Fannie Mae and Freddie Mac

The systemic crisis that is rolling around the world economy has been brought home again to our shores with the news over the weekend that the United States is effectively nationalising the two massive ($5,000,000,000,000+) financial institutions that are at the heart of U.S. mortgage and broader credit markets.

A good explanation of what has happened and what it means in the U.S. is here.

The crisis is acute. Something close to 10% of American households - 16m or more - are behind in their mortgage payments today. And Freddie Mac and Fannie Mae are the backers of 70% of those mortgages. If they collapsed, it would be unsurprising if the entire world economy went into total meltdown. Which is why the US Government has intervened.

Anyone who thinks the world financial system is out of the woods yet is, I suspect, sadly mistaken. Which makes economic management here at home even more important than it already was. I'm incredibly relieved that the government has paid down a huge amount of debt in the past ten years, so that we now have the flexibility to deal with crisis conditions in a way that doesn't leave the worst off people carrying the burden on their own.

That approach to economic management has meant faster growth, fairer outcomes in distributional terms, and a solid foundation for dealing with the looming boom in government spending that will be caused by the aging of the baby boomers.

The question I pose to readers is, what consequences do they foresee for New Zealand from this ongoing international crisis? Interested in your thoughts. In particular, if you do have consequences and attached policy suggestions in response, what would be the distributive impact of your suggestions (i.e. who wins and who loses)?

Comments

[Gooner]

Scrap the ETS for a start and don't make poor people even poorer.

It's 10:45pm - I'm getting a little tired so there's a starter for 10.

[Charles Hill]

According to the New York Times, Democrats blocked Bush’s Fannie Mae and Freddie Mac reforms so low income people with bad credit could buy houses.
''These two entities -Fannie Mae and Freddie Mac - are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, and the less we will see in terms of affordable housing.'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee.
http://strategicthought-charles77.blogspot.com/2008/09/democrats-blocked-bushs-fannie-mae-and.html

[Charles]

Democrats created the Fannie Mae and Freddie Mac problems years ago. They stopped ALL eforts at reform until it was too late. Now they are trying to blame Bush, McCain and Republicans, everyone but themselves. That's the Gods truth and here is the proof:
http://strategicthought-charles77.blogspot.com/2008/09/democrats-created-fannie-mae-and.html