The Elephant in the Room
Ever heard of Fannie Mae? Freddie Mac? I had heard of them, but until two days ago I didn’t really realize why they were important. (The links I have provided point to write-ups done on these two corporations dating back several years, prior to the housing bubble bursting.) Prior to learning about them I had just assumed that they were a couple of gender specifically named investment firms. I am a person who will freely admit when he is wrong, if it happens, which is rare, just ask my wife, and on my assumption about Fannie and Freddie, well I couldn’t have been any more off target.
So who are they and why are they important? Let me start off by telling a small story. A coupld of days ago MoMagic did his quarterly post on our site about global warming. MoMagic’s posts are typically polically charged, amazingly well written, and always a joy to read. Just prior to leaving my office for my arduous drive home, I took a stab at reading his article and then grabbed up my things while pondering the world I live in. I made my way to my car and turned on National Public Radio (NPR), my favorite station just in time to hear their bit on Fannie and Freddie.
Here is what I learned:
1) Fannie and Freddie Mac are the two largest investors in the housing market in the United States of America.
2) Collectively they hold over 50% of the home loans in America.
3) Collectively they have over 5.1 Trillion Dollars in assets. Yes, Trillion.
Now these are not my facts, this is what was said on NPR. They then went on to talk about something that scared me further, realize I was already alarmed to a point considering I have been following the housing market and its demise quite avidly, being from California one tends to. The thing that grabbed me was a statement about how some people aren’t sure who is running who - Is Congress running Fannie and Freddie or is it the other way around?
Think that through for a minute. Close your eyes and imagine the Jeopardy music playing in the background. Alex Trebek can twiddle his thumbs or just try to look as pompous as ever while your brain searches for the fear that I just put to screen.
Got it? Here is the Elephant in the Room that nobody wants to talk about - Fannie Mae and Freddie Mac are so big, and so involved in politics, that the possibility of their demise basically means the downfall of our economy. This is not some lighthearted attempt to scare the crap out of adults during some late night bed time story. If these two go under you end up with 5.1 Trillion dollars of oh my god. The question then is how is this even possible? Furthermore how can we prevent it?
Ladies and Gentlemen, as NPR put it this morning, I direct you to the French Revolution Era. During that time Government was directly involved in the business affairs of her citizens. The United States of America, a Federal Republic, has a government that is supposed to help regulate business affairs but is also supposed to let much of business just do her thing, we being a capitalist economy and such. Given this fact, Fannie Mae and Freddie Mac were financially backed by the government to assist people with buying a home. Many people consider them to be borderline non-profit organizations. So why then have these two financial machines been able to poor so much money into politics? why have they been giving out bonuses to their employees to the tune of hundreds of millions of dollars per yer? How have they been able to do both of those things while they were on their way to belly-up land?
Simple. Yesterday the Secretary of the Treasury asked for a blank check to buy as much of these two companies in stock as possible. See their stocks both dropped 25% yesterday on the news that they may both die a tragic death. This just leads to further problems for the companies, and if we factor in politics, and the economy, now is the time for our Monarchy, er, Government to step in and help them by buying up as much of both of them as possible. Cue the Jeopardy music again. THE GOVERNMENT IS LOOKING TO BUY COMPANIES THAT OWN OVER 50% OF THE HOME MORTGAGE LOANS IN THE UNITED STATES OF AMERICA. In other words, the government is now directly involved with the economy. As NPR put it, welcome to the path to Socialism! Have a good day, Comrades.
