Once upon a time, the US government set up three agencies to provide home loans to people. The Federal National Mortgage Association (FNMA) was founded by FDR to improve the liquidity of the mortgage market. It sits in between the mortgage borrower and the lender. Its job is to assume the risk of mortgage default, in return for a fee. In the 1960s, part of it was removed from the federal balance sheet by spinning it off into a private corporation.
The mainstream media coverage of the US subprime mortgage meltdown has mostly been about all the folk who have lost their homes, and various plans the government has come up with to try and ease the problem. Thinking about it more carefully, though, doesn’t it seem a little odd for the US government to interfere in the sacred free market merely in order to save a bunch of poor people from ruin?
Everyone should have a chunk of cash in an instant access savings account; see Dilbert’s guide to financial success. If you’re in the US and have $250 spare to put in a savings account, I’ve got a voucher you can use to open an account with ING Direct, and they’ll give you $25 free. (Plus $10 for me.) I’ve been saving with them for a while, because their rates are so much better than my bank’s savings account rates (4.
Fleet Bank is heavily invested in Argentina—where the economy has collapsed, and Fleet is having to restrict customers to withdrawing less than $1000 a month. Meanwhile, Fleet has taken a hit of $1.8 billion to cover the money it’s lost in South America, with an overall loss of $507m in 4Q2001. That’s half a billion dollars worse than they predicted. Profits for the full year were down 75%. Still, your account is FDIC insured, so if the bank goes belly-up the federal government will bail you out.