Feds seize Fannie Mae & Freddie Mac

WooooHoooo!!! The Federal Government put Fannie Mae and Freddie Mac in Conservatorship to prevent further economic losses from the deteriorating home mortgage market. These 2 quasi-government agencies hold nearly 50% of the USA's home mortgage debt. Who created this gross violation of the investor's risk management rule of not putting too many eggs in one basket?? The Federal Government of course. This reminds me of the farmer jokes about the fox guarding the chicken coop from the weasels. Fortunately, The Feds are bringing in retired banking executives to guide the "Enterprises" through the conversatorship. David Moffett, former vice chairman and CFO of US Bancorp, will head Freddie Mac. Herb Allison, former vice chairman of Merrill Lynch, will head Fannie Mae. This gives me hope that this conversatorship will eventually work to the benefit of the American taxpayers, not the shareholders who are supposed to deal with both the risks and rewards.
What exactly is a conversatorship?? When a company is in dire straits and facing failure, it can be put in a conversatorship. The goal of conversatorship is to turn a company around, stabilize it and let it go back to business as usual. Oftten when a company is bailed out by the government, the phrase too big to fail becomes all too commonplace. Liquidation of the company is not a goal, in fact, it is considered an option of last resort.
Another ray of hope for the success of the conversatorship are the presidential candidates responses to the takeover. Republican John McCain supports the conversatorship but wants the "enterprises" to be privatized once they are out of the conversatorship and taken off the backs of the American taxpayers. Barack Obama wants "clarification of the private and public nature of our housing policies." He also does not want shareholders to be protected from the risk inherent in mortgage investing by the American taxpayers. For once they both agree on the right way to handle one of our nation's problems. Wow! Sept. 7, 2008 should be a red letter day in history.

Speaking of history, let's add a historical perspective to this event. So far in 2008 11 banks have failed and required bailout by the Feds. In 1988, over 200 banks failed. During the 1980s over 800 banks and 500 savings and loan associations failed. That is 1300 financial institutions in a 10 year period. Do the math and you will discover that is 130 failures a year or over 10 failures a month for 120 months. Yikes!! History does repeat itself from time to time and those who do not learn from past mistakes are bound to commit them again and again.