The boat has been sinking, but a bailout is coming. If you haven’t already heard the news, it appears that the United States government will be bailing out federally backed lenders Freddie Mac and Fannie Mae to the the tune of $100 billion each. You can see more details on that here. There seems to be a universal sigh of relief at the moment. Stocks are shooting up and optimism is in fashion.
I have been talking about financing troubles a lot lately and hopefully this will help bring about some of the changes investors have been clamoring for in the market. They aren’t going to happen overnight, but an infusion of such a large amount of cash into the lending market probably won’t hurt things.
The one point that has been glossed over in just about all the articles I have read this morning is the part about the government taking control of 80% of both of the mortgage companies. Clearly something has to be done to prevent Fannie and Freddie from falling into the abyss, but if this arrangement becomes anything more than temporary the fallout could be worse then what we are seeing.
Whether partially or fully government controlled, it has become clear that these institutions are in need of a major overall or need to be altogether dissolved. Washington is in for a shakeup with the upcoming elections, and I hope this issue gets put front and center as a major campaign issue. These changes have to be implemented ASAP, not 5 years down the road. We can’t allow this to happen to us again.