Fannie and Freddie Bring Credit Crisis to Defcon One

Fannie and Freddie Bring Credit Crisis to Defcon One
By Mike Swanson Wall Street Window

SmartStops comment: This article will definitely get your attention.

Just for the record:

Re Freddie Mac - FRE traded as low as $3.89 on Friday, July 11. Our SmartStops exit was at $22.64 on June 9.

Re Fannie Mae - FNM traded as low as $6.68 on July 11. Our SmartStops exit was at $24.39 on June 9.

When you read this article you will understand why you need SmartStops.net protection right now.

Excerpts: We are at a critical point in the economic history of the United States. I know of no other way to put it. The events of last week were of a character that we've never seen before. On Friday mortgage lender IndyMac Bancorp became the second largest federally insured financial company to fail after it got hit by a bank run. The Federal Deposit Insurance Corporation took it over. That news may be a big story, but is totally overshadowed right now by the teetering collapse of Fannie Mae and Freddie Mac. Both are in danger of going under and the Bush administration, Federal Reserve, and Treasury Department are now meeting on a daily basis to figure out what to do.

There is no news that would be worse than the collapse of these two institutions and such an event if it happens will have ramifications for the economy and stock market for years to come. Fannie and Freddie buy mortgages and then package them into bonds, which they guarantee. They then sell the bonds to investors, including mutual funds, hedge funds, pensions, annuities - just about any institutional investor you can think of. Odds are that if you own a mutual fund or annuity that you indirectly own a security backed by one of these two institutions. The two of them combined own half of America's twelve trillion in outstanding mortgages and their failure would be the implosion of the entire financial system.

Others have warned about what a collapse of Freddie and Fannie would mean. Warren Buffett has made statements in the past that he feared the failure of Fannie and Freddie could set off a "derivatives time bomb" that would implode the whole financial system. By insuring over half of the mortgages in the country they are too big to fail. This is serious situation folks. We've never seen anything like it before.

Link to article: