That Old Bear Sterns Panic: Will Fanny and Freddie destroy the Economy?


               It’s beginning to be old hat to have another truly bad day on Wall Street.  Having another existential threat emerge in our financial system is frightening, to say the least, but not entirely unexpected.  Fannie Mae and Freddie Mac are the largest mortgage finance companies we have and a meltdown by either or both of them can have catastrophic repercussions throughout the already stressed economy. Shares of these giants went into free fall today and were down some were down by some 47% when I saw them on Bloomberg.  Earlier there were fears that they were insolvent and that the Bush Administration was considering taking them over and putting them in a conservatorship and transferring the risks they took to the US taxpayer: you and me. I’ve seen estimates that they could add, if they failed altogether another five or six trillion to the US National Debt.  (See the National Debt link on this page!  9.5 trillion + 6 trillion = 15.5 Trillion Dollars!)

               These companies make it possible for banks who write mortgages to transfer the risk by selling the mortgage, to Fannie and Freddie and are the lifeblood of the current mortgage system.  If we lose them, given the state of the economy today, the entire mortgage market will come to a standstill overnight until the bankers can get through the night without a supply of sleeping pills and bottled water within easy reach. It’s really very risky in the financial world right now and it’s likely to stay that way for the foreseeable future. It doesn’t matter if the government is backing these companies because we will all face the prospect of having Nancy Pelosi and Harry Reid and very likely a President Obama personally guaranteeing all our mortgages!  That doesn’t exactly fill me with confidence, how about you? Naturally the people on Wall Street weren’t pleased to hear this news, so Freddie and Fannie went into freefall earlier in the day but now seem to have recouped about half their percentage loss from earlier in the day.  As of this writing they are as follows:  Fannie Mae down 20.89% and Freddie Mac down 8.62%.  The Dow is down about 203.71 and had earlier slid below 11,000.  If we were to end the day now it’s amazing how many people would breathe a sigh of relief at Fannie Mae only being down 21%! 

               Bear Stern started a disturbing trend of the United States losing control over its financial destiny, its currency and its markets.  Bear was bailed out by a Federal Reserve facilitated buy out that’s increasingly removing our government from power in our own economy.  The Federal Reserve is a system of private, profit making member banks, who together form the Fed and whose Chairman is picked by the President from a list supplied to him from our creditors! The current Chairman, Ben Bernanke, is a scholar from the academic world whose pet theories about our financial history are being put to the test with the nation’s very lifeblood.  I sure hope this scholar knows what he’s doing because I have to admit that I would much prefer to have a scholar of the streets running the show right about now. We’ve seen another shoe drop today with Freddie Mac and Fannie Mae resulting in another record day for oil and gold while the United States Dollar continues to drop.  This simply can’t continue and there are other shoes waiting to drop out there. 

               I can’t tell you the outcome of all this but in the statements of the administration and Senator Charles Schumer of New York, I can tell you that the trend toward socializing vast aspects of our economy from oil to finances continue unabated and is, in my view, the greatest danger of them all.  Bear Sterns began the trend of consequences being removed from the free market and as a result we are all less free then we were before the Bear Sterns fiasco.  With the vast expansion of the powers of the Federal Reserve and the big money that owns the member banks of which it is composed, I find a certain grim amusement in seeing our own congress disempowered more and more because of its irresponsible spending.  We are a nation in very serious systemic trouble and we live in a time where the US Senate would rather debate global warming than a desperately needed energy policy.  When the levels of government foolishness reach this stage, and remember its government who thinks it can stop our financial meltdown by taking over everything, its time to get a new government. 

               Obama is right about one thing: we need a change.  We need politicians who represent our interests and not those of the member banks of the Federal Reserve or the save the spotted owl society.  We may have dodged another bullet today, for an unknown quantity of time, but that old Bear Stearns panic tugs at my heart at how the system if failing us and I can’t help wondering:  Is this the crisis that sinks us?  How long will it be?  Who will be at the epicenter of the next meltdown?  Is this event even over?  Will we be done in by Freddie and Fannie Mae?


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