Freddie and Fannie Bailout
The surge in the stock market today related to the bailout of the “mortgage giants” Freddie Mac and Fannie Mae may have given more faith to investors. Though shareholders of Freddie and Fannie are absolutely out of luck on this one, regional banks that hold shares in the two companies are likely to get a bailout from the federal government to cover their assets. Personal investors are going to have a hard time collecting money from the federal government, small investors just aren’t “too big to fail.”
This completely changes the markets outlook on the subprime mess. If the government continues with bailout tactics to save a falling market, investors are going to have a better outlook but at the cost of the financial stability of the US government. Famed investor Jim Rogers has already come out to condemn the bailouts saying that it practically doubled US government debt overnight, something that taxpayers don’t need on their shoulders.
No actions have been taken on the current CEOs of Freddie and Fannie for any illegal practices. The CEOs are expected to stay around until restructuring is complete but will not be around when the government fully takes over the two companies. Simply put, the current CEOs will take their cash with them and pocket the proceeds for making illegal loans, something that has been heavily criticized by personal investors.
Though it may give new light to the market, the bailout is ultimately horrible news. Taxpayers will be funding this bailout forever and inflationary problems will soon become reality. When the debt doubles, so does money supply and the threat of inflation. For the short term the market can take a breather, but we’re going to be paying for this for years to come.
