that photosynthesis will not be disturbed and life on the farm shall continue unmolested.
    Reply | Link to Comment
  •  
    Sep 06 09:25 AM
    I find the whole moral argument amusing. Let's get something straight - FNM and FRE were a pure off-balance sheet arrangement of our government. They served to keep borrowing rates for mortgages lower than they would be in a free market by minimizing the risk of credit loss to any lender (without bloating the federal debt). In the old days, banks made mortgages and held them as investments. In modern history, banks collected a fee for originating loans that conformed to GSE guidelines and sold the securities to mutual funds/bond investors.

    Now, when the 100-year storm hits, everyone wants to criticize the system? No one complained about the lower mortgage rates that they have paid (due to GSE "guarantees"... Now, we must discuss what an "implicit guarantee" means as opposed to "explicit". I don't understand the moral outrage against common equity holders. I disagree that an investment in FNM or FRE at the current prices is a "lottery ticket" any more than any other equity investment. It is solely a bet that the charade continues. Shareholders have been hammered, as the core weakness of the company has come to center-stage: The company requires external capital.

    Well, the cost of external capital has gone way up. The government, as part of the CAUSE of this problem in many ways (encouraging relaxation of underwriting standards to promote more widespread home ownership leads the list, poor supervision), should TEMPORARILY provide the bridge capital. Of course, they should reform the GSEs too. Of course, common and preferred holders should get no dividends until the bridge funding is repaid (i.e. external capital becomes feasible again).

    To me, the greater moral issue is this: The government may be about to destroy the entire concept of the GSE. While many may not care and may question the entire premise, I believe that a partnership between outside market-oriented firms and government can be superior to simply a bureaucratic government solution. Imagine if our post office had a free-market element to it, though still providing universal delivery. If the equity holders aren't allowed the potential to participate in the eventual recovery of FNM (i.e. shoulder the full blame for this FAILURE), then we will never be able to move forward on privatizing aspects of our government that have social-good elements. The GSE approach to making the mortgage market more efficient and less costly worked well. The only flaw was that FNM and FRE were allowed to leverage themselves too greatly.

    Kedrosky and the critics are mad, justifiably, as I am too. Unfortunately, few of them express constructive ways to resolve the situation. Our mortgage market is in disarray. No one seems to mind the deduction of mortgage interest or the capital gains exemption on mortgages. For anyone that really wants a "free market" in solutions and to kill the GSEs, I suggest that you tell your congressman that you are willing to give up your interest expense deduction and your capital gains break to do so. Otherwise, you are just a hypocrite.
    Reply | Link to Comment
  •  
    Sep 06 09:28 AM
    First Gabe, then Alan - the B----steins are hitting on all four cylinders! Outrage over the GSEs is so 2007.
    Reply | Link to Comment
  •  
    Sep 06 09:49 AM
    As painful as it is the system at this point should be let to clear it self. I strongly suspect the down side of the fix will be substantially worse by a significant factor than the pain of enduring the downturn. We have seen the ratcheting up of pain through each sucessive "bailout" over the last 20 years. In the fullness of tiime we will rue the day we continued on this path. The only question is the nature of the pain will it be inflationary or deflationary. I suspect we will eventually suffer an inflationary depression.

    Unfortunately the outcome of such an event will be societal changing, likely not in a postive way. In life dealing with small pain prevents substantially larger pain down the road.

    We Americans have yet to learn the lesson. The real lesson of the Great depression was not that Hoover and FDR did nothing. The real lesson was that bad policy took a bad situation and created a catastrophe. Lets not go down that road again. Saddly we won't heed the lessons of history.
    Reply | Link to Comment
  •  
    Sep 06 10:45 AM
    Mr. Brochstein,

    "Let's get something straight - FNM and FRE were a pure off-balance sheet arrangement of our government. They served to keep borrowing rates for mortgages lower than they would be in a free market by minimizing the risk of credit loss to any lender (without bloating the federal debt)."

    Absolutely, positively correct, and foreign investors and CB's knew it, and that is why US government must guarantee the debt. Anyone familiar with this game knew this day would come. The GSE's were merely a way to bloat the US economy without direct federal borrowing.

    Now that the debt has gone back where it belongs, on the US federal books, what will the impact be? Of course there will be a few days of managed happy reaction in the markets on Monday. But long term, this is dollar-destructive. Federal debt just went up by 50%; federal borrowing costs will ultimately rise accordingly. With federal borrowing increasingly "short", there's lots of federal debt to be reissued on a short schedule, so we might see this impact in weeks or months.

    One more thing: the federal government now has a direct vested interest in house prices. Do you think the government will let them continue to fall? What do you think they will do about it to make prices stop falling, and even to rise? Don't ask shedlock, he says we're gonna have deflation. There are only two ways out of this mess: one is default, and the other is massive inflation. Both destroy the dollar.

    Where is CLH to tell us how this is dollar-positive? His / her absence is almost creepy.
    Reply | Link to Comment
  •  
    Sep 06 10:49 AM
    While the details haven't fully emerged yet, this "bail-out" will avoid placing the debt onto the Federal balance sheet I believe. I think the right analogy is that the Federal Government is going to be a minority owner with a strong board presence!

    As far as "the federal government now has a vested interest in house prices", they did before as well...
    Reply | Link to Comment
  •  
    Sep 06 11:11 AM
    Alan,

    Maybe not directly on the balance sheet, but that is a fact only of accounting. The GSE's prospectus' also clearly stated that they were not government backed, but look where we are now. I'm sure you can see that the difference is meaningless.

    The government's interest is now more direct and urgent. They have overtly acknowledged their ownership of housing in a way that even stupid investors can't ignore. This is probably why this isn't being reported by MSM. Yeah, maybe no details to report yet, but also maybe "investor awareness" is not exactly what dot gov has in mind.
    Reply | Link to Comment
  •  
    Sep 06 11:49 AM
    Lots of good arguments for both sides. You can sit arround and debate the actions or you can make money as an investor. Buy as the others run away and watch your money double in the next 60 days.
    Reply | Link to Comment
  •  
    Sep 06 12:12 PM
    I agree with MineSweeper above...whatever views on whether this is good or bad, BUY BUY BUY with both hands when an opportunity is given.
    Also, to the author's point on Bush administration trying to push this past the election, maybe now they will "spin" this as to how the govt is "looking" out for the american people.
    I am closing my political eyes and becoming a naked capitalist and buying WB... Bob Steele being there ensures that the bank wont be allowed to fail and could double from here.
    Reply | Link to Comment
  •  
    Sep 06 12:13 PM
    Oh boy, here he goes again. Gabe Borenstein reminds me of a pickpocket hiding in a funeral home, waiting for the dead body to be dressed up only to then loot whatever junk he can find in the coffin.

    And he wants this metaphor to be called capitalism and free market!

    For a change, why not make money the old fashioned way: Earn it. And stop begging thy neighbors all over the world. How pathetic. The American people really deserve better.

    Have a good day
    Reply | Link to Comment
  •  
    Sep 06 12:28 PM
    Gabe Borenstein is dreaming. Fannie Freddie losses
    over the next 3 years will easily run to $200-300B.
    Mercifully, the shares can only go to 0.
    Reply | Link to Comment
  •  
    Sep 06 12:44 PM
    SWRichmond essentially has it right. They are going
    to dribble the losses into the US budget deficit
    quarterly. Sort of a drip, drip, drip, where the
    dollar is concerned as far as the eye can see.
    We've really done it this time. If we aren't looking
    at a 6-8% deficit to GDP sometime during Obama's or
    McCain's tenure, I'll be happy to eat my hat.
    Bush did a helluva job.
    Reply | Link to Comment
  •  
    Sep 06 12:45 PM
    Yeno, start vomiting. The preferreds supposedly are widely held by banks et al that can't be allowed to fail en masse.

    I also recently read a NYTimes (I think) article about credit default swaps being triggered by a fannie / freddie default, and how that was something that no one wanted to trigger. Think Bear Stearns.

    Your kids just got shackled to Chinese investors. Think about that.
    Reply | Link to Comment
  •  
    Sep 06 12:57 PM
    The doctor hasn't come out of the operating room, so you should all try to take a deep breath in the waiting room before writing any obituaries.
    Reply | Link to Comment
  •  
    Sep 06 01:18 PM
    Jimmy,

    The bottom depends on a bottom in housing. Federal action in fannie and freddie won't do anything to stop house prices falling, unless they also restart mortgage lending under the old easy-money conditions.

    The only thing that remains is, in effect, a bidding war of sorts to see just how much more debt will be added to the federal nightmare. Your question of the condition of the patient is only relevant in degree, and then only if you believe the lies your government will tell you about how much money they are going to pump in. Ultimately, all $5 Trillion is backstopped, isn't it? There is no end in sight to the obligations to which my government is willing to commit me and my kids. It sucks and I am pissed off about it. The whole damned system is corrupt; politics, banking, corporatism, everything. Baby, bathwater, all of it.

    They will destroy my accumulated wealth by destroying the dollar, and then tax me to pay for big investors' stupidity. The great vacuuming of wealth.
    Reply | Link to Comment
  •  
    Sep 06 02:37 PM
    You are a self-serving attention mongering twit. Wiping out the common stock would do more damage to the world then you could imagine. And I would agree with another, you should really take a good hard look at who owns the common stock of the GSE's. I bet your own mother owns stock in the GSE's in some form or another.....so be very careful what you ask for. It's people like you that shouldn't be allowed to blog.
    Reply | Link to Comment
  •  
    Sep 06 02:52 PM
    >You are a self-serving attention mongering twit. Wiping out the common stock would do more damage to the world then you could imagine<

    When Paulson said 15 times in July his
    first priority was to "protect the taxpayer", a light
    bulb should have gone off in your head. Trust
    me... Joe Six Pack is going to be so angry about
    the debt losses he will be paying for, he's not going to
    be very sympathetic to the shareholder losses.
    Reply | Link to Comment
  •  
    Sep 06 03:47 PM
    Fan-Fred shareholders are just an instrument for the govt. to keep the GSE's debt off the federal budget. Therefore unless the govt. wants to explicitly or implicitly assume all govt. debt. it has to maintain the shareholders. If the double cross the shareholders, who in the right mind would invest private money in GSE's equity again.

    However they are going to be massively diluted to appease the "tax payer".

    Ironically it is the tax payer who has benefited all these years by having the lowest mortgage rates and most liquidity in mortgage loans in the world thanks to the GSE's.
    Reply | Link to Comment
  •  
    Sep 06 04:00 PM
    If I am a layman, which I am, I would ask if the U.S. housing price as a whole is overvalued comppared to other nations, based on price to income and price to rent. I have travelled extensively this summer in many parts of the world and found to a foreigher, U.S houses by in large are cheap, compared to major cities in Europe and Asia. Should and shouldn't this be an improtant factor in assessing all this?
    Reply | Link to Comment
  •  
    Sep 06 04:28 PM
    That probably depends on how the story is presented to Joe Six Pack, doesn't it?

    Sure, he could be told that those filthy politicians in Washington were using his hard-earned tax money to "bail out" those greedy lieing cheats on Wall Street. And he'd be rightfully upset.

    Or he could be told the other side of the story, which is that his adoring and loving government has intervened into this unusual financial crisis (caused by those greedy lieing cheats on Wall Street, of course) --- in order to save his home and his job and the future of America. And he'd be rightfully grateful.

    In my view, we were pretty much damned if we did and damned if we didn't, at this point. Philosophically, I think our government should stay out of the markets. But if the markets get so dumb that they do things which are going to cause the whole system to come crashing down (taking the government with it), then something has to be done.

    And if our tender and loving government doesn't soon get its fiscal house in order and start living within its means, then none of this is going to matter anyways. They're just buying time, for now. Let them. It beats the alternative.

    As far as a long-term fix is concerned, I think Uncle Sam needs to do 2 things. First and foremost, start running budget surpluses and retiring federal debt. And secondly, forget this globalization stuff and implement new rules (or enforce existing ones) that would prevent any one company from owning so much market share or having so much economic influence that it becomes "too large to fail". Then, our government could stay out of the way and let the markets work their magic. Companies that took on too much risk or leveraged themselves too highly because they got greedy would simply go under, and the smarter companies would survive and pick up their market share. Economic Darwinism, at its best!
    Reply | Link to Comment
  •  
    Sep 06 05:29 PM
    The pundits are blowing this way out of proportion, as though everyone in the US was going into foreclosure. Well it couldn't be further from the truth, however this does not mean that the mortgage industry is not in trouble. The facts indicate that approximately 10% of american households are in default on their mortagages, however that does not mean that their homes are worthless. On another note one should realize 98% of FNM & FRE Asset Backed Securities are not Sub-Prime. The problem we have is Sentiment, we have gone from "irrational exuburance" to "irrational pessimism" which is usually one of the effects associated with too much partying; thanks to the Bush Administration and the Federal Reserve of the so called maestro Alan Greenspan (lol). You would think that Mr. Bush and Mr. Greenspan were in a conspiracy to destroy America, however I would like to think not, but this is the result you get when you elect a Dunce for the White House and allow a senile old man to run the Federal Reserve. Even a high school graduate could see that rediculously lax lending standards and artificially low interest rates were eventually going to create a bubble of unpresidented proportions. What is dumb founding is that how the Administration and the Federal Reserve allowed this to take place. What in God's great name were they smoking?

    Now the solution! Unfortunately we are all going to end up paying for it if we want a strong dollar and an America that continues to lead in the 21st Century. Our leadership requires that we maintain three very important pillars: a strong dollar, a strong military and a relatively cheap access to natural resouces. If we allow FNM & FR