Wednesday, September 10, 2008

The Next Bailout? FDIC

As I expected, the government took over Fannie Mae and Freddie Mac. I hope they do the right thing, but I won't cross my fingers. The government had no choice - while publicly saying they were not a guarantor of either entity, they always said that with a wink and a nod - everyone knew that the government backed this entity, why else would they be able to borrow at near Treasury rates?

So who will the next bailout be? The Federal Deposit Insurance Corporation. I personally think Washington Mutual will go under, but it is possible that the feds could arranged a white knight to buy them (their best option, if unlikely). The only way this will happen is if the buyer is given some type of federal guarantee. If this doesn't happen then the FDIC reserves are effectively wiped out. I think the FDIC will be wiped out anyway over the next couple years and its because of mismanagement in many, many areas.

We need leadership right now and I don't feel we are getting it. We are not facing the problems head on, we are trying to punt them forward and hope things will get better. The same thing happened during the Savings and Loans crisis......sure enough things got worse.

Without major write downs, principal mortgage reductions and outright bank failures - new rules and looser credit, we won't move out of this housing/credit/mortgage crunch.

Scott Dauenhauer, CFP, MSFP, AIF