Monday, July 14, 2008

The Meltdown Continues: the Fannie and Freddie Edition

So Fannie Mae and Freddie Mac have fallen and will get a government bailout. Clive Crook has nicely summarized this latest financial domino to fall in the ongoing financial crisis:
US taxpayers are about to find out what their long-standing and (strictly speaking) non-existent guarantee of Fannie Mae and Freddie Mac will cost them. One way to think of it is this: take the US national debt of roughly $9,000bn and add $5,000bn. Not bad for an obligation still officially denied.
James Hamilton, Arnold Kling, and Mark Thoma also provide good discussions on this development. It is worth noting that Nouriel Roubini predicted Fannie and Freddie's collapse back in August 2006. If you are curious as to how the rest of this financial crisis will unfold, take a look at Nouriel's 12 steps to financial disaster. Let me add Nouriel to my list of certified economic prophets.

1 comment:

  1. What are you talking about $5,000? These are CDOs. There are some underlying assets behind these securities.

    The entity that takes over these GSEs will have cornered the entire US housing market.

    It is not Fannie and Freddie who are getting the bailout, it is the American homeowners.