Tuesday, September 9, 2008

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Economic Outlook 2008: US Government's Takeover of Fannie-Freddie does not end subprime problem

On 7 Sept 2008, the US Federal Government announced its takeover of collapsing mortgage firms Fannie Mae and Freddie Mac, the two largest US home-loan lenders. The stock markets all over the world rallied on 8 Sept 2008, interpreting the "takeover" as an indication that the United States government will do whatever it takes to prevent the global credit crisis from deepening. While stock indices jumped 3%-5% all over the world, analysts cautioned that this was just a bear-rally that would at best extend for a few days. The fundamentals haven't changed: US Subprime problem will persist as long as mortgage payment remains a problem and continues to be worsened by increasing US unemployment rate which has surged to 6.1%. The "takeover" will not lead to an immediate improvement in employment and pumping money into these mortgage institutions will not encourage Americans to come out and buy homes.

The following are some views of forumers extracted from the Singapore Property Forum:

ann wrote:
Subprime borrower transfers his debt to the bank.

Bank runs into trouble and passes debt to Fannie/Freddie.

Fannie/Freddie runs into trouble and now transfers liability to the US Treasury.

But who backs up the US Treasury? Nothing comes from nothing. Someone eventually pays the price. US taxpayers, and all the foreign governments holding US Treasury bonds.

But investors don't want to take on bad debts and lose money.
Just as investors first fleed the subprime borrower, then the banks, then Freddie/Fannie, now, it will be the US dollar itself that is subprime and governments will flee the devaluing dollar .

US is passing on its bad debt to the world. We will be affected.

Anonymous 1 wrote:
The US is getting into a deeper and deeper shit this time round.

Anonymous 2 wrote:
The US is going to suffer Big Time, just like those who bought and cannot offload their condo.....Big Time..

Anonymous 3 wrote:
Let's just wait and see the outcome.............it will be interesting I agree with your view.

Anonymous 4 wrote:
I agree with the view expressed.

Yesterday stock market rally is not going to last .. it's stupid to be a part of it.

May also want to read:
History of Singapore Property 1960 to 2008
Buy or Not Buy: How to decide amid mixed market signals
When to Buy, When Not to by
Property Price Index Graph Plotter & Online Property Valuation
Your Property Investment Determines Your Financial Success in Your Life
HDB Resales: West Sees Highest Price Increase


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