Confidence Trick

A confidence trick is a scheme in which the victim is defrauded after you have gained his trust. How was George C. Parker able to sell The Brooklyn Bridge twice a week for many years? By gaining people’s confidence.

Sometimes confidence is gained by deflection. As Fannie and Freddie are kept alive with hundreds of billions of dollars of capital injections, the public is slowly convinced that the deception of the past won’t be repeated. All the while, another player steps in. Her name is Ginnie Mae. She is guaranteeing loans that require very little down and have no credit score requirement. Subprime lending is alive and well. The only shift is the players have changed. When disaster repeats, taxpayers will (once again) be the guarantor of last resort.

“Fannie and Freddie are now being conservative about writing new business, but Ginnie is enjoying its own bull market, issuing guarantees at a furious rate. It is expected to have a trillion dollars outstanding by next year. “We are seeing a gravitation of the subprime universe from Fannie and Freddie to Ginnie”, says Mr Setia (Rajiv Setia of Barclays Capital). It will be a miracle if taxpayers get their money back from Fannie and Freddie. Worse, there is a chance the disaster will be repeated.” (The Economist)

Nothing changes in the markets, just the players.