Tuesday, September 09, 2008

Freddie Mac and Fannie Mae

My economic forecast was wrong. Britney Spears has just won some MTV awards. This incorrect forecast proves that I am a genuine economist.

The markets are excited by the rescue of Fannie and Freddie, however nothing of signicance has changed. The housing market was stirred up by a exuberant boom and the only solution is for prices to fall. House prices will not recover until the overhang of the housing glut has cleared.

The credit crunch is the result of bad decisions, loose leverage and bad judgments about risk. The Federal government cannot reverse these mistakes and is more likely to make the situation worse, just as it did when it created Freddie and Fannie.

Americans are now in the privileged positon of owning their own shonky mortgages.

Banks and investment funds that owned shares in Freddie and Fannie have just had their investment wiped out. The full impact of that has not yet been felt.

2 comments:

Gene Redlin said...

I understand a lot of things, but this one doesn't really register.

I would appreciate a real economist's view on this. A bit more detailed explanation is in order.

As an futures trader this seems to have a lot of interest rate plays in it.

SO, a bit more please.

RonMcK said...

Reply above. Nothing very complicated really. Just the usual mix of greed and stupidity.