Too Big to Fail?

Bear Stearns reminded us that in a business based on confidence, when that confidence evaporates, so does the business.  But Fannie Mae and Freddie Mac?  For millions of Americans engaging in the largest transactions of their lives – home mortgages and student loans – Fannie and Freddie were the only ones to guarantee those loans.  A noble goal, broader homeownership, but at what price?

It appears that the government (read: the American taxpayer) is going to bail out yet another financial services behemoth.  And, by bailing them out, do we mitigate the learning from these failures?  And, what happens when GM can’t get anyone to lend them money?


1 Response to “Too Big to Fail?”

  1. 1 Matt H. July 14, 2008 at 9:18 pm

    A few of points…First, the Bear Sterns collapse did not fail because of a lack of confidence… they were a 2nd tier player trying to make it to the 1st tier… they got greedy and that greed got in the way of making the “right” decision and they paid the price. That price for some Bear Stearns employees included the infamous “perp walk” – like their predecessors at Enron, Worldcom, and Long Term Capital Management. For so many years I had paid homage to Oracle of Wall Street – Gordon Gecko but greed is not always good… when greed leads us to steal from others and break the law we have tarnished one of the few testaments to who we truly are: our character. Second, as semi-private financial institutions traded on the stock exchange, Fannie May and Freddie Mac fell into the same pitfall… GREED, bonuses, options, and executive compensation packages… everyone was too focused on their personal fortunes to care about the bubble that they were creating. I mean come on, a $300k home loan for a hotel maid… where is the personal integrity… where was the character that defines right from wrong? Finally, why is it that blue collar companies rarely get bailed out by the government (a victim of the free markets) but white collar institutions like banks are frequently bailed out leaving taxpayers holding the bag? Things that make you go hmmmmm….

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