The solution to the Fannie Mae and Freddie Mac bad credit decisions is to give them a larger line of available credit and government options to buy their stock.
News: CNN Money ran an article about a plan to back Fannie Mae and Freddie Mac. The plan would basically give the firms a larger credit line with the Treasury and open lines of credit from the Fed. The plan, designed by Treasury Secretary Paulson and Fed Chairman Ben Bernanki, is intended to slow concerns about the possibility of the two large firms failing. Paulson says that the steps to secure the two firms is essential because they play an integral part in the housing market and their down slide in the market needs to be corrected during the housing “correction”.
Observation:If I had blown all of my credit and had no income to pay for the credit, do you think that they would give me more credit and access to even more credit? I am not sure that this is such a good idea. People from Baer Stearns are being put in jail from the bad mistakes they have made. Are there arrests to come for the blunders of these two large firms? This “plan” is nothing more than a stunt to “show” that the government is backing them so that the market will not act how it naturally should act. People with money in the recently failed Indy Mac bank would probably tell you that if they had realized how bad things were there, that they would have taken their money instead of just letting it blow away in the wind as the government shut them down. People have lost their money in those companies because of the “hype” to keep the market falsely stable. Unfortunately there are a lot of instabilities in the market right now and the average investor will believe that everything is OK because the news media tells them it is. The government continues to step in and “save” these companies, but how many can they do this with. The government is going to eventually own everything. Hello socialism! Nationalize trains, air travel, mortgages, oil, gas, and who knows what else.
It is understandable that the failure of large institutions will make people uneasy and people do tend to panic, but, there also needs to be some sort of reality or people like the Indy mac customer are going to continue to lose their money. How would you like to be one of the ones who goes to the bank only to find there is no money there?
Discussion: Should these large firms fail, or should the government “bail” them out (take them over)? Also is they are in such good shape, why is the stock down so much and the government stepping in? Senator Dodd says, “They’re in good shape”. Do we believe him?