Dirty Secrets…
7/24/08
I read a great quote today in The Economist’s article on the “twin sisters”: Fannie Mae and Freddie Mac.
“If you cannot let firms fail in a bust, then you must contain them in the boom.”
That quote is also so appropriate for the Bear Stearns collapse earlier in March. Essentially, the government promised to back up the additional debt that Fannie Mae and Freddie Mac needed to raise in order to make investors feel comfortable in buying more stock in both. If they had not shown support, both companies would have failed immediately. Why does there seem to be little accountability and no downside for large government backed organizations in this country? Would we have a more stable economy is we trimmed the fat every now and then? I do not know the answer to those questions but I wonder how many more companies the government will essentially fool Americans into having faith in (aka buying stock) to keep the status quo when there should be little reason for optimism?
-Amit
akooner@brilliont.com
