14th Sep 2008
The Fannie Mae and Freddie Mac mishap
While I’m no big banking junkie, I try to follow the golden rule of money management which is “never spend more than what you earn.” This is the major reason why I keep a close watch on my credit card billing, monthly expenditures, and of course, my bi-monthly paycheck. While I don’t consider myself well off, I’d like to think I’m doing a great job of what us middle class people call as “keeping things afloat” and “making both ends meet”. This very line of thinking is probably the major reason why I’m baffled on how super rich guys can manage to lose money that could equate to 10 million times more than I’d probably earn in my whole lifetime.
This is precisely what happened with now “has-beens” Fannie Mae and Freddie Mac, companies that used to be major players on the mortgage industry. It’s not even a stretch to say that they once held the power to dictate mortgage rates because of their huge grip on the market. However, their downfall has now forced its owners to call it quits and let the US government take over its helm. The latter part is actually a good news for many. For a while most of their old clients were left hanging in limbo waiting for the some $5.4 trillion worth of American mortgages the said firms owe them. Now with the US Govt taking over they can at least rest assured they get their money back…eventually.
Well, like I said it’s baffling how guys can even consider something of this magnitude happen. I mean, the minute I think my paychecks won’t be able to meet my month’s expenses, I’ll find ways to cut costs. Didn’t this occur to the bigwigs in Fannie Mae and Freddie Mac? Yes I understand all businesses require risks but the company’s downfall - and the short time it took for it to occur - is quite a head-scratcher. I know it shouldn’t be too big of a deal as businesses go bankrupt all the time, and that there are bound to be some areas of the market which would benefit from this (US Property Market for one is now expected to stabilize after months of being on shaky ground AND home loans can finally start getting cheaper thanks to the stabily the take over provides). I guess I’m just being a bit jealous cause I know the government won’t be here to cover my bills the next time I came short.
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