Monday, September 8, 2008

The Fannie and Freddie bail-out: bad news for us all

The Fannie and Freddie bail-out: bad news for us all

'Over in the US, they’ll happily let their regional banks fail. Northern Rock wouldn’t have stood a chance. But while the free market ethos might be applied in some instances, the US is more than happy to invoke the “too big to fail” clause when it wants to.'

Posted by damien @ 11:26 AM (438 views)
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3 thoughts on “The Fannie and Freddie bail-out: bad news for us all

  • First time post but I could not let this pass! Guys this is the biggest, “bigger picture” comment I have read to date and it would appear to me to spell some potential ‘mega-problems’.

    Read this cut from the article:-
    “The trouble is, the world has changed, but nobody seems to get it yet. Our past decade of care-free debt accumulation has been built on the US consumer spending money borrowed from Asia, on goods made in Asia. But now the US consumer is spent out, so that cycle can’t carry on.
    Asian governments might still be keen to prop up the dollar, but once they realise that their exporters aren’t selling anything, regardless of how weak their currencies are, they’ll stop. Why lend money to these people if they’re not keeping their side of the bargain and spending it in your factories? And so, to keep borrowing money and rolling over its massive debts, the US will have to pay more interest, which means higher interest rates in the long run.”

    What goes on in the states, transposes here in blighty! Things are tough now, but just as people find their feet, so the interest rates rise….. talk about double whammy on the horizon! It is a worry!

    I don’t subscribe entirely to this “world is at an end” attitude. I do feel it is like the U.K’s reaction to snow forcast …..it is not just a flurry that causes us to drive slow, but as the media and scaremongers would have you think, this is the onset of the big freeze so stock up months of food, fill your oil tanks and start digging ‘anti-looting’ bunkers!

    But is it healthy?

    Do feel free to browse other comment at bigmoveblog.blogspot.

    Cheers

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  • A lot of commentators (including some here) say that the great risk of protecting Fannie and Freddie is that the US housing market will continue to worsen and therefore bring down the two “F”‘s anyway, leaving the US Government with massive liabilities and the shareholders with nothing (adding the former to the latter, like pouring salt on a wound). However, in recent months almost everyone had been saying that the US mortgage market is frozen in large part due to the uncertainty about their viability, and this has had two big knock-on effects – 1) it has stopped the world’s banks from lending to customers because they are hoarding cash, and 2) it has stopped international finance from operating in a ‘normal’ way, both with each other, with governments and with the man on the street. What if the US housing market starts to recover due to the measures taken yesterday? What if the lenders feel more secure knowing that the US government has all but nationalised the two companies? If it does, the “F”‘s are more safe than they were on Saturday and the world’s banks and financial system will breath a sigh of relief and start releasing funds again. Not a cure, but the start of a change on the fundamental problems.

    A simplistic (and rushed) view, indeed, but it has at its base the widely reported and posted comments from the media and bloggers around the world. The “F”‘s are currently the most important financial institutions in the world. The US housing market is also at the core of the world’s banking jitters. If the global system thinks they are safer, and they *are* more secure (neither of which was the case on Saturday) then the causes of the current logjam in the lending markets are greatly reduced.

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  • All the banks are breathing a sigh of relief, the corks are popping in the city, estate agents are gleefully rubbing their hands together in the hope that the american tax payer will happily foot the bill for the over zealous lending by unscrupulous so called financial speculating whizzkids. The FTSE and other markets have seen overacted finger tapping of these same people and the hope that the housing boom can restart today….!! No, when commonsense returns and fluttering hearts settle, realisation that these huge institutions F & F (not florence and fred) were teetering on the brink of collapse and Bush and his merry band of followers all sat around the oval Office with a stench in the air. The decision to take over F & F was inevitable, but the american economy is the most in debt on the planet and the Tax burden on the american people might be a hard pill to swallow.

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