I am reading a book called 'Panic'-the story of modern financial insanity (michael lewis)
There is a article by an economist called John Cassidy which was titled 'the next crash'. This was published in the new yorker in 2002.
Its really worth a read. Most of the predictions have come true. Some quotes:
“For a calamity to happen to Freddie Mac or Fannie Mae, you are talking about some economic scenario that is probably as severe as, if not worse than, the Great Depression,” Nothaft said.
"If Fannie or Freddie did get into serious trouble, the repercussions would dwarf the problems at Long-Term Capital Management in 1998, when buyers and sellers withdrew from the credit markets and the financial system almost seized up. That “liquidity crisis” prompted the Fed to organize a multibillion-dollar bailout, which a number of big Wall Street firms paid for. If Fannie and Freddie needed bailing out, taxpayers would probably end up paying for it."
"Not everybody is convinced by this argument. William Poole, the president of the Federal Reserve Bank of St. Louis, recently warned that the sheer size of Fannie and Freddie could create a “massive problem in the credit markets.” To pay for all the mortgages they buy, Fannie and Freddie issue bonds, which pay interest to their owners. What would happen, Poole asked, if the market value of these bonds fell sharply, because investors grew concerned about the financial soundness of Fannie and Freddie? “I do not know, and neither does anyone else,” he said. Poole."
http://www.newyorker.com/archive/2002/11/11/021111fa_fact_cassidy?currentPage=4
There is a article by an economist called John Cassidy which was titled 'the next crash'. This was published in the new yorker in 2002.
Its really worth a read. Most of the predictions have come true. Some quotes:
“For a calamity to happen to Freddie Mac or Fannie Mae, you are talking about some economic scenario that is probably as severe as, if not worse than, the Great Depression,” Nothaft said.
"If Fannie or Freddie did get into serious trouble, the repercussions would dwarf the problems at Long-Term Capital Management in 1998, when buyers and sellers withdrew from the credit markets and the financial system almost seized up. That “liquidity crisis” prompted the Fed to organize a multibillion-dollar bailout, which a number of big Wall Street firms paid for. If Fannie and Freddie needed bailing out, taxpayers would probably end up paying for it."
"Not everybody is convinced by this argument. William Poole, the president of the Federal Reserve Bank of St. Louis, recently warned that the sheer size of Fannie and Freddie could create a “massive problem in the credit markets.” To pay for all the mortgages they buy, Fannie and Freddie issue bonds, which pay interest to their owners. What would happen, Poole asked, if the market value of these bonds fell sharply, because investors grew concerned about the financial soundness of Fannie and Freddie? “I do not know, and neither does anyone else,” he said. Poole."
http://www.newyorker.com/archive/2002/11/11/021111fa_fact_cassidy?currentPage=4