It was announced yesterday that the U.S. government is going to take over Freddie Mac and Fannie Mae in an effort to shrink the influence the mortgage giants will have on Wall Street and Capitol Hill. The plan places the companies in a conservatorship and replaces the management. Treasury Secretary Henry Paulson said the bailout was necessary because a failure of either company could result in even more turmoil in financial markets around the world. Paulson would not say how much capital the government would eventually provide. This is just the latest in a series of financial crises this year that included the Bear Stearns debacle in March.
Tell us, what are your thoughts on the bailout?
Short-term, this move provides reassurance to investors that the financial underpinnings of our economy will hold. It may even be a factor in creating a market bottom this month, and for investors, that’s terrific. But in the long run, the rescue simply puts one more important sector of the U.S. economy in the hands of the federal government, and I don’t like that. The costs will be enormous, and as stated in our posts on I.O.U.S.A., we should be shrinking our national debt here, not growing it.