Fannie And Freddie

Will Fanny and Freddie fail? We all better hope not. Freddie and Fanny have about half the mortgages in the USA to a tune of almost 6 trillion dollars. If these should fail the US will plunge into a depression. No recession, straight into a depression. The government is already taking steps to ensure this doesn't happen. The Federal Reserve Bank of New York has been granted authority (by the Federal Reserve) to lend to the two companies should the need arise. The government will do whatever it takes, even if it requires a takeover.

The failure of IndyMac has everyone waiting for the next shoe to drop. What caused the failure? It was another classic run on the bank. With customers pulling out their funds, the bank simply ran out of money. Will more fail? I am under the assumption that there will be more bank failures. I don't believe that any big names will go down although there has been some speculation that WAMU is in some trouble.

How does this affect the greenback? It is hard to say. I think there will be a bit more pressure on the dollar in the short term, but we should see the dollar start to strengthen as we get into the third quarter barring any huge failures(Freddie, Frannie). Play it as you see it, I would however be wary of any long term dollar shorts at these levels.