Uhhh, Where Does This Money Come From?
Filed under: Fannie Mae, Freddie Mac, U.S. Economy, U.S. Financial Crisis
I just finished reading this story. It outlines actions taken today by the U.S. Federal Reserve and was headlined, “Fed throws fresh lifeline to stressed households.”
In a nutshell, here’s what the Fed did today:
- Announced it will buy $100 billion in debt now owned by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
- Said it will buy up to $500 billion in mortgage securites from Fannie, Freddie and Ginnie Mae.
- Began a $200 billion program to support consumer finance including things like auto and education loans.
This sounds like another $700 billion bailout, only it’s $800 billion. I also didn’t read that anyone voted on this or that there is any oversight. I obviously need to have a better understanding of just how much the Fed can do, but this is sort of scary. Isn’t the Fed the public’s bank – the bank for banks? Aren’t respectable banks supposed to have standards?
We’ve got many problems in this country and one of them is that we’ve become a debtor society. We’re addicted to credit. Many people spend beyond their means and now the Fed is going to own a big chunk of this debt. What are the potential unintended consequences of this much money on the line?
Better yet, when do the financial wizards who dreamed up collateralized debt obligations and mortgage backed securities – which led to the credit default swaps – start to pay?
