With Freddie and Fannie apparently about to be bailed-out/taken-over by the government, is this good news or bad news for the economy and the markets? Back in July, when Paulson first asked for bailout authority, I suggested that nothing would really happen until the next president took office in January. Obviously I was wrong. What happened, at least according to this morning’s news, is that Paulson’s hand was forced by accounting trickery at Freddie and to a lesser extent Fannie.
That brings up a lot of questions. But the question for this morning: Does this tell us anything that we didn’t already know about the state of the economy and the housing market? It really depends on whether they were hiding subprime losses, or losses in the prime mortgage market. If they were hiding subprime losses, then it’s simply more of the same. If they are hiding prime losses, where they are the major player—that’s a horse of a different color.