Fannie May and Freddie Mac - Bailout or Blunder?

Jake Bernstein www.trade-futures.com  

By now you have likely heard about the US government take over of FNMA and Freddie Mac.

Given that these two entities hold about 50% of all US mortgage paper these was really no choice

but for the US government to bail them out. The term “too big to fail” is quite apropos here but is

that or was that or will that be the best policy in the long run? Now that the US has effectively

added Bear Stearns, FNMA and Freddie to its portfolio it might want to diversify its holdings and

perhaps buy some of the failing auto makers and perhaps a few home builders and some technology

stocks. Why not add a drug stock to further add a mix to the portfolio. All joking aside,

here are some of my thoughts about the take over as they pertain to the future of the markets.

made money on most of them. But who should get the profits? Given that we, the taxpayers

will eventually foot the bill for these takeovers the fair and equitable thing to do

would be to give back to the taxpayer if and when these ventures become profitable. Will

that happen? Yes, when pigs fly!

but to take the indicated actions unless the government wanted to adopt a laissez fair

approach to its economic policies. But that was not in the cards and was not likely to

happen

the end of the crisis. I have gone on record as stating that I believe this to be a good time

to buy residential properties. I continue to believe that the bottoms are in if not very close

to being in. It might be early to mid 2009 before its clear that lows have been made. But

lower property prices and bargains are not meaningful unless people can get credit.

Without access to credit the market can’t bottom. The problem is that while the pendulum

was swinging toward absurdly easy access to credit it has now over compensated

and the documentation process is too rigid. This will change and with it the markets will

turn

will be clear for growth in all market sectors

certain yet by my cyclical and timing models do not suggest lows until late October. Until

then the takeovers merely signal another reason for speculators to speculate and for

volatility to increase. News such as this is a trading opportunity and not a watershed

event.

stock market as well as in commodities. I have said many times that this is a market of

stocks and not a stock market. Don’t let the averages mislead you – make your decisions

based on individual opportunities

Make decisions on individual opportunities and don’t let the fear mongering distract

you from what you need to do.

from greed and optimism. We are in the throes of panic and fear. The rest is clearly up

to you – it’s time to step up to the plate but very selectively.