Freddie, Fannie and Financials…
With the government bailout of the two enormous organizations known as Fannie Mae and Freddie Mac, the stock market got a huge boost yesterday. Let’s look at potential implications and impacts on the overall market.
With regards to direct implications of the bailout, the number one impact is the expansion of government and the expansion of debt on the government’s books. While the bailout was probably necessary, I hope (but have little faith) that the government will do everything possible to prevent the inter-dependence of financial institutions in the future. The fact that a poorly run organization cannot be allowed to fail because it will have a domino effect on our entire financial system is unacceptable. Unravel the inter-dependence so a single, poorly run company can fail. If this restricts growth to an extent, so be it.
It seems the only losers in the bailout are the stockholders of Fannie and Freddie. The stocks lost most of their value. I have read some arguments that the value of the dollar will be impacted negatively due to the increase in government debt.
With the boost in stocks (other than Fannie and Freddie), the other financials definitely rallied. Since buying the Ultra Short Financial ETF (SKF), I’m down considerably on this position. It’s a small position, but of course, don’t like to see any positions lose ground. I’m holding the position since I think the upcoming round of financial earnings reports will be pretty ugly.
Going In A Totally Different Direction
I’m considering selling my wife’s car. Does any reader out there have any advice on what car I should buy to replace the car we’re selling? I’m looking for the best financial move here. I’m looking to spend probably in the 15-20k range and will probably buy something slightly used. I would appreciate any thoughts on a direction in this purchase decision. Leave a comment! Thanks!