Another Giant Falls
When big investment banks are about to fall, Bernanke and co. tend to make things happen on the weekend. Like Bear Stearns bailout – and their cheap acquisition by JPMorgan Chase.
I would not be surprised at all if Monday morning we wake to the news that something major has happened with Lehman Brothers; and with Fannie Mae and Freddie Mac.
Various things are possible with Lehman, from foreign investors shoring them up with a boatload of cash, to Lehman spinning off it’s caustic assets into a new entity. We’ll see.
Fannie and Freddie, it appears, are about to get a huge infusion of federal funding – essentially nationalizing both entities. Two questions that arise were that to happen: What happens to the investors who own stock in the companies?, and What happens to Mortgage interest rates?
Since such a move is completely unprecedented, I cannot say for sure.
However, likely Mortgage Backed Securities (MBS) would track more closely with the T-Bill, stabalizing mortgage rates a bit. On the flip side, inflation is a worry by Bernanke’s own admission. And, bonds and inflation are like oil and water. So, would the government taking on it’s back so much more debt in the form of bonds further weaken the dollar thus spurring more inflation, thus sending mortgage interest rates higher?
Possibly.
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