The new implications of losing Fannie and Freddie
By Daniel at 21 August, 2008, 11:48 pm
Something just occurred to me after reading Weidner’s great article that dealt with new implications of socialisation of the two big F’s: Hank Paulson et al. are market men. Just like Daniel Day Lewis in “There will be Blood” called himself an oil man.
Hank in particular is an investment banker, and so by definition reveres the market. He may do good and bad things within the market context (such as lying to main st about how bad things really are, to name but one thing off the top of my head), but at heart the market is what he idealises. I know this because that is my ideology, and I know where he used to work. I need not know anymore.
So what I’m trying to say is that he will only nationalise Freddie and Fannie if his hand is forced, as the implications for the market is something that Weidner touched on in this article, but is in fact far worse than anything he alluded to. The reason being is that idealogically, it would be admitting such a large part of the market has failed, that at this current juncture, the sanctity of the markets operating AT ALL (let alone well) would be thrown into question. The question being should there even be a market in this current financial climate/turmoil.
If Paulson’s hand is forced, which now seems almost inevitable given their recent share price declines, I’m not sure how it will play out. What I am sure of is that it will be a watershed moment, and if it’s taken badly by markets, could provide the beginning of an actual bear-market. One that is quite different to the make-believe, feel-good semi-bear market we’ve seen since Bear Sterns collapsed.
This will be different to Bear Sterns or anything else we’ve seen so far. $5 trillion in brand new nationalised, and increasingly unservicable mortgage debt could be the rather large straw that breaks the massive-deficits-government and market’s collective backs. It will then truly be time to bid farewell to the USA dollar and it’s former buying power, and hello to a forced savings plan, courtesy of bankruptcies on mass from well-underwater mortgages which means losses ultimately to all parties involved: but especially the consumer (proportionally.)
One last important question: What’s worse, you’re individual bankruptcy or you’re country’s? Think about it.
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