Bad News? *Fannie Mae and Freddie Mac are about to go under...

[Barack_America]

And Warren Buffett is speaking out today about the Federal Govt. propping them up, allowing them to survive without correcting their flawed business models.

How could instability in the banking industry (and criticism of the government's role in it), affect the election, particularly assuming Biden is the VP? Does Biden's historically cozy relationship with the credit card industry leave us vulnerable, should a major US bank fail? Or are McCain and Romney more vulnerable?

Warren Buffett says 'game is over' for Freddie and Fannie

Fannie Mae and Freddie Mac, the two largest mortgage finance companies, "don't have any net worth," the billionaire investor Warren Buffett said.

"The game is over" as independent companies said Buffett, the 77-year-old chairman of Berkshire Hathaway, in an interview on CNBC on Friday. "They were able to borrow without any of the normal restraints. They had a blank check from the federal government."

Freddie Mac and Fannie Mae touched 20-year lows yesterday on the New York Stock Exchange on speculation a government bailout will leave the stocks worthless. U.S. Treasury Secretary Henry Paulson won approval from Congress last month to pump emergency capital into the companies, which account for more than half of the $12 trillion U.S. mortgage market.

Fannie and Freddie mispriced their products and "kept existing because they had the federal government behind them," Buffett said. Berkshire had been among the largest holders of Freddie until about 2001, when it became apparent the company wasn't being run well, he said.

More:
http://www.iht.com/articles/2008/08/22/business/22warren.php

There's also a documentary movie being released TODAY called "I.O.U.S.A." that's supposedly about bankruptcies, foreclosures, etc. in the U.S.

The buck stops here in sobering docu "I.O.U.S.A."

I'd love to hear your thoughts. I'm honestly not quite sure what to think about this, but there have been predictions of bank failure all week and it has been weighing on my mind.

[denem]

1. How many houses do they own ? ;)

[irish.lambchop]

2. I'd read something a few days back that quoted an

ex-IMF executive that said there will be another huge financial institution go under in America (forgot his name, sorry) and he mentioned Fannie Mae and Freddie Mac. If American tax dollars are used to prop them back up then I think Americans should own them and have a say in how they are re-structured and who steers them.

[Barack_America]

5. That's the report I was talking about. It's a bit scary....

And I can't help but wonder what it would mean for the election if those banks were to suddenly go under (i.e. if the Bush administration were to make a few phone calls). Could the banking industry suddenly dominate the election? And, if so, could Biden then become a liability to the ticket?

[irish.lambchop]

8. I don't think any such phone call would be made

because I think Americans are beginning to connect the downward spiral (economic/employment/housing) to republicans. Didn't mcCain, at one point, try to claim Democrats were responsible for the high petrol prices? I don't think that worked - or at least I've not heard any more about it. I think, for what it's worth, that the economy will dominate the election and will be directly linked to the bush administration and Obama will point out that Iraq's economy is in the black and the amount of American tax dollars being poured in there (not to mention American blood) while America is losing homes and jobs.

[beachmom]

3. Oh, man, this is a disaster if true. You know how many mortgages

are sold to those companies? I used to work at a bank where we basically sold ALL of our mortgages to Freddie Mac.

[Barack_America]

6. There has been an abundance of speculation this week. MULTIPLE reports...

Now Buffett says it...

Then this documentary focusing on BANKRUPTCY...

I'll admit it, I'm officially concerned. But I'm *honestly* concerned, I assure you that.

[olkaz]

4. This is what happens when you privatize the government.

Either rampant abuse (Blackwater) or it becomes completely broken (Fannie Mae and Freddie Mac).

Kick the private part out and let's make investing boring again.

[Barack_America]

7. Agreed. But if these banks tank before the election and we have Biden on our ticket...

What does that mean?

:shrug:

[olkaz]

10. I don't think it means anything.

I know what you're trying to say, but I don't think it'll be a big deal.

[Barack_America]

11. Thanks for the reassurance.

That's what I was looking for.

:hi:

[MadrasT]

9. K & R

I've been sick at heart about this looming crisis for quite some time. It ain't gonna be pretty...

:kick:

[Blackhatjack]

12. The problem with the Govt 'taking over' Freddie and Fannie is ....

It will immediately spook enough customers of other banks to cause a run on them, and they have less than 7% reserves on hand. They will have to close their doors and look to the Govt to help them out once the remaining FDIC balance zeroes out. (The FDIC insurance balance was approx $51 mil BEFORE IndyMac Bank failed and sucked up $7-9 mil of those funds.)

I would expect that to cause as many as 50-100 banks to have to close their doors to depositors which would bring its own set of horrors with it.

At the very least you would see some heavy-weight Hedge Funds fail, and that is the red flag to foreign investors.

This could get ugly quickly....