The Bailout To End All Bailouts


You saw it coming, and here it is: $160B for Fannie and Freddie. Or, y’know, more. Much more.

Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, said that a 20 percent loss on the companies’ loans and guarantees, along the lines of other large market players such as Countrywide Financial Corp., now owned by Bank of America Corp., could cause even more damage.

“One trillion dollars is a reasonable worst-case scenario for the companies,” said Egan, whose firm warned customers away from municipal bond insurers in 2002 and downgraded Enron Corp. a month before its 2001 collapse.

One treeeeeeelion dollars. It’s one thing for a government to spend more money than we have. It’s another to spend more than we can imagine. Cross that threshold, and people will start to ask: how imaginary is the value of this unimaginable amount of money? And when the answer comes, jokes like this will have a long, evil laugh on us:

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  1. Profile Photo Member

    Of course, Fannie and Freddie had nothing to do with the financial meltdown. Paul Krugman says so.

    • #1
  2. Profile Photo Inactive

    This is insane. The institutions that kicked off the financial meltdown remain unfixed and are on track to continue down the fiscally suicidal path, assisted by unreformed Govt. policy. We should let the “firms” go bust and a liquidator can sell off the assets for what they are deemed to be worth. The tax payer would get pennies on the dollar from the $145 Billion investment but this would be vastly preferable to losing multiples more – as looks to be a near certainty.

    I fail to understand how on earth anyone can justify borrowing hundreds of Billions more in order to pour them down a black hole of certain loss. Better to cut losses now and get on with life.

    • #2
  3. Profile Photo Member

    Since the financial collapse in 2008, Fannie Mae and Freddie Mac have been converted entirely into political tools to effectuate policy. I realize prior to the collapse, they were operating for certain political ends but they also had to at least pretend to be for-profit entities.

    Putting aside the enormous losses generated by these government-sponsored entities (and I admit its a huge issue in its own right), is anyone else concerned that this is providing the framework for perpetual power by liberals to impose policy entirely free from the pressures to avoid a political backlash? Since the distinction between the implicit government guarantee and explicit government guarantee has been destroyed, liberals have had a free bank account to dictate housing policy in the United States under the auspices of Fannie Mae and Freddie Mac.

    If any liberals really took note, the quasi-governmental entity could become in the 21st century what the Supreme Court periodically was in the 20th century–a mechanism for imposing liberal ideology without having to win elections.

    Am I crazy?

    • #3
  4. Profile Photo Member

    One of my favorite blogs, the Generational Dynamics blog, commented on this trend toward ever bigger bailouts in 2008 in an entry entitled One, Two, Three… Infinity. This was before Obama was even inaugurated.

    Common sense. If you keep bailing firms and even nations out, the same problems will continue to exist, and just compound on themselves. There will come a time when there is no one left who can bail us out… and that will be the beginning of the true next great depression. We haven’t seen anything yet.

    By the way, if you want to know in a general sense what is going to happen in the next few years and decades, his predictions have been very spot-on. He predicted the current downturn from as far back as 2002 or 2003. He predicted there would be no civil war in Iraq back when that was the conventional wisdom. It’s all based on a pretty sound analysis of generational moods, trends and cycles, as initially put forth in the book The Fourth Turning.

    • #4
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