Monday, September 08, 2008

It's Over

No, not the End of the World, drama queens, but certainly the end of the American way of doing business. From the first colonists to now, the US economy has been based on the single-family home. Industry, energy, transportation, fiscal policy, everything was geared toward home ownership. That's what Fannie and Freddie were all about: keeping the cost of buying a home down. Now they're gone. They held half the home mortgages in the US, so there is simply no way this will not make it more difficult and more expensive to get a mortgage. Some pundits are claiming that the government takeover will ease the credit crunch and lower rates, but folks there's only so much debt Uncle Sam can absorb, and he's already up to his earlobes. Not all F&F paper will have to be covered, but a lot of it will be because they weren't exactly holding the best. And what happens when the FDIC come knocking (Silver States went down last week, and we're just getting started.)? Believe it or not, there is only so much to go around.

What happens now? Home ownership rates decline. Development capital shifts to rentals. At some point you'll see whole condo complexes convert to apartments.

Who wins? Who knows? The details are still fuzzy. F&F shareholders have one last chance to find suckers to sell to, so maybe they win. Bondholders have federal backing, for what that is ultimately worth. There are supposed sweeteners for home owners, but those are election year window dressing that will cause more trouble than they're worth.

I can tell you who loses, though: the US Taxpayer. I guarantee it.

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