Topic: Monetary Policy
Fannie Mae and Freddie Mac Are Getting Worse The latest news about Fannie Mae and Freddie Mac shows that the current crisis is nowhere near over and is getting worse by the day.by Walt Thiessen
(libertarian)
Tuesday, August 19, 2008
Many news sources are reporting today about the latest round of troubles for the two biggest mortgage financers, refinancers, and bundlers in the business, Fannie Mae and Freddie Mac. Share prices of both continue to plummet. Since I first wrote about their falling stock prices on July 11th, their prices did a brief upturn in response to the Federal Government's bailout plans, then turned right around and began to plummet again. If you're thinking about refinancing your adjustable rate mortgage into a fixed rate mortgage, you better do it soon (if you can) before interest rates go even higher.
A month ago, Fannie Mae had plummeted from $70 a share over the past year to roughly $8 a share. Today, it's opening at just over $6 a share. Freddie Mac was also down from roughly $60 a share a year ago to about $4.40 last month. Today, it's opening at $4.16, and it is likely going to go down even more.
Thus, the vaunted bailout plans announced by the government have done nothing to slow the overall downward trend. This is significant because everyone (except for those of us who are opposed to the Federal Reserve's fiat monetary system) seems to be counting on the government bailout to...well...bail 'em out, and yet it's not working. The markets, after initially responding positively, have resumed their negative slide.
Adding insult to injury, in a conference call yesterday executives of Freddie Mac acknowledged that real estate prices are going to continue to drop, that most of the mortgage losses expected have not yet been realized, that more losses can be expected, and that, essentially, the worst is yet to come. This is really bad news for the pro-fiat-money crowd, although none are willing to admit it yet.
So far, even the mortgage industry itself isn't willing to acknowledge that fiat money is driving their train into the sea. Ask most mortgage lenders, and they'll take the blame on themselves, just as the media has been heaping it on them. Sure, they engaged in foolhardy lending behavior, but while they will quietly acknowledge that much of their behavior was influenced by Fed policies (stimuluses) and Federal lending incentives for people who can't really afford housing at current prices, they still refuse to blame the government for what the government has done to foster and initiate this whole mess.
This situation must eventually change before we'll ever see an overall good result, particularly as this crisis grows worse and worse, and yet on the other hand the mortgage industry is the least likely to make that change. Why? Because they are so heavily dependent upon Federal bailouts from this point forward, because they know that fiat money and government-sponsored lending is the basis for most of their wealth in the first place.
All this raises a question. What would happen if the mortgage industry couldn't count on easy money policies like the Fed always provides? What if they couldn't count on the Federal Government to continue to push for easier credit for people who can't afford to buy homes at current prices? The answer is simple. Most of the mortgage industry would be out of a job, and real estate prices would be much lower.
And this is what's at the core of the whole problem. Not only are there miles of bureaucracy in the government that depend upon this Ponzi scheme to keep the whole floating crap game afloat, there are also legions of private investors and lenders who make their millions off the muck of that game. In other words, there are a whole bunch of very wealthy people who have a lot to lose if the whole shooting match blows up in their faces.
So to answer my own question, what would happen if the mortgage industry couldn't count on easy money and government-sponsored lending incentives? The industry would be much, much leaner and smaller. It would also mean that unreasonably high real estate prices, which are already plummeting in the wake of this mess, wouldn't be able to skyrocket once again without having a real, market basis for such an increase. In other words, booms would be much rarer, and they'd be genuine when they did occur without later engaging in spectacular busts.
Of course, it's not likely that the fiat money advocates are going to reverse course anytime soon. Instead, they're going to continue to ask for bailouts and handouts so that they can continue to acquire money hand over fist, beyond what a normal, free market would permit them to earn. And who loses in that scenario? The rest of us lose, particularly those of us who have to buy and live in those houses, those of us who have to use a currency that constantly loses value so that the wealthy who acquire their wealth via the government-sponsored fiat money gravy train can remain wealthy.
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The views expressed in this
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