When Fannie Mae and Freddie Mac were absorbed by the federal government in 2008, they were promised unlimited Treasury support. Did anyone think they would still be requesting another $1.8 billion in August of 2010?
Is it really possible that the government-sponsored mortgage companies have drawn almost $150 billion since April 2009?
My question is one of befuddlement. When will it end?
It is remarkable that we are almost at the two year-anniversary of the unfolding of this disaster, and there seems to be no solution in sight.
As demand for new housing declines, we can read the tea leaves. Unemployment is high. Economic growth is slow.
How could this pan out for the markets?
Well, we discussed the problems municipalitiesare having in states like California, Illinois, and New York. The government was there to bailout the banks.
It stood up to take control of and, in turn, fund Fannie Mac and Freddie Mac. There are only so many instances when the government can step forward with resources for these embattled organizations.
What happens when the states come calling? Where will the government possibly get the revenue to properly assist the municipalities? Higher taxes? Can they really tax the citizens of the very communities that need saving? Would it be fair to tax the "better-off" states? Wouldn't shouldering the burden be questioned in this circumstance?
More questions than answers maybe, but I know one potential outcome of a debacle of this nature. Wall Street could take the hit.
If Fannie Mac and Freddie Mac keep going to the Treasury, Washington may very well try to take wads of cash from Wall Street's pockets, and this could bring capital market action to a halt.
My question of, "When will this end?" needs to be answered swiftly. The chain reaction of events if the pool continues to be tapped could be very harmful to all investors.
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