I do not have the knee-jerk mentality of many who scream no bailout for failing banks and lending institutions.  Nor do I see it as a necessary evil.  Even though I am a bit opinionated, I have to be realistic when it comes to the current crisis we are in.  It cannot be a sense of letting the chips fall where they may.  We are in too much financial trouble as it is, and to get out of this mess, it will take some very hard headed thinking and planning on the part of those capable of making necessary changes.

Today, shares of Freddie and Fannie took another dive, finishing the week at $7.75 a share for Freddie, and Fannie Mae at $10.25.  I am reading tonight about the deathwatch of these two mortgage giants.  On Monday when Freddie Mac is due to sell $3 billion of short-term debt, we will see more clearly how this will pan out.   If the plan is a failure, investor confidence will fall, and a new plan will have to be made.  Some feel the Fed should step in before market open on Monday and do their thing.

One thing is right - they really are too big to fail.  Richard Syron, Freddie’s chairman and chief executive, said earlier this year “Do a little examination and ask yourself, ‘What do you think the housing market in the U.S. would look like without the GSEs now?”‘  Although both of the dynamic duo have had bad press, we need to remember that they still hold a very high profile portfolio, and all we are hearing is the doom and gloom about their Alt-A and subprime holdings.   These “affordable” were pushed on the pair by the Congress so hurried to deal with them now.  Secretary Henry Paulson had asked for total takeover of the pair in July.  He is totally against what he sees as a “bailout of investors.”  It is a “moral hazard” to his line of thinking - he feels it will desensitize investors to the ordinary risk of investing, because they would  feel any investment they might make in the future as something that will be bailed out by the Fed.  I seriously think that people like Warren Buffet has that kind of mentality.   For one thing, the trouble with F&F has shaken out all the investors that stand to lose.  Preferred stock must be taken care of, and the holders of bonds held internationally, worth $1.4 billion, are safe.

We have not seen the end of this.  Whatever happens, it must be done at a level to protect the economy - right or wrong from whatever position you take.  The failure of F&F is just not in the cards.  A shakeout?  Of course.  But failure is just not going to happen.  And that is how I see it…