Look Monkey, Look!

So, while we are temporarily hypnotized by Governor Gidget, Mountain Woman, the Huffington Post asserts in this article that the Fed will be taking over Freddie Mac and Fannie Mae, as soon as this weekend.

Why should you look up from CSPAN long enough to pay attention to this? Well, here is another $5.5 TRILLION for your consumption. But wait, aren't FM and FM private corporations? Doesn't the Republican ideology, if we can call our parties ideological, shirk the government regulatory bodies in favor of free-market, balls-out money grubbing? Well, yes. The GOP opposes "big government" and the presence of regulatory bodies in the economic system. It is the party of Big Business, as well as the small business owners, who make up 80% of the business out there. So why, then, is the Fed bailing out private companies?

Because if they don't, we're finished. Greater Depression, anyone?

Freddie and Fannie, silly names aside, are liable for $5.5 trillion in mortgages. The way the subprime crisis works is that the mortgage lenders sold very risky loans to people who, on the whole, could not afford them. These loans were then bundled into CDO's (collateralized debt obligations) which were shadily rated A+ and then sold in parcels to pretty much every major bank anywhere. Banks who hold mortgages use those as assets against which they can borrow. As people began to default on, or not pay, their mortgages, the CDO's had nothing to back them, resulting in the banking failures we're been scratching our heads over since the beginning of the year.

FM and FM hold, according to Bloomberg, almost half of all mortgages in the country. Basically, if they fold, $5 trillion is flushed away, leaving the country in shambles, ruined and broke.

As I write this, an article on Bloomberg.com is announcing that Henry Paulson, Treasury Secretary and a man who looks like he could break your skull, will be placing FM and FM into "Conservatorship," and kick their CEO's to the side. Each quarter, the Fed will inject money into the companies as the losses dictate, meaning avoiding a huge taxpayer payout up front.