“A failure [of Fannie and Freddie] would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance,” Paulson said at a press conference in Washington. “And a failure would be harmful to economic growth and job creation.”
I’m out of my comfort zone here but the rationale for bailing out these agencies is quite dishonest.
I assume the real reason is to bail out wealthy investors and banks and so on. The economy, of course, would be better off without the bailouts.
Let’s assume F & F folded. Their wealthy shareholders would lose money. The banks whose loans they guaranteed would lose money. That’s far better than the taxpayer or inflation-payer–that would be me and mine–losing money.
The longer term consequences: banks would tighten up on mortgage loans. Demand would decline as would real estate prices. That would actually help those buyers who have some cash or better credit. Those who didn’t would rent. That would help the vast number of owners of rental property including vast swaths of the middle and working-classes.
There would be winners and losers but overall letting F & F fail would be far better for the economy, and in my view those who say otherwise are lying or ignorant.
And I wrong?
2:13 pm on September 7, 2008
