Tuesday, September 9, 2008

Day after Fannie Mae and Freddie Mac bailout and why PIMCO's Bill Gross is not so smart as Barrons would have you believe

It's safe to say that Jim Rogers and casy was the only one to call this from several years ago. Even though I thought Fannie and Freddie were nothing more than scams, both had the guts to go on record and say they were insolvent over a year ago (and both were deservedly right and profited massively from their convictions).

The bailout has proven other things. One that Bill Gross is nothing but a shill, given anyone stupid enough to invest $638 billion in unsecured Fannie and Freddie bonds should have seen their investment declined by at least 80% in a bankruptcy. But the mother of all government interventions saved him and foreign governments who were dumb enough to purchase this stuff. Investing involves risk. Just because something doesn't move your way doesn't give you the right to go on CNBC and cry out for a government bailout. So because foreign governments and Bill Gross pretty much put a gun to the U.S. government and said, "if you don't bailout Fannie and Freddie, they would retailiate by not purchasing any U.S. debt instruments going forward to finance Congress' irresponsible spending."

This shows first hand how debt or spending over one's means makes you a servant to the creditor. When you owe money to someone, they have power over you and can dictate unfavorable terms that will restrict your freedom or lifestyle. Just because the U.S. Congress is irresponsible does not mean you can do the same. It is up to all of us to set a higher standard and example of what it means to be an American. Right now, the rest of the world is laughing at us especially, yesterday on CNBC Europe, and no one should give nations such as France the last laugh to say "I told you so".

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