The Global Financial CrisisThe Global Financial Crisis November 20November 20thth,2008,2008

Mike Astrachan

Mike@mikeastrachan.com

FANNIE MAE & FREDDIE MACFNMA & FHLMC))

Two institutions established by congress.

They are huge. They take the risk on almost half the mortgages in the U.S. by buying them or providing guarantees. They recently got in troubles and were bailed out by $200 b. from congress.

Fannie & Freddie

• An Implied guarantee is unlimited.

An Unlimited Guarantee Results in unlimited growth.

• When Government Distributes Benefits to the Public without Recording a Cost on it’s Budget, the Public will eventually pay for these Benefits Dearly.

100.0

110.0

120.0

130.0

140.0

150.0

160.0

170.0

180.0

190.0

200.0

210.0

2000-01-01

2000-07-01

2001-01-01

2001-07-01

2002-01-01

2002-07-01

2003-01-01

2003-07-01

2004-01-01

2004-07-01

2005-01-01

2005-07-01

2006-01-01

2006-07-01

2007-01-01

2007-07-01

2008-01-01

2008-07-01

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

6.50

7.00House Prices composite- 20

Federal funds target rate

The Economic System and Free Markets Are Only As Efficient and Stable as the Legal and Institutional Framework Allows them to be.

Real house prices

15%

The Economy Is Now Falling Apart

THE SOLUTION, RAISE P

Real House Prices House prices Price level (CPI)

H P