Sep 23 2008
How the Failing Economy Caused Fannie Mae and Freddie Mac to Fail
Fannie Mae and Freddie Mac operate under the assumption that the vast majority of people will be able to pay their mortgages, which had been happening until very recently. When incredible numbers of people are unable to pay their mortgages Fannie Mae and Freddie Mac lose a considerable amount of their revenue and inevitably spend more than they have coming in.
There probably was corporate greed involved, but not anymore than there ever has been in Fannie Mae and Freddie Mac, and I doubt that if there were criminal transactions that those perpetrating them could have anticipated this many people being unable to pay their mortgages.
The current economic situation truly is that dismal. According to the bureau of labor , unemployment has risen by over 1.5 percentage points in the past year. At the beginning of this year, housing prices were 1050% of what they were in 1970, while the median household income increased only 450%; the majority of this damage took place between 1999 and the present time.
All of this means that the lower classes are only going to fall lower and that the size of the lower class is going to increase. Bailing out Fannie Mae and Freddie Mac will not solve anything when the people that were unable to pay their mortgages are now either homeless or being joined by far more people that find themselves in the similar predicament of being unable to afford housing.
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The execs and loan officers employed by FnF knew the risk of leveraging 30/1 with sub-prime loans. They knew this was going to happen, and played it perfectly. They were on the government’s short list of “too big to fail”, and decided to let it ride. Only in the last 24 hours have we seen a backlash from a Congress and Senate that was supposed to be in the tank for these guys saying, “thanks, but no thanks, to your golden fuckin’ parachute”. I still think they’ll get more or less the bailout they’re looking for, they just may have a harder time doing it again. For a few years. Then they’ll be right back at it.