Wednesday, July 23, 2008

Taxpayer Dollars, FRE and FNM, and the Mortgage Mess

I know it's never as simple as I sometimes allude to on this blog, but it looks like taxpayers will be on the hook for the mess. Freddie and Fannie equity holders should get wiped out. More moral hazard, and this time its not Wall Street but the politicians.

By the way, long term rates are still north of 6.5%, so all that liquidity hasn't really made it to the consumer. Houses may cost less from a price perspective, but cost more from the borrower's perspective. It's a wash, and it'll be great once the next president raises taxes, and institutes a protectionist policy.

But maybe I've got this completely wrong, and all of this intervention has to do with the fact that it's an election year, and after the election, the Fed will raise rates and the politicians won't care about buying your vote via a stimulus check you don't deserve, or by blaming the oil companies or talking about windfall taxes, or reigning in the short-sellers on Wall Street. What do I know? Maybe that inverted yield curve meant nothing...