The consequences of Fannie

Oct 12, 2008 Features / Columnists

The Parrot is paying keen attention to the financial crisis on Wall Street down in Manhattan. The situation is not as easy to understand unless you are au fait with related financial issues.

An Economist would of course be an authority. Not being one, I was forced to indulge in many hours of research on the topic.

I must admit that clicking from webpage to webpage trying to assimilate financial jargon was not as exciting as assimilating other “stuff” that are far more stimulating. Yeah, you know what I am talking about.

Having clicked on many webpages and with the baggy eyes as evidence, it’s difficult to determine whether I am more confused or more enlightened. I prefer to be seen as the latter.

Having heard some terminologies through the telly, I paid extra attention to them while perusing the notes of financial enlightenment. Freddie and Fannie; a lot was heard of them recently.

My research shows that affected US home owners basically got a sweet deal on their mortgages at the beginning. Well, so they thought.

Freddie Mac and Fannie Mae, banks as they turned out to be, couldn’t afford to maintain the same level of “sweetness” they provided to home owners for a prolonged period.

As such the “sweetness” was halted, and the real “feeling” was felt; financial pain. Home owners had to now pay higher mortgages that they cannot afford; hence, less, or no returns to Freddie and Fannie.

What I found appalling was that Freddie and Fannie and the mortgagees may have known that the current situation was inevitable.

They apparently knew that with increasing interest rates on the mortgages over the years, home owners would not have been able to find the monthly instalments. The end result was that Freddie Mac and Fannie Mae collapsed as a result of financial exhaustion.

The collapse represents a culmination of what is now seen as inept financial decisions made in the name of home loans. It was doomed from the beginning. The “domino effect” followed in the main financial stream; Lehman Brothers, AIG and other institutions in the US.

Trading on Wall Street, not a street of walls as my research shows, was seriously dented causing the Dow Jones to plummet to levels not seen since The Great Depression. This forced Uncle George to seek a bailout, a massive 700 billion. His bailout call failed the first time around.

We have seen banks in many parts of the globe that are being bailed out faster than a local Magistrate imposing bail on delinquents.

The effect is being felt across Europe, Asia, in Australia and as far as Iceland where, even the cold there is not seen as a repelling agent.

It seems as if it will get worse before getting better. If the current trend is to continue, then we in this part of the world may not be spared some of the effects of such financial downturn.

The immediate effect would be remittances. Locals here have to be aware of the consequences that may become a reality.

Uncle Bharrat has since alluded to this. He is even proposing a Regional Summit to discuss the Wall Street fiasco. Being an Economist, he knows. Initiating actions now can serve to have cushioning effects in the future.

What is reassuring is that our economy is not built the way as that of the US. However, we are dependent; an effect there can have an effect here.

This is where Uncle Bharrat will have to be supported both locally and regionally. He has shown his ability, through his experience in economics, to deal with financial challenges.

His handling of our economy over the years and more recently, the sharp increases in fuel and food prices, are testimonies. We have seen banks here expanding over the years.

This shows confidence in a growing economy and augurs well for the future. The immediate task is to keep abreast with developments on Wall Street and to implement countering measures. Let’s not be fooled; we can be affected. The building of a “firewall” is apt.

Whilst monies have decreased following the failings on Wall Street, here, research has increased. It’s either that computer sales or internet café businesses have increased to accommodate the surge in research on financial issues. Popular searches include Freddie Mac, Fannie Mae, Wall Street and more recently “firewall”.

No, it’s not what some would like you to believe. It’s not a wall of fire between Guyana and the US. It’s a terminology in technology. Got it? Oh sorry, I don’t have time to explain.
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