Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

Freddie & Fannie

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It may be of interest to know that among the largest owners of Freddie and Fannie bonds getting bailed out are the central banks of China, Russia, the middle east, and Europe.  Thanks Politicians!  

So, what would have happened if the government had not used yours and your children and your grand-children’s future wages to pay the foreigners?   Nothing that shouldn’t have happened to any other company.   It would have gone into bankruptcy court and the bonds due would have been either paid out as mortgage payments are made, or the bonds would have cut down in price and investors told to live with it.  
Is that fair?  Yes.  They “pays their money and takes their chances.”  It’s called “investing” not “winning.”  
Would the mortgage market collapse?  Of course not.  If there’s a need for mortgage capital, the need will be met.  It’s just a matter of price.   I would posit that the evaporation of Freddie and Fannie would reduce the costs of mortgages.   Who would buy the mortgages from the banks?  Well, half of all American mortgages somehow, miraculously, do not get absorbed in F&F.  They are held by the bank that issued the loan.  I know it’s old fashioned in a George Bailey/Bedford Falls Savings and Loan kinda way.  Or if the bank really wants to churn loans and generate lending fees (instead of establishing community relationships) they can do it the way the rest of the world does it and issue ‘covered bonds.’   Wall Street excels at a little more than finding ways to move money from one pocket to another (typically yours to theirs.) 
Moral hazard?   This summer the home builders received a bailout (missed that one, huh?)  Now car companies – which have mismanaged themselves for decades – are asking for taxpayer dough.  Airlines will be next in line, no doubt.   There is $600 Billion in corporate debt that has to be renewed by the end of the year – –  who will swallow that?
So now –  today, Tuesday – after the market has fallen worse than 3% today, we’re right back to where we were before the bailout.  What has changed? The foreign governments and Wall Street firms are richer, and you, my dear friend, are poorer, and that robbery was all over the headlines the past two days and you didn’t know it happened. 
I’ve written elsewhere about the “powers that be” running out of ammo to solve the problems. (Bank of America offered Countrywide on a platter; JPMorgan’s shotgun marriage to Bear Stearns; the Fed using its balance sheet to launder capital for the Wall Street firms; emergency SEC rules that benefit only a select few firms; deficit spending at record levels;  private employment falling, tax mooches getting hired left and right,  etc. etc.)  They’re running out of ammo, and the last bullet will be pointed inward. 
Who will be left to bailout the taxpayer?

Written by heyercapital

September 9, 2008 at 3:13 pm

One Response

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  1. Is it any wonder that lately I go to bed wishing I’d skipped the evening news?


    September 17, 2008 at 9:35 am

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