A while back KMM asked its bloggers to comment on Freddie Mac's travails. As I wrote in Greenspan, Bernanke, The Fed and Interest Rates: Tom Connor Responds, I know nothing about economics. That's why we have Tom Connor as our Senior Economist. Tom knows about these things. Tom and I have this agreement. He doesn't dabble in people's psyches, I don't dabble in the markets.
Anyway, the note from KMM follows and Tom's thoughts follow after that.
Topic: "Freddie Mac, a government-sponsored enterprise designed to help provide financing to the mortgage market, announced Tuesday that it is looking to raise cash itself after a larger-than- expected loss cut its capital close to the bone." Now Freddie Mac has been placed on negative watch an must work to raise capital to meet regulatory demands.
Issues:
- What affect do the difficulties of Freddie Mac have on the financial markets?
- On the housing markets?
- How do difficulties of one major contributor to the economy affect the US economy on a whole?
- How do the recent mortgage and credit market meltdowns affect businesses?
- Consumer behavior and buying power?
- How can other businesses and major revenue generators offset the affect of Freddie Mac's financial difficulties on Wall Street?
- Discuss how these issues affect the standing of the US Dollar against other international currency.
My my, Freddie Mac. Wow, that's right in the middle of a potential disaster the likes of which are difficult to comprehend. Citi bank is also in trouble. I saw that yesterday Abu Dabbi bought some Citi bank for something like $7.5 billion. They need capital too. (Also, someone has recommended Congress provide an additional $100 billion to both of the Freddies.) These big banks are announcing multi billion dollar losses only to wait a few days then double the losses. The Fed corrected their estimate within a month to something like 10 times their original guess.
Actually I've been trying to develop my own framework for how we got into this and have begun putting some of it down on paper. I hope to have a good draft in a few more days. I'll send it along and we can talk about the Freddie Mac issues. Frankly, it's all part of the same melting iceberg. The financial system is trying to push it back into cold water but the momentum may be too much. I guess we should hope they're successful.
Time to move onto the farm and learn to drive a tractor. (Actually, I already can drive a tractor. You have the farm don't you?)
Yes, Tom. I do.
You can find more of Tom's thoughts at The Hungry Peasant's Tom Connor's Thinking Forward.
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