Although I'd like to think of myself as psychically endowed, my prediction that the government would step in to save Fannie Mae and Freddie Max was hardly a lucky guess. They've been seized and we're all going to be affected.
Personally, I'm a bit conflicted on the issue. I know that, had the government not stepped in, there would be a brutal recession around the corner that would affect not only our us domestically, but the rest of the world as well. It would be a quick and deep economic downturn that would seriously undermine the economic integrity of the United States compared to the other nations and it would be a long time before the economy, and our reputation, had been restored.
On the other hand, this act of governmental intervention is diametrically opposed to the sound principals of a free market. This intervention doesn't prevent a downturn, it merely stalls it. It undermines our economic principals which will permeate to more and more similar decisions. We're creating (arguably have already created) an unspoken rule in America that says if your company gets big enough, don't worry, the government will never let you fail. Since when it is the government's responsibility to tax the private sectors in order to bail out other private citizens who make poor financial decisions? I've read the Constitution many times, and I'm pretty sure this isn't authorized.
Yet, here we are.
The last element of this issue that I think deserves mentioning is that, for years, these questionable loans were falsely advertised as AAA loans to the foriegn markets. They will be seriously damaged if this bailout didn't occur. In a sense, I can rationalize the bailout in order to honor our agreements with them. However, I would only endorse this with the caveat that the private sector be given control of the mortgage market and the federal government be banned from stepping in again. Of course, in today's climate, such a request borders on lunacy.
This bailout is not a solution, it's a bandaid. It's probably the most expensive bandaid ever at $200 billion (and possibly more). And while the wound matestasizes, another, bigger bandaid may be looming over the heads of our grand-kids.
Then again, what do I know?
-Beasley
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