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Originally Posted by alexamenos
The lead paragraph From today's editorial in the Dallas Morning Pravda....
Why is it every freaking piece on this thin just basically begins by begging the most relevant question?
That is....like hell the treasury department didn't have a choice.
It's no more sensible to say that Fannie Mae would have taken down $5 trillion in debt if it closed it's doors than to say that Ford cars all over the globe would instantaneously stop operating if Ford Motor Company closed down. And the most catastrophic things that would happen would be that a) lot's of people who made risky investments would lose money, which is something that often happens when people make risky investments; and b) interest rates on mortgages would rise which would cause housing prices to fall which would be bad, unless of course you were trying to buy a home for the first time in which case lower prices don't hurt at all...
....and we all know fannie mae is an absolute necessity to make housing affordable for first time buyers...
ba dum bum
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the analogy would be that ford wouldn't be there to make any replacement parts for the millions of cars and trucks out there, so people couldn't fix them as they broke and eventually none of them would work.
the "most catastrophic thing" to happen wouldn't be what you mentioned, although "a" above DID happen to those who put their $ into the stock of fannie and freddie thinking it was a safe investment (surprise!), and interest rates are declining a bit.
no, the catastrophe would be a meltdown in the financial market. complete shutdown as the asset base which allows for these institutions to lend money and operate would be gone, flushed away. no more loans for you, for me, for most anyone. not for houses, not for cars, not for businesses either.
that WOULD be a cataclysmic event. our lives would all be negatively affected, our nation's economy would come to a streaking halt. a proverbial sledgehammer to the side of its head.
not something that I'd wish to experience.