Tuesday, September 30, 2008

The Problem with the Bailout

If, as I explained earlier, we have 12.5 million homes with negative equity, and many of them are owned or guaranteed by Fannie Mae and Freddie Mac, the Federal Government are now the landlords of up to 25 million people, assuming they are married couples. This spells disaster for the political system that allows incumbents to spend taxpayers money to buy votes. We should never put politicians in a position to make it easy for them to aid individual citizens monetarily.

Democrats are going to propose forgiving debts and it becomes easier for them to do it if they own the properties. How is the Federal Government going to be in a position of foreclosing on a voter? I don't see how this is going to work.

Now, it is understood that this bailout is meant to increase liquidity in banks. The bailout is intended to purchase mortgage backed securities from these banks in order to get them out of circulation. But I thought by purchasing Fannie Mae and Freddie Mac, we will be guaranteeing these mortgages, so the mortgage backed securities should be in decent position.  Why do we have to buy them at all?

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