Mike McDaniel

What is the long term fate of American Real Estate?

Today’s announcement that the US government has seized both Freddie Mac and Fannie Mae from the brink of disaster was immediately met with more questions than answers.  Perhaps the most interesting question for discussion purposes is… what does Real Estate in the USA look like 5, 10, 20 years from now?   Will we be applying for mortgage loans at the Social Security department or will the Feds delegate this activity to each state’s DMV office?  Will Freddie and Fannie be publicly traded ever again?  Will mortgage rates be manipulated for each general election from here ’til eternity?   

The USA is currently being squashed by debt (sorry to state the obvious).  We borrow from “saver countries” like Japan and China (they buy our treasuries).  One solution that was mentioned to the Freddie/Fannie fiasco was the piecemeal sale of each company’s assets.  The risk of this “solution” is the fact that the only buyers are, you guessed it, “saver countries.”  Should the USA let the majority of our country’s mortgage loans be bought by foreign investors and sovereign wealth funds? Selling off 2 government sponsored enterprises in broad daylight is not a viable political option.

The federal prescription/bailout of Freddie/Fannie is the most politically viable option, which allows the USA to sell the assets to foreign countries under the cover of night (the USA prints money and sells the treasuries to foreign investors and sovereign wealth funds).  Perhaps most importantly, the USA lives to leverage another day without taxpayers giving it another thought.

[gjr]  Mike McDaniel is the principal of McDaniel Wealth Management.  His timely senitments are expanded by markets analyst Jim Willie whose writings over the recent years have been prescient.  Willie’s 8sep08 contribution can be found here.