Sunday, September 07, 2008

Feds Bail Out Fannie, Freddie, and Stupid People

The Federal Government has taken control of Fannie Mae and Freddie Mac this morning. The Bush Administration said they were attempting to avert an even larger worldwide financial crisis that could result if the two mortgage giants failed. As of last June, the quasi-governmental companies had close to $36 billion in preferred shares outstanding. The two companies also own or guarantee about $5 trillion in home loans, about half the nation's total.

Fannie and Freddie were not originally meant to be the mortgage giants they are today. They were supposed to guarantee the loans made by private banking and loan companies to forestall events like those of the 1929 financial market crash which led to the Great Depression. But, over the years, Federal authorities allowed both companies to go far beyond the intended mandate and actually buy the loans from Bank and Home Loan entities, repackage them, and sell the debt to investors, speculators, and foreign governments. This made the money pool appear bottomless. It isn't.

As government sponsored enterprises, Fannie and Freddie blatantly and strenuously lobbied Congress to maintain the benefits they enjoyed as corporations and as individual company executives. The Feds will immediately stop all dividend payments on common and preferred stocks. The lobbying activities are to be halted, also. Good luck with that.

Again, Fannie Mae and Freddie Mac "own or guarantee about $5 trillion in home loans, about half the nation's total." So what are the Federales going to do? Well, Fannie and Freddie will "be allowed to increase the size of their holdings of mortgage-backed securities".

Yep! That's a government solution if I ever heard one. The thing doesn't work, citizens are being taken for a one-way ride, money is being lost hand-over-fist, so, throw more money at the problem.

The whole idea of Freddie Mac and Fannie Mae were well intentioned liberal ideas that citizens should be protected from unscrupulous landlords like Mr. Potter with more government control. It was the government control that created the mortgage crisis we are in now. The solution is not more government, it's less.

Fannie Mae and Freddie Mac should have been left to flounder like any other poorly run shop. I know, many people would lose their homes and businesses and markets would fall around the world. Oh, well. People took risks but were guaranteed they wouldn't get hurt. What kind of risk is that?

Most everything we do today is nearly risk free. We can drive our cars at speeds the speedometer reads 'stupid fast'. Not to worry, we have three-point seat belts and air bags to soften the impact and we can walk away. We can climb rock walls because it's there. Not to worry though, we have ropes to guarantee a soft landing. Despite the admonitions of millions of parents we can now jump off bridges because our friends do. Not to worry though, we have bungee cords so there is no sudden stop at the end. We can buy McMansions on the salary of a plumber's helper or, indeed, no salary at all. Not to worry though, we have Fannie Mae, Freddie Mac, the Federal government, and 303,824,640 U.S. taxpaying citizens to pay the debts of stupid people buying stuff they cannot afford.

By removing risk from life, all that has been accomplished is to encourage stupid people to do more stupid things and perpetuated an entire race of stupid people who should have died long ago as a result of their stupidity. Put risk, real risk, back into life so that deadly activities actually have deadly results. Risks that demand losing everything or gaining everything should be put back where it belongs - in our daily lives. Life ain't for the faint. Life is a risk and the only guarantee is none of us will get out alive.




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

1 comment:

suek said...

>>Fannie Mae and Freddie Mac should have been left to flounder like any other poorly run shop. I know, many people would lose their homes and businesses and markets would fall around the world.>>

Help me understand this. Why would people lose their homes and businesses? Assuming they are paying their mortgages as they agreed to, how would it affect them? Let's assume that FM-FM go belly up. They hold millions in good loans as well as bad loans. The sharks come in and buy the good loans for .10 on the dollar. No one buys the bad loans. Ok...I'd buy a bad loan. If I buy a bad loan, that means the house is mine, right? If I buy a $100,000 mortgage for $1000, I have a heck of an investment, don't I? Ok...now suppose _nobody_ buys some of those loans...wouldn't the houses then become property of the people who bought them? Or maybe they could buy their own loans back?
I don't understand why they'd lose...the homeowners, I mean.