Big and Fuzzy Fannie and Freddie

So I woke up on this beautiful day and decided to post on the GSE bailout, even though it’s already inspired so much commentary that one could read for the collective lifetimes of the Presidential/VP candidates’ children (that's 12 kids for the McCain-Palin ticket alone) and still not get through it all.

The federal government’s "implied guarantee” of Fannie and Freddie has turned out to be one stupendously expensive oxymoron.

At a 2004 Senate Banking Committee hearing, a law professor guy (and former assistant something-or-other in the Clinton Treasury Department) said it quite nicely:

The GSEs play an extraordinarily successful double game. They emphatically deny that they have any formal, legally enforceable government backing... At the same time, they work to reinforce the market perception of implicit government backing. In effect, the GSEs tell Congress and the news media, ‘Don’t worry, the government is not on the hook’ -- and then turn around and tell Wall Street, ‘Don’t worry, the government really is on the hook.

As of the past weekend, the game is up. The winner? China. Might as well get used to that, I suppose.