Freddie & Fannie Stock Confirms The Inevitable?
If you read the Alan Binder post where he recommended a new HOLC or the post on Larry Summer's comments about Fannie and Freddie, you realize these companies are probably not long for this world. Both company's stocks are pricing in a government takeover. Everyone either knows it is inevitable or there is insider information being passed.
Frankly, I dislike that we have gotten to this point as much as anyone but nationalizing(seizing) these two firms is likely the best of many terrible outcomes. Fannie and Freddie were only able to grow to their current girth because of the implicit backing by government and that never should have been allowed to happen. As I wrote three years ago, we need to start seeing enforcement of monopoly laws. Hopefully, we will learn from this and someone will dust off those antiquated monopoly laws. They were passed for a reason. Ultimately, we'll likely see these firms broken up when the markets stabilize many years later and the government sells off the pieces. Wall Street's financial merger mania and bank oligopolies should be next. But, I have a hunch the market may take care of some of it for them. Citi's CEO Pandit, as an example, keeps telling investors he has no intention of splitting up the company. He'll wake up at some point and I'll tell you why in another post.
Some form of this nationalization was done in the Great Depression HOLC as well as in Japan's great deflation. In both instances the government lost a marginal amount of money or was able to turn a profit for the taxpayers years later. So, yes it is a takeover but no it doesn't mean it has to be a taxpayer funded bailout, something you won't likely hear from people encouraging the "markets" take care of the problem. We already see what the "markets" do when left to their own accord. They created this mess. Following that same paradigm is a repeat of the 1929 mindset. There are obviously no guarantees but this potential outcome is surely more desirable than the economic effects of doing nothing.
We aren't going to nationalize everything. Government hopes by stemming some of this, they won't have to. I do believe that is a relatively naive and incorrect position. We'll get plenty of bankruptcies and defaults. That is a mathematical certainty that can be predicted and proven.
The great socialism begins courtesy of those espousing current economic ideology. That includes most everyone. Does it include you? That ideology is going to shift regardless of whether anyone yet realizes it.
Frankly, I dislike that we have gotten to this point as much as anyone but nationalizing(seizing) these two firms is likely the best of many terrible outcomes. Fannie and Freddie were only able to grow to their current girth because of the implicit backing by government and that never should have been allowed to happen. As I wrote three years ago, we need to start seeing enforcement of monopoly laws. Hopefully, we will learn from this and someone will dust off those antiquated monopoly laws. They were passed for a reason. Ultimately, we'll likely see these firms broken up when the markets stabilize many years later and the government sells off the pieces. Wall Street's financial merger mania and bank oligopolies should be next. But, I have a hunch the market may take care of some of it for them. Citi's CEO Pandit, as an example, keeps telling investors he has no intention of splitting up the company. He'll wake up at some point and I'll tell you why in another post.
Some form of this nationalization was done in the Great Depression HOLC as well as in Japan's great deflation. In both instances the government lost a marginal amount of money or was able to turn a profit for the taxpayers years later. So, yes it is a takeover but no it doesn't mean it has to be a taxpayer funded bailout, something you won't likely hear from people encouraging the "markets" take care of the problem. We already see what the "markets" do when left to their own accord. They created this mess. Following that same paradigm is a repeat of the 1929 mindset. There are obviously no guarantees but this potential outcome is surely more desirable than the economic effects of doing nothing.
We aren't going to nationalize everything. Government hopes by stemming some of this, they won't have to. I do believe that is a relatively naive and incorrect position. We'll get plenty of bankruptcies and defaults. That is a mathematical certainty that can be predicted and proven.
The great socialism begins courtesy of those espousing current economic ideology. That includes most everyone. Does it include you? That ideology is going to shift regardless of whether anyone yet realizes it.
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