F-this: Fannie, Freddie, and the Dangers of Hybrids.
Stephen Colbert is right.
Number one on my national threat-down list: Bears - as in the current bear market we are experiencing. As we face rising inflation and the omnipresent issue of gas prices, Americans are doing what we can - eating out less, not taking that vacation - but as recent news shows us, investing in that hybrid may not be such a great idea.
When we think of hybrids in this day and age, it’s usually not such a bad thing - in many cases it’s the best of both worlds. However, when mortgage-lending enterprises become government sponsored, like Fannie Mae and Freddie Mac, their hybrid status allows them to receive government aid when they are in trouble.
Bottom line: Shareholders get the profits when the organization does well, and when it doesn’t, the American taxpayer gets stuck with the tab.
And that is exactly what has happened. In the past few days, politicians, economists, and the like have all commented on what should be done with Fannie and Freddie, with ideas ranging from full privatization to turning them into strictly government programs, and everything imaginable in between.
Treasury Sec. Henry Paulson unveiled his plans to save the two lending giants July 13th, and since then, the S&P 500 index has dropped 8%, shares of Fannie Mae have dropped 27%, and shares of Freddie Mac have dropped 26%. In response, he received barbs from both parties in Congress, as reported in this Bloomberg.com article:
“The market has reacted to your plan by driving down Fannie Mae shares 26 percent today,” Senator Jim Bunning, a Kentucky Republican, told the Treasury chief. “Freddie Mac’s are down 29 percent at this moment, just in case you are interested in how the markets are reacting to your wonderful plan.”
So, it’s not going over so well in Washington, but the bigger questions still remain: What can we do to solve this lending crisis without hitting taxpayers hard? How can we stimulate our economy with a weakened dollar, rising inflation, and rising prices on everything from gasoline to popcorn? How the hell are we going to get out of this mire?
I wish I had the answer, but all I have left is cynicism - and a deathly fear of bears.
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