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Fannie Mae and Freddie Mac are not "government backed" at all. Go read the Wikipedia article on this. There is no guarantee against their collapse, no reason to think it "can't happen here." If these entities are generating a lot of worthless paper, they'll have to be drastically reformed, at the very least. And if all that worthless mortgage paper has infected a significant percentage of portfolios around the world, then things are going to get very bad indeed before they get better. Sorry, but the worst case scenarios must be faced, no matter how unpleasant. Still not time to panic, though.
I did not say they were government-backed/guaranteed. Having said this, if ever there were two entities too big/too significant to fail, it's FHLMC and FNMA.
FNMA was created by Congress in 1938 to expand the flow of mortgage funds in all communities, at all times, under all economic conditions, and to help lower the costs to buy a home.
From 1938 to 1968, the secondary mortgage market was monopolized by FNMA, a government agency.
In 1968, to help balance the federal budget, a part of FNMA was converted to a private corporation.
Shortly therafter, Congress chartered FHLMC, as a private corporation to compete with FNMA.
...if ever there were two entities too big/too significant to fail, it's FHLMC and FNMA.
That's what they said about several other formerly huge financial institutions. There are no financial institutions in the world that are "too big to fail." Just look at the death toll over at implode o meter, it's now in the hundreds.
And it's not just Fannie and Freddie, there are several other Federal repackagers, as well as Farmer Mac, guaranteed by the USDA. If they start to fall like dominoes, the dollar becomes toxic, currencies denominated in the dollar go toxic, bonds go toxic, the war continues to drain the Treasury, and bingo: the "full faith and credit of the United States" comes into question for the first time in many, many moons.
Better to contain this toxic biohazard, rather than bring down the government. Remember, we are talking about trillions in loans. No one person, no group of people on this planet has that much ready cash. That's why we need some angels to buy the stocks and get a hazmat team in there to hose the place down. A bailout could actually just make things much, much worse.
One of the reasons the great depression lasted as long as it did was lack of credit. Credit is essential in order to ensure that this does not happen again.
The secondary mortgage market is essential. Otherwise the loan originators have to hold all of their loans, which means they can't issue new ones. The government will bail them out in order to keep credit flowing. It will be ugly though. I agree, ugly, but no need to panic.
Not really, the great depression lasted as long as it did because the government kept trying to fix it with socialist programs, scaring business and investors to death and keeping them from investing. Today’s "LSD plans" will benefit no one except the Bankers and Wall St. by giving them more time to unload their worthless mortgages and stocks. In the end, prices will have to come down to levels people can afford. Most of the mortgages that are going to be refinanced thru these programs will end up being defaulted on a few more years down the road These guys have been lying to you every step of the way, and now they are getting ready to slap the taxpayers with the bill for the fiasco they caused and profited from. Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate... It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.
Heard on NPR this morning that they are in ok shape, but that if they do get in trouble, investors are worried that they will have to offer more shares, and dilute the price of current shares.
They said the same thing about Bear Stearns just before the Fed bailed them out. Not that it means that they are in trouble, but what else are the going to say. "OK, you caught us, we're going bankrupt next week - but everyone, please be nice and hold off on dumping our shares and bonds until then so we can make this and orderly restructuring" - that's not going to happen.
I'd treat claims of solvency as information-free at this point. They might be true, but since they'd never admit it if they weren't, you can't do much with the info one way or the other.
For everybody who thinks that the government can and will just step in and bail them out... Do you have any idea what the consequences of this would be?
Where would we get the money? America is broke! We're $9 TRILLION in debt and growing. We're already spending more than we take in each year. Where did the money come from for our economic stimulus plan? The Federal Reserve printed it out of thin air!
Wake up people. This is the reason for the dollar collapse and this is the reason for our runaway inflation. "Bailing out" Fannie and Freddie would be devestating.
All of these talking heads on t.v. blame high oil prices on speculators and they say high oil prices are causing our inflation. That is total BS. The Federal Reserve is devalueing our currency which is causing oil and all other commodities to skyrocket in price.
1 ounce of gold bought you the same amount of oil 10 years ago as it does today. Therefore, oil has not gotten more expensive, but our dollar has gotten weaker and is now worth far less.
Ben Bernanke and the Federal Reserve are un-elected, private bankers. Yet they have total control of our money. Just yesterday, they were before Congress pleading their case for even more power to "regulate" banks and Wall Street. This is absurd.
People will regret not taking Ron Paul seriously. He wants to abolish the Federal Reserve and go back to a sound money policy (i.e. no more printing money out of thin air to create inflation and weaken the dollar). He wants to cut government spending dramatically and eliminate the personal income tax. All of this would benefit working Americans yet he was labeled as "crazy" by the mainstream media. Go figure.
In summary, a bailout of these entities would be just as devestating to our economy as letting them fail.
mojo, the average American does not understand what is going on. They just see that they got a check in the mail NOW and are grinning. They don't understand that the side effects of distributing this money is is that the dollars they are going to earn in the future are going to buy less goods and services and they are going to become poorer in the long run. It's just a shame.
mojo, the average American does not understand what is going on. They just see that they got a check in the mail NOW and are grinning. They don't understand that the side effects of distributing this money is is that the dollars they are going to earn in the future are going to buy less goods and services and they are going to become poorer in the long run. It's just a shame.
True, true. And they definitely don't understand the global consequences of printing worthless money and shipping our debt overseas. We've had too many decades of deficit spending and an ultra-low savings rate-- people don't get that money has to have some sort of underlying value, not just "full faith and credit." Because of the rest of the world loses faith in the U.S.A., our credit goes out the window.
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