Wow, what a week its been. Fannie Mae and Freddie Mac are being taken over by the Federal government, investment banks are falling in two's and three's, and there's a newfound fear of keeping money in bank accounts. Consumers are afraid and uncertain - Afraid the value of their homes may be declining, afraid that a bank may not re-finance their existing loan, uncertain of what is safe in these turbulent times. Yet, then again, I'm still able to drive to work. My neighbors and co-workers still laugh and say hello in the morning and work through the day in normal ways. Groceries are still in the stores, and the only other news related item that's captured my attention besides the financial crisis and Hurricane Ike in the past week are the jabs traded between McCain and Obama for the upcoming presidential election. In fact, traffic is as bad as it ever was driving to work - I propose that whatever is happening with the mortgage lenders and investment banks has not really impacted my life. At the very least, there is no apparent impact on my day-to-day activities yet.
Yet I am also aware that very important changes are taking place. Nationalizing trillions of dollars of private debt means that many homes, for better or worse, are now indirectly controlled by the Federal government. The unfortunate person who finds themselves caught in the foreclosure process now is not only depriving a private bank of its cash flow, they are contributing to the national debt and potentially taking money away from other useful programs. Quite a stigma on top of what is already a very stressful situation. Not only that, but the Federal government is assuming responsibility for losses that were created from private transactions, which is a very big favor to the lenders.
Overall, I agree with the takeover of the mortgage giants Fannie Mae and Freddie Mac. I think this will stabilize the economy, and is likely a big part of why my day-to-day life is unchanged despite the frightening headlines in the media. Yet, my longer term fear is how quickly the risks associated with writing mortgages will be handed back to private business. The government should help assure a good framework is in place for private business - When they become the operators of the business too, then there are conflicts of interest for the lenders, the debtors, and the government itself.