Fannie Mae (FNM) and Freddie Mac (FRE) having almost doubled their stock prices within the last five days. Last week, on Friday, they were both stated to be going bankrupt, out of cash, and the government would be better off just letting them die off. The reasoning was that the amount of cash to keep them up within the billions would leave little to cover other costs. The FDIC, after the IndyMac failure, only has so much money to cover other banks that go bankrupt. I heard that the early 90s had the same bank problems.
Now, I do think the economy has only one way to go - UP! It’s been so bad lately with the foreclosures and banks failures, but I do believe we are slowly recovering. I also don’t think the government will let these two mortgage lenders go down the hole. If you knock over one domino, you’d be sure to hit many more down the way. If these two fall down, the hurting will not stop for quite a long time.
I also believe that George Bush is in part of this. This economy is pretty crappy and it works to the Republicans' advantage. They are about helping businesses and cutting taxes; these are two things that all Americans are looking at currently. You can be sure when the elections come in November that it will have some impact on their vote, especially with the amount of people unemployed and the continuing growth of inflation.
When election time is done and the votes are in, John McCain or Barack Obama will be in office. No matter who wins, you can bet the stock market will finally rise. All those banks shorting stocks will finally cover. People holding onto their money will start investing again. Good riddance, George Bush! Either guy will definitely do a better job than him.
Anyway, there should be a dip coming up next week for those short sellers. However, in the long-term, expect these two mortgage lenders to go up. They will not go bankrupt. Banks might be short selling them, but they know they can only fall with them if they belly up.