We're All Homeowners in the U.S.

July 11, 2008

OR AT LEAST we’re about to be, if my hunch is right. IndyMac became the second largest bank failure in American history today. Taxpayers are on the hook for $4 to $8 billion, and the FDIC may have to raise more money to pay off insured deposits.

But that’s small potatoes. Fannie Mae and Freddie Mac, which have become pretty much the only source of liquidity in the home mortgage market since the subprime spit really hit the fan this spring, have tanked in recent days. Their shares are about a third of what they were last month and off about 85% from one year ago.

Why does this matter? Because Fannie Mae and Freddie Mac hold or guarantee about half the outstanding mortgages in the United States. That’s about $5 trillion worth of paper.

Hear this: If the federal government takes over these companies, it essentially doubles the national debt overnight.

Read more at Derek’s website