The Federal government has now confirmed what we have been predicting for some time: that a severe economic downturn is a real danger, and that the government is determined to do anything and everything to prevent one. Yesterday, Treasury Secretary Paulson announced that the government would seize control of Fannie Mae and Freddie Mac, and that the taxpayers are prepared to pay $200 billion dollars to prevent the immanent collapse of these mortgage lenders, and add over a trillion dollars in mortgages onto the Federal books. In addition, the FDIC and the Federal Reserve said they would help small banks left holding Fannie and Freddie stock. This is not exactly how free enterprise is supposed to work, but the consequences of letting these companies fail appear so dire that they have scared the pants off the Treasury.
Clearly, we are watching the Mother of all rescue plans in action. But it's a necessary plan. At no other time in history have we seen the two largest financial institutions on the verge of drowning at the same time.Read more...
