Wednesday, September 3, 2008

Fannie, Freddie will be nationalized

Heard a story on NPR this morning saying it is pretty likely that the two home mortgage Government Sponsored Enterprises Fannie Mae and Freddy Mac will be nationalized, i.e. the taxpayer will assume all their debts. This is necessary to keep the housing market from totally freezing up (which would happen if there were no Fannie and Freddy since they are the only ones offering mortgages right now) and to keep big foreign stakeholders like China from losing their investment. We can't afford to have China lose the money they have invested in Fannie and Freddy because we depend on them so much for other debt; I believe we have about an 800 billion dollar trade imbalance with China.

Ben Bernanke and the Federal Reserve took fairly extreme action to try to prevent this around a month ago, but they still ended up in this position. The recurring theme in this housing/economy crisis seems to be that we can stall the inevitable for a little while, but it always ends up happening anyway. Why do we try to stall it? Because it is bad. Therefore when it actually does happen, as is happening to Fannie and Freddy now, I don't believe the reassurances that things are actually okay and it's perfectly fine to do this.

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