No big surprise, bailout of Freddie and Fannie

Congress and the Administration have teamed up to cover the losses of these mortgage behemoths. They essentially took them over as government operations, kinda like Hugo Chavez did for many industries in Venezuela.

Now, between the three of them (Fannie, Freddie, Ginnie), US taxpayers are on the hook for about half of the existing $12T in mortgage debt.

Oh, and by forcing the bail-out, the Government has driven the stock share prices of Fannie Mae down from $7 to about $1, Freddie Mac from about $5 to about $1. Given the market capitalization of these entities, this resulted in a net loss to the market of about $10.33B in one day. Of course, last October Fannie was trading at nearly $70 and Freddie was at about $65, so the majority of the meltdown was over (already lost $120B since last October).

What next?

We are also looking at bail-out for the auto industry ("too important to let fail").

The student loan industry is a mirror image of the mortgage industry and is likely to face a similar explosion. Government creates a perverse incentive (usually in the name of diversity) to loan money to people who cannot pay it back. As a government supported program, private lenders are willing to take more and more risk, pocketing the profits and turning to the Government to cover to losses.

9/11 gifts to victims families, Katrina support for 3+ years and still some have not bother to find a job or a place to live, unemployment benefits extended and re-extended (why bother to get a minimum wage job when you can collect 39 weeks of unemployment (soon to be extended another 13 weeks, so one year of unemployment payments). This list can go on and on.

Our Government is a classic enabler and we are all codependent. An enabler is a person who by their actions make it easier for an addict to continue their self-destructive behavior by rescuing the addict. The codependent party exhibits behavior that controls, makes excuses for, pities, and takes other actions to perpetuate the obviously needy party's condition, because of their desire to be needed and fear of doing anything that would change the relationship.