Quote:
Originally Posted by pocketkangaroo
If the fundamentals are so strong, why does the government need to keep coming in and bailing out companies? I mean if those fundamentals are strong, Fannie and Freddie should have been able to die like every other company.
There is a structural problem with the economy. Some of these companies get so large that they can take down the entire economy with it.
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There are structural problems in the banking sector relating to overexposure to real estate loans. Fannie and Freddie were the main players in that market and their failure would have created more instability in the financial sector. It is going to be a rough ride for banks with real estate loan exposure just like it always is in a real estate bubble collapse. That does not mean that the overall economy is bad. Transportation companies in particular are starting to recover as the price of oil comes down. The transportation sector is more important to the overall health of the economy than than the failure of a few highly leverage investment banks.
Most of these banks that are failing had turned themselves into hedge funds holding large amounts of risky real estate related derivatives. Their failure is the natural result of a shake out in that market. They made big bets and lost. It is not indicative of a larger systemic problem in the overall economy. The systemic problem exists within the financial sector itself.