Well, This Doesn't Sound Good

Of course, this is probably just a mental recession:
The word began spreading across Wall Street trading desks on Monday morning: Fannie Mae and Freddie Mac, the giant companies at the heart of the nation's housing market, might be in trouble.

The tumult, which continued Thursday, started with a cautionary analyst's report, one that might have caused few ripples in normal times. But within minutes, the price of the companies' shares plunged, sending shock waves through the financial markets, the economy and Washington.

Fannie Mae and Freddie Mac are so big -- they own or guarantee roughly half of the nation's $12 trillion mortgage market -- that the thought that they might falter once seemed unimaginable. But now worries about the companies, which have been slowly building for years, have suddenly become a tidal wave.
Nobody could have predicted that the house of cards upon which our nation's economy has been build might collapse disastrously if nobody ever bothered to regulate it!

To say that the collapse of Fannie Mae and Freddie Mac would be catastrophic to the economy is like saying that John McCain doesn't understand domestic policy; it's true, but it doesn't quite capture the scope of the horror. Worldwide, investors own $5.2 trillion dollars worth of Fannie/Freddie securities. Moreover, given that Fannie and Freddie are about all that's providing liquidity in the home mortgage market right now, it's incredibly dangerous to have them both faltering.

Now, the two companies are probably too big to fail, and Congress would undoubtedly have to pass a multi-billion dollar bailout if it happened. But in the best-case scenario, taxpayers will be on the hook for tens, if not hundreds of millions of dollars' worth of bad loans that never should have been written in the first place. This, of course, could have been prevented with some oversight of what financial institutions were doing. But that's socialism, and we wouldn't want that.

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