Fannie-Freddie Fix at $160 Billion With $1 Trillion Worst Case

With each passing day, I become more and more "Bearish," not only on our economy but also the stock market.  A prime example of my bearish stance is taken from Bloomberg this morning:  "The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed 75% of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history."  To keep things in perspective consider the following facts: "First, Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of AIG, GM (Government Motors), or Citigroup.  Second, Fannie and Freddie own or guarantee 53 percent of the nation’s $10.7 trillion in residential mortgages, according to a June 10, 2010  Federal Reserve report.  Millions of bad loans issued during the housing bubble remain on their books, and delinquencies continue to rise."



I believe the worst case scenario of $1 trillion will occur.  What is the solution?  We must simply return to the days when the standard was for mortgagees to put 20% down.  What is the probability of the that happening?  Probably, zero.

Then, President Barack Obama sends a letter to Congress over the weekend urging them urging them to approve a tax and spending bill currently being debated in the Senate that already would add $80 billion to our nation's budget deficit.  He also requested another $50 billion in deficit spending earmarked for bailing-out state and local governments. Without this "emergency" money, the President claims thousands of government union jobs would be lost.  (Yes, you read that correctly.  It is all about saving union jobs.  Mr. President, what about non-union jobs?  Oh, I see now.  You want to unionize all jobs.) 

Folks, this deficit spending must stop in order to save our Republic.  We simply can not continue to have deficit spending that amounts to 10% to 12% of GDP.  Once again, the solution is simple.  That is, cut spending!