Velshan

Fannie & Freddie: Myth vs. Reality, Part 2

What is important to any normal person about Freddie or Fannie is what it implies and what will happen to us, due to the fiasco.

First lets understand that Whoever is at fault and Whoever is the mastermind of all this debacle, is not really important. Because they probably are too smart to be caught. Or if they are indeed stupid will be caught and yet cannot prevent any of the consequences.

This debacle has happened due to actions by a very large group of people including the Politicians, Congressmen, Senators, Bankers, Ex-Bankers (or I should say, people who are still indebted with Banks but work in Government positions now), and a whole of financial consultants. (and of course the silent or biased media)

The importance of the above factors is that all this people are running our Government and I don't see they giving up their luxurious lifestyles because they made a mistake.

The mistake is
"Take available opportunity to create more money for yourselves". Is this a mistake? Not an easy answer right? Not important either.

What is the key development from this "mistake"?

The Building of so many Houses? For people who cannot afford it?
Not really. Because, if someone has already build a house for say, $100,000 dollars. He can keep the house for years until someone is ready to buy the house for a price above the cost.

But what if you have borrowed the money (say from China) with an interest that you can afford. No problem right. Just pay the interest and hope soon someone will buy your house for a price that now will include the interests that you have paid.

But what if you have not enough money to pay the interest and you still have not found the buyer? Then you go crying to the Government for help. And Government may keep you alive by giving you additional loans. Or buy all your houses at a fixed price.

This is the discussion that is going on. Instead of clarifying the actual value of the houses and interests that Freddie and Fannie are obligated to pay. The Government keep giving the "ALL is OK" speech.

While now, the owners of the Freddie & Fannie shares are beginning to wonder about actual situation and are selling of their shares at whatever prices that is possible.

This means, we all have to wait and see if American people can continue to earn enough money to keep paying the interest on money borrowed (yes that is from - China, Japan, Russia, among others).

And if American people will want to continue paying that money. If not then there will be serious problems between America and all those countries who provided that money.

The only solution is to simply let the company Freddie and Fannie fail. Then sell all the assets at very cheap prices to Americans at any affordable price and tell our lenders - "oops sorry. This is how Capitalism works".

But America as a super power and trusted Business and Trade partner will be gone. Dollar will be also gone. But Americans will not really lose anything. in fact get cheap houses.

It will wake up a lot of countries. But the World will be a better place.

Fantastic!...

[Note : I like the article posted by Questionable. His is right ]