Anandakos

Fannie and Freddie: Worthless?

@Duude,

In actual fact, the total indebtedness of the all sectors of the US economy is very nearly exactly the same today as it was twenty-four months ago at the first rumblings of the crisis. Yes, government debt has ballooned, but private debt has shrunk by the same amount.

Would you <i>really</i> have preferred an <i>actual</i> shrinkage of the total capital debt of the US economy by 2.5 trillion dollars in two years?

Yes, over time it needs to come down a percentage of GDP, most likely by growing more slowly than does GDP. Actually shrinking total debt when investors are rushing equity capital out of the country to emerging markets would be insane. Are you a bond ghoul who would love to be paid back with ever scarcer and hence more valuable dollars? If so, admit it so we can evaluate your posts accordingly.

Since the capital base of American industry is steadily shrinking through disinvestment and depreciation, for the US to "grow its way out of this recession" -- everybody's favorite prescription -- it must have capital. Long term equity capital is vanishing from America as rapidly as the middle class. We either borrow (more productively than in the past to be sure) or we sink into genteel poverty like most of quaint and lovely old England.

On Oct 20 10:09 AM Duude wrote:

> These companies will survive but not as private companies. They're
> simply an arm of the US government. They will never be recapitalized,
> broken up or spun off with a new public offering. They have far too
> much bad debt and taxpayers won't stand for more tax dollars to recapitalize
> it. This is unfortunate because it only means the government will
> continue to subsidize mortgages, creating a bigger and more dangerous
> bubble. Government believes the best fix for a bubble is to make
> it bigger still. Taxpayers are already buried in debt and the government
> is now building a mountain with more and more dirt on the corpse
> of taxpayers everywhere.