Fannie, Freddie, and Testing the 30 Years Assumption

posted by Curt, on September 9, 2008 12:44 am

The long anticipated bailout is now a reality. Most commentators now agree that the American taxpayer (really meaning the younger American taxpayer and his children) have now been saddled with some unknown billions in bad mortgage debt. A great number, especially here in Utah, are predicting the end of the United States as we know it. According to them, we're following Europe into the dark abyss of socialism (never mind that we've really been there for years already).

I just can't get too worked up about this one. Maybe it's because I'm worn out. Maybe it's because I'm happily settled in a nice, rented home in a good neighborhood and so I don't really feel a need to confront the housing market right now. Or maybe it's because, as repugnant as it seems, there's a lot of truth in the idea that the bailout was necessary in order to "save the economy." Trust me, I know that I'm affected. But, what can we do about it really? There is no candidate out there who will exercise anything remotely close to fiscal discipline. And most of us would try to string them up if they tried. It's not good for me to get worked up about it over and over again. I just can't feel continual passion and outrage over each continuous development once I have a good idea of the route we're going down. I'll write-in Ron Paul as my protest vote in this election and continue to advocate for fiscal restraint at the household level. That's about all I can do. But, even though I'm not worked up about the Mother of All Bailouts So Far, I remain an intensely interested bystander.

It seems to me that we have the US government putting all its resources into preventing a paradigm shift. What we have is a long line of credit excesses and the government is putting its full resources behind a broken system to try and keep it going as long as it can. I'm curious: how much longer can they prop it up? What we're seeing in the response to this economic crisis is the testing of the economic assumption of the last 30 years--we can always spend more because we're the USA; you're investments in us our safe, because the government will always make good. Now the government's trying to come through on its promise in a world that is remarkably different than the one in which the paradigm was developed. Can it do it? My own opinion is that it probably cannot. The real question for me is how long can it keep plugging holes in the dike? Everyone in Washington seems committed to doing it. So, we're in for the long haul, and the Fannie and Freddie bailout is just another step along what promises to be a most interesting road.

I suppose that all this sounds incredibly pessimistic. And I guess it is, generally. But I'm not a complete pessimist (although perhaps a bit over-realistic). I don't believe this economic crisis spells doom for America, so long as a significant number of people realize that the end-all be-all of life isn't new things. And I have confidence that they will, although it will be a painful proposition. As painful as it is all going to be, it should be a fascinating journey with many important lessons learned.

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