The commercial paper of Fannie Mae, Freddie Mac, and innumerable others in home building and consumer finance are time bombs. Money market funds with this paper are not "cash" in any sense of the word, but a very dangerous form of investment with little upside (less than 5 percent in late 2007) and considerable downside. And don't be fooled by "government" money market funds. These funds mix Treasure securities with the commercial paper of Fannie and Freddie (which are still, in the minds of gullible investors, branches of the government), which is exactly what you are trying to avoid. [Chapter 17: Stocks, Bonds, And Real Estate. How other assets will fare in a currency crisis. Page 176. Paperback edition, November 2007.]
Here is an excerpt from Jonathan Hoenig's article, Uncle Sam's Latest Intrusion.
THIS WEEKEND'S HISTORIC federal takeover of Freddie Mac (FRE) and Fannie Mae (FNM) is yet another example of the market's only predicable theme of late: bigger government's intrusion, interference and theft.
Intrusion because there's no reason the government needs to be involved in the housing or mortgage markets at all. Private markets have come a long way since Fannie Mae was created back in the 1930s, with billions in nonbank dollars more than willing to invest in borrowers of every risk. Despite its undeserved poor reputation, the truth is that subprime lending permitted thousands of borrowers previously denied credit an opportunity to buy a home. In a free society, individuals are responsible for their own decisions both to borrow and to lend. Why the government needs to be in this business at all is both practically and unconstitutionally unclear.
Interference because, as I've pointed out numerous times in recent months, markets have become virtually impossible to forecast as they are no longer trading on underlying economic realities but arbitrary political whim. From windfall profit taxes to housing bailouts, the government is no longer a referee but the game's central player, moving the pieces and making up the rules as it goes along. The U.S. economy is now being driven by how many times Barney Frank wants his name in the paper and how well Treasury Secretary Hank Paulson slept last night.
Theft because on Sunday, while you were doing the laundry, playing with the kids or driving to the grocery store, the government snuck into your wallet and wrote itself a $200 billion check, secured by your tax dollars, purchasing power and sweat. Indeed, every cent the government spends propping up failing businesses is paid for by the people it's supposedly elected to serve -- in higher taxes and inflation, but also in the missed innovation of businesses not started and products never developed. (SmartMoney.com, September 8, 2008.)
The Charlotte Capitalist. Andy Clarkson's post, Free Market Ideology? I Don't Think So.
[Editor's note: Please tell me if you want more blog posts on this topic.]
On a related note: Will you listen to Yaron Brook's talk, The Resurgence of Big Government?