Saturday, September 06, 2008

Fannie Mae, Freddie Mac, and an Eight Year Old Boy

At an Ocala, Florida elementary school someone handed out 44 counterfeit $20 bills. One recipient of the mysterious largesse used a bogus twenty to buy lunch. School officials tracked down the kids with the fakes and called the police.

An 8 year old boy was put in the custody of Department of Children and Families for passing the bogus bills. An arrest warrant is out for his guardians (parents?). Who produced the fake cash is still unknown.

Up in Washington, D.C., the Treasury Dept. is set to place Fannie Mae and Freddie Mac in conservatorship. Fannie and Freddie are not real people and I cannot explain the names given to two semi-governmental financial institutions. But, they are big names in the mortgage business.

Fannie and Freddie are in big trouble. It seems Fannie and Freddie gave away money to banks and home loan companies which loaned the money to people who couldn't afford to pay back the loans. It was a lot of money. Between the two of them, Freddie and Fannie own or guarantee over $5 trillion in mortgage instruments. Because the money was given to so many people with incomes insufficient for the property loan, dubious incomes, and without any income whatsoever, Freddie and Fannie have incurred combined loses of $14 billion for the past four quarters, that's just one entire year. Right now, they are preparing for another wave of loan defaults.

This is where the Treasury Dept. comes in. The Feds are intent on bailing out the two companies the stock of which have dropped 90% over the past year. U.S. banks and many foreign governments hold stock or debt in the two struggling companies. The failure of Fannie and Freddie would cause financial problems around the globe and well beyond the housing market.

That would be really too bad. But, far worse is the fact that the Treasury Department, as an agency of the U.S. government, gets all of its money from me. Oh, and you, too. In fact everyone in the U.S. who pays taxes gives money to the Treasury Dept and then on to Freddie Mac and Fannie Mae and on to those people who made bad choices to buy properties they could not afford and further on to the foreign governments which now own the debt. So get used to paying your taxes to France and China and Argentina and Saudi Arabia and Russia and Mexico and ...

The eight year old boy passed out $880 in bad money. Fannie Mae and Freddy Mac have passed out trillions of dollars in bad loans. Who has done the greater harm to the U.S. economy in an attempt to buy friends?

The life of Indigo Red is full of adventure. Tune in next time for the Further Adventures of Indigo Red.


Gayle said...

The answer to your question is rather obvious, but I'm still curious to know where the kids got the bogus bills.

Indigo Red said...

Since the guardians/parents are missing and police have an arrest warrant I'd say the kid got the bills from home.