Fannie the Fire HoseOctober 22, 2012 Posted by: Joe Morgan, CFA
I heard it was you
Talkin' about a world
Where all is free
It just couldn't be
And only a fool would say that
Fed Chairman Bernanke made a good analogy when he compared thehousing bailout to a smoking neighbor who carelessly sets his homeon fire which threatens yours. Would you call the fire department?Of course you would. Rick Santelli should know better.
If you missed this little exchange of words, it probably means youhave a life which doesn't allow for being glued to CNBC orfour-hour congressional hearings. Good for you! However, for thoseof us self-confessed geeks who live in the virtual world offinance, it was all the rage last week.
Returning to the discourse, you will certainly call the firedepartment, but you don't have to be happy about it. Rick obviouslyisn't. And neither
But let's define "calling the fire department." Because themortgage market has shut down causing a freefall in housing values,consumers have lost confidence in the level and growth rate oftheir wealth. So, they no longer go out to eat as much, purchasethat extra pair of jeans or go on that long vacation. Instead theyare fearful for their future, including their employment. This putscorporate profits at risk which encourages investors to pull back.
There is an obvious solution: Call the fire department. That is,get the mortgage market working again. Sound difficult?Well, what if the government controlled two entities that accountfor 44 percent of the mortgage market? It seems to me that if thegovernment truly controls Fannie and Freddie (as they surely do),then the obvious solution begins with pointing these entities inthe right (or perhaps any?) direction. Yet we haven't heard muchtalk of this concept since they were placed in receivership sixmonths ago.
Instead, it seems Bernanke believes a call to the fire departmentincludes the recent political and social shenanigans going on inthat three-ring circus called Washington, D.C. Bernanke, too,should know better.
Congress must "call the fire department" by determining what to dowith Fannie and Freddie. Eliminating...Read More