Fannie and Freddie Bailout: Opinions and Wrath

So the decision has finally and predictably been made and the US government will now pay out huge sums of taxpayer’s money to take over both Freddie an Fannie.

Here are some expert opinions and comments from The Gurus regarding this buy-off :

Jim Rogers says: “I don’t know where these guys get the audacity to take our money, taxpayer money, and buy stock in Fannie Mae…. So we’re going to bail out everybody else in the world. And it ruins the Federal Reserve’s balance sheet and it makes the dollar more vulnerable and it increases inflation…These companies were going to go bankrupt if they hadn’t stepped in to do something, and they should’ve gone bankrupt with all of the mistakes they’ve made. What’s going to happen when you Band-Aid and put some Band-Aids on it for another year or two or three? What’s going to happen three years from now when the situation’s much, much, much worse?…They’re ruining what has been one of the greatest economies in the world”

Warren Buffet has referred to Fannie and Freddie and said that the “Game is Over”. He also has said the Fannie and Freddie:“… were able to borrow without any of the normal restraints. They had a blank check from the federal government. They priced risk wrong…. They don’t have any worth“

George Soros commented that a ’solvency crisis’ was coming and went on to say: “This is a very serious financial crisis and it is the most serious financial crisis of our lifetime … It is an idle dream to think that you could have this kind of crisis without the real economy being affected”

Marc Faber said on ABC TV:”What should happen is basically that the people that were running these financial institutions are responsible and the shareholders that own the shares and the bond holders of these institutions, they should take the haircut and not the taxpayer, the simple man on the street, bailing out the rich kids on Wall Street“

Paul Volcker, ex-Fed Boss, referred to the current US financial system as:”…dysfunctional. That is a polite way of saying it failed.” and had this to say: “This bright new system, this practice in the United States, this practice in the United Kingdom and elsewhere, has broken down..Growth in the economy in this decade will be the slowest of any decade since the Great Depression, right in the middle of all this financial innovation.”

Greenspan comments:“The Federal Reserve has been unable to find any credible purpose for the huge balance sheets built by Fannie and Freddie other than the creation of profit through the exploitation of the market-granted subsidy….The strong belief of investors in the implicit government backing of the Government Sponsored Enterprises(GSEs) does not by itself create problems of safety and soundness for the GSEs but it does create systemic risks for the U.S. financial system as the GSEs become very large”

Surprising that two ex-Fed bosses – Volker and Greenspan – should also both have said that Fannie and Freddie should be broken up and left to die. It also seems that the Gurus are talking sensible economics. While all the snappy Wall Street Fund managers are of opposing opinions. On one side we have the weathered and experienced opinion of tried experts, and on the other we have the opposite opinions of the desperate, slick survivors crying “Save us…Save us, Dear God !!” — this from some very rich and now extremely relieved Wall Street Fund Managers.

But the sharks are still circling in the murky waters of financial US insolvency and their numbers now are bound to increase. I fear that they will be there for a long time to come and so the feeding frenzy will continue unabated and unrestrained by the natural, primal laws of the free markets.