In case you missed it, the US Government has recently decided to nationalize our two largest mortgage lenders Fannie Mae and Freddie Mac. American taxpayers are now the proud “owners” of these two houses of cards.
I pointed out a few months ago that this absurd situation has been years in the making. Investor Jim Rogers, CEO of Rogers Holdings, told CNBC Europe on Monday. “America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich… it’s just bailing out financial institutions.”
As the Wall Street Journal points out, while the situation is deplorable:
By far the biggest risk here, however, is that the companies could still emerge with their business model intact. That model is the perverse mix of private profit and public risk, which gave them an incentive to make irresponsible mortgage bets with a taxpayer guarantee.
Hopefully the Bush Administration gets its act together and separates Fannie and Freddie from the government teat once and for all. Otherwise, we’re setting ourselves up for another bailout down the road.