Let's Nationalise All the Mortgages in America Overnight, And See What Happens

More financial fun. From today's Financial Times:

"The US government on Sunday seized control of the troubled Fannie Mae and Freddie Mac mortgage groups in what could become the world’s biggest financial bail-out."

I've just one comment on this, for now. The US government doesn't really know what it is doing, its public statements are confused, contradictory, and not nearly as reassuring as it thinks, and this action will have huge unintended consequences, some pretty disastrous, for the American financial and housing markets. (With whiplash effects as far away as China.)

The rules are being torn up, but they're not being replaced with anything coherent.

More banks and other financial institutions will fail in the aftermath of this (and not just the ones left holding huge, worthless chunks of Fannie Mae and Freddie Mac).

Comments

[Noel Kenny]

You were right all along. More to come

[neassa therese]

I agree. The decision to Nationalise fannie and freddie is going to cause even more problems and strains economically (globally) in the very near future...
it's pretty typical tho.
Right now the American gov is saying: 'oh shit what will we do about this?.. um...' and then grasping at a lazy short-term solution to scaffold the mortgage market crisis:

'As GSEs, Fannie and Freddie had a limit on how much they could borrow. Under FHFA control, the only such limit is the extent to which the US government can continue to borrow' James Quinn, Wall Street Correspondent
08/09/2008

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/09/07/ccfreddie107.xml

[Julian Gough]

Yes, isn't it exciting? I'm in London on a flying visit, and haven't had time to blog properly, but blimey we live in exciting times. Lehman Brothers plunged 45% yesterday, so I'm looking forward to their earnings figures announcement today. And apparently the nationalisation of Fannie Mae and Freddie Mac has triggered a default event in the utterly idiotic and unregulated CDS market, so that 1.4 trillion (trillion!) dollars worth of credit default swaps will now have to be settled. And nobody knows if the hedge funds who wrote the contracts will be able to pay up. Lots on that here:

http://www.businessweek.com/bwdaily/dnflash/content/sep2008/db2008099_141141.htm

And we're only two days into the unintended consequences.

Wonderful stuff.