There are stories so big, and so comprehensively covered everywhere else, that we're inclined to say very little about them. The demise of Fannie and Freddie as we knew them is just such a story.
We don't have much to add that isn't new to the broader blogosphere or, for that matter, to this space. But because it's sort of obligatory, a few thoughts on the lessons and implications of all this:
- Lesson: Implicit government guarantees are guarantees all the same.
- Lesson: With credit to Herbert Stein, price appreciation trends that can't go on forever won't.
- Lesson: Speculating with leverage? Reminds us of Ben Hogan's description of the golfer who battles a hook: It's like playing with a rattlesnake in your pocket.
- Lesson: C-suite types can turn things inside out and still walk away with enormous paydays. We think their contracts should include claw-back clauses in cases of egregious mismanagement. Somehow this outrage seems especially gross at the semi-public (and now pretty much fully so)Fannie and Freddie, but we're also talking to you, Kerry Killinger.
- Lesson: Policymakers are very obviously concerned about asset prices per se. That may be understandable in political-institutional terms, but it also strikes us as a bit of a slippery slope.
- Lesson: We've never lived in a pure-market economy, we don't now, and we wouldn't want to. (But we get fed up with those who scream for unfettered markets while they're making a killing, and race to the public trough when they aren't.)
- Implication: Mortgage rates will be (and already are) lower for most borrowers. Given the economic backdrop, that's a decidedly good thing.
- Implication: Whatever happens with rates in the short run, Fannie and Freddie will almost certainly shrink their balance sheets in the coming months.
- Implication: The credit crisis is not by any means over. The dismembering of FNM/FRE shareholders, to say nothing of today's hideous action in the equity markets, is all the evidence you should need that it's still fully underway.