Late last night before bed and early this morning I saw all the crud about bailing out Fannie May and Freddie Mack. For those of you that don't know who they are, shame on you! They are the big mortgage lenders that banks count on for capital in case they need it. The Fed's decided that a big overhaul was required so they basically took them over and are going to be running the joint. So what does that mean to people like you and me? Well in reality, it just means its another pit that will suck in my tax money and provide no real benefit to me but it will provide benefits to people that made the poor decision of buying houses that were way beyond their means. Another problem I have with the whole bail out thing is that the CEO's of these two companies get to keep a crap load of pay due to the nature of their contracts. Whatever happened to firing someone and them getting nothing because they did such a poor job? Executive pay seems to be getting out of hand with contracts rewarding performance but in the event of trouble, executives get to walk away with full benefits and huge pay out packages as well. If thats not a kick in the nuts to share holders and rank and file employee's I don't know what is.
So was this good for the economy? Short term it probably will be just for the simple fact it has the perception that things are going to be corrected and what not. Long term, probably nothing to scream about. I always remember that this is the Fed's we're talking about here. Decisions need to go through a lot of red tape, lots of ego's need to be massaged, and sometimes it takes an act of Congress to move forward so the agility required to help fix things might need a better solution. I'm all for consolidating them and then taking it apart piece by piece so my tax money can be used for a better purpose than bailing out banks and ex-home owners who made bad decisions. Yes income goes up, housing value goes up, but so does inflation so that pretty quarter that you carry in your pocket might be worth a decent amount today but as time marches on that quarter won't buy as much. Comparison's with the past are dangerous unless the playing field is leveled by calculating what past prices are today and I don't see that kind of stuff in the news. This gives people this false sense that they're making so much more than their predecessors and thus can afford more. Thats the type of thing that has us in this pickle right now because research wasn't done right and we let banks do what they wanted to the detriment of the average tax payer. I say let them fall, if anything it will teach other institutions lessons in higher finance and to be wary. Anyone remember Bear Sterns? I doubt anyone will in 5 years but that is one lesson they should teach to people in college, if you mess up ad enough you'll be nothing more than a footnote.
So was this good for the economy? Short term it probably will be just for the simple fact it has the perception that things are going to be corrected and what not. Long term, probably nothing to scream about. I always remember that this is the Fed's we're talking about here. Decisions need to go through a lot of red tape, lots of ego's need to be massaged, and sometimes it takes an act of Congress to move forward so the agility required to help fix things might need a better solution. I'm all for consolidating them and then taking it apart piece by piece so my tax money can be used for a better purpose than bailing out banks and ex-home owners who made bad decisions. Yes income goes up, housing value goes up, but so does inflation so that pretty quarter that you carry in your pocket might be worth a decent amount today but as time marches on that quarter won't buy as much. Comparison's with the past are dangerous unless the playing field is leveled by calculating what past prices are today and I don't see that kind of stuff in the news. This gives people this false sense that they're making so much more than their predecessors and thus can afford more. Thats the type of thing that has us in this pickle right now because research wasn't done right and we let banks do what they wanted to the detriment of the average tax payer. I say let them fall, if anything it will teach other institutions lessons in higher finance and to be wary. Anyone remember Bear Sterns? I doubt anyone will in 5 years but that is one lesson they should teach to people in college, if you mess up ad enough you'll be nothing more than a footnote.
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