TOO BIG TO FAIL

The two biggest financial institutes in America, Fannie Mae and Freddie Mac, was last week dragged out of the raging waters and rescued from the sinking stocks by the ever solvent American government. This rescue has left 2/3 of the lending market in the arms of the big wigs, making the government the largest contributor to the American dream. It seems like the free market powers of the financial markets has been socialized. Is this good, bad or hypocrisy?

Back in the 1990's the American government's response to Japan's major economical collapse, was that the market should figure it self out without the government bailing them out. "No bank was too big to fail." echoed from Washington. The American economy as we see it today has no possibility to survive if this mortgage engine fail, and the repercussions may halt the entire global market in a far severe way than we see nowadays. So all though it reeks of hypocrisy, it's probably best for everyone that the man intervened. And what is so wrong about having the government backing up the financial market?

If a company has the government in it's corner, it has more room for error. They can outbid market competitors because of their liquid advantage of having a money printing machine massaging their shoulders. This is a bad thing, if the government backed company drives the competitors off the field, and creates an unfair monopoly. If the bank fails, and the government must intervene, then the bill will be picked up by the taxpayers with an increase in taxes. What about the positive outlook of this decision?

Giving the government a large piece of the mortgage pie can give them a great possibility to to pursue the social goal of broader home ownership, particularly among racial minorities and back up student loans so that we can educate the nation.

The credit crunch we see today is a direct result of a deregulated financial market. A little regulation can't be bad. And if Ronald Reagan is turning in his grave, the republicans just have to live with it.

The backing of Freddie and Fannie has prevented the economy from falling into an even deeper stage of recession. All though there are pros and cons, and it kind of looks like an abnormality in the usual American way, it's a necessity, and even if we have to pay extra taxes it will be for a greater good. Freddie and Fannie are too big to fail.