We are Headed for Troubled Times
Professor Bainbridge discusses the The Imminent Fannie Mae and Freddie Mac Debacle:
Want a worst case scenario? The government takes over Fannie and Freddie. The immense increase in the national debt causes the bond rating agencies to cut their rating of Treasury securities from their traditional AAA. Along with other economic problems (whether its mostly whining or not), this spooks investors, especially foreign investors. Foreigners abandon the dollar for the euro, dumping treasuries. The collapse of foreign investment in Treasuries makes our massive current account deficit unsustainable. At which point, things really go to pot. All because our leaders in Washington failed on a bipartisan basis to address the problems at Fannie and Freddie. Why didn;t they do something? Because Fannie and Freddie bribed them and because they’re petrified of being painted as anti-consumer. . . .A Glenn Reynolds reader notes that Democrats may be hurt:
If Fannie Mae and Freddie Mac implode they will take a lot of well-connected Democratic party bigwigs down with them, and even do some damage to the candidate who just had to let Fannie Mae trough-feeder-in-chief Jim Johnson go from his inner circle, Barack Obama. Are we really surprised that Brad DeLong is out in front saying there's no looming disaster and no scandal to be seen here? DeLong often has good observations on economics, but he's a loyal apparatchik for his party through and through.Unfortunately, the average American citizen will be hurt even more. If we go down the Bainbridge scenario, there will be pain, great pain.