More Federal Deficit

Sunday the US government (we the people) took over Fannie Mae and Freddie Mac. They were established in 1938 and 1970 respectively and were always touted as "too big to fail". Sunday's action was the desperate action to avoid failure of the corporations (yes, privately held) who carry and hold private debts - mostly home mortgages.

"Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe," said Treasury Secretary Henry Paulson. "A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance."

The officers who ran these corps are out and the feds are in control. They are expected to clean house - reduce the number of employees. We can guess that as efficient as the government does things, they will soon have more employees on payroll soon. On the federal payroll. There are probably very nice benefits with those jobs.

They, the feds, will have easy access to federal funds in an effort to stay afloat and continue to back and lend. This will keep rates quite low - possibly artificially low. This action will save the housing market from disaster including contractors, building supply companies, REITS, and realtors.

Check your mutual fund holdings. Chances are you like us hold some stock from these giants. Dividends to shareholders are suspended. And if losses continue, common shareholders, in two of the most widely held stocks in the United States, could find their stock worthless. However, holders of Fannie Mae and Freddie Mac mortgage securities and other debt will be paid in full.

The Treasury Department will buy up to $100 billion in preferred stock from each of the companies to ensure they have capital and are able to pay off their private debt. Preferred stocks are a step above common stock.

In the case of a corporation going bankrupt, debtors are satisfied first and then leftovers go to preferred stock holders and lastly to common stock holders.

I believe we the people will get the biggest hit having to carry and eventually pass on to our children this huge federal debt plus we may personally take a hit soon in our investments.

Will we get thank you cards from the housing industry? Mortgage holders?

'til later