Brother, Can You Spare $400 Billion?

Happy New Year!

It is always a good time of the year if you are Fannie or Freddie Mac. According to Peter Wallison from the American Enterprise Institute and a former general counsel at the Treasury, said Tuesday in a Bloomberg interview that “The situation is they are losing gobs of money, up to $400 billion in mortgages,”.

Click to Watch the Interview

My question is why don’t we let them fail? If you took the collective of all the independent businesses over the past couple years that had to file bankruptcy it really adds up. In 2008 more than 1 million “people filed  for bankruptcy” – however most of these are just classified as individuals.

“We expected this, that bankruptcy filings are heading right back to where they were before the 2005 bankruptcy law,” said Professor Robert Lawless, a bankruptcy law expert at the University of Illinois. (See here from the Inc. website report for full details). Although the majority of bankruptcies are labeled “individual,” Lawless said many are in fact small business failures. He estimates the number is about one in seven. Other experts agree small business filings are underreported.

Yet, collectively these “individual” bankruptcies combined with the bigger names such as Eddie Bauer, Six Flags Amusement Parks and other large corporations don’t fall into the “too big to save” or – as I like to think of it – too Governmental – to let fail.

If you or I had to file bankruptcy that would be fine – the government wouldn’t give a second thought. However, when it is one of their “own” then it becomes personal and we can’t let that happen. So, because this bureaucratic nepotism  seems to have been a recurring theme, you and I get to bail out these failing lenders with no ceiling in sight.

According to Bloomberg, “The Treasury said on Dec. 24 it would provide an unlimited amount of assistance to the companies as needed for the next three years to alleviate market concern that the government lifeline for Fannie Mae and Freddie Mac, the largest source of money for U.S. home loans, could lapse or be exhausted.” (see full article at http://www.bloomberg.com/apps/news?pid=20601087&sid=a2Z5GnTAPcuo)

This is great news! You and I now apparently have even deeper pockets than you knew about with money you never knew you had to help bail out a corrupt and failed lending system that you have no input or control over.

Welcome to 2010! The year of the bottomless pockets!