Confirmation

If Fannie & Freddie were not in danger of failing, you would not be hearing from Congress that they are too important to fail.

What these jerks are actually saying is that Fannie and Freddy must not fail before the November election.  The liabilities associated with using tax payer money to continue this very, very dumb  idea are immense, and the unintended consequences might be more than the system can bear.  

Here you are, a foreign central bank (believe me, they are watching this with GREAT interest).  Are you going to be willing to continue to fund the U.S. Budget Deficit by buying U.S. Treasury debt if the U.S. tries to bail out Fannie & Freddy with taxpayer (read much bigger deficits)?  Really?  At the same level?  If not, then what?

The "what" in question is either the monetization of the debt by the Federal Reserve, or if the Fed refuses (remember, they actually COULD refuse to do so), then the country would go through an emergency shut down of services and employees.  

Now, let us work out a time frame for all of this...

None of this will happen overnight, within a week, or some other very short period of time where this would be "Breaking News" with everyone crowded around the T.V.  That just ain't how it works.

Just look at Lehman Brothers.  Lehman has over 26,000 full time employees.  More than half are in Metro New York City.  Lehman's employee's have lost most of the value of their shares, but they still have a job (for now) and their savings, etc...  Even if Lehman went bust TOMORROW, most of their employees will be able to make their next mortgage payment.  But over time, with the mortgage trading business nothing more than a dead body in the room and only thing to debate is what time it will start to stink, these formerly well paid folks will not be so well paid, and will find similar employment opportunities sorely lacking.  Their personal crisis will hit 6, 12, or 18 months out, and it is the aggregation of millions of these personal crisis's across the country that will make headlines in a year or 2 when we are in the grip of the worst economic period in U.S. history.  This has often been aptly described as a "Slow Motion Train Wreck".

Fannie Mae has only 5,700 full time employees, but the multiplier effect from their collapse would be incalculable.

Now, certain events can move this into overdrive.  A failed Treasury auction, an interruption in Oil supplies, really, a really stupid policy response...

I get many emails asking me "what to do?".  Sorry, too many individual circumstances to help there.  I have tried to try to focus on "what not to do".

Good Luck!

Mentatt (at) yahoo (dot) com