Economists Don Straszheim of Roth Capital and Ed Yardeni nail the F&F Fiasco. First Straszheim:
This is not the end—even of the beginning. It will take years for Washington to scuttle these ill-conceived, broken, conflicted entities and to create something coherent. January 20, 2009, Inauguration Day, will likely usher in a new era of market intervention and subsidy (hidden or out-in-the-open).
Ideally, Fannie and Freddie will now be fixed by the government and privatized in a few years. The lesson of this very messy situation is that the government shouldn't have meddled in the mortgage market in the first place by implicitly guaranteeing these mortgage institutions and allowing them to become behemoth monopolies. The reality is that the government now is involved in every aspect of the real estate and mortgage markets. Congressional Democrats, who are likely to have even more power after November's election, are unlikely to let go of the government's unprecedented power in the mortgage market, in particular, and the capital markets, in general.