Ike Heading into Gulf
Americans awoke Sunday to a double dose of bad news as reports
are circulating the Federal government will take over
mortgage lenders, Fannie Mae and Freddie Mac, while Hurricane
Ike strengthened and appears to be headed into
the Gulf.
The good news for the U.S., but the very gad news for
Cuba, is that the storm appears likely to track Cuba
the long ways before entering the Gulf of Mexico.
That will likely sap at least some of the storm`s
strength.
As Gustav showed, just moving through the warm Gulf
waters is not an automatic ticket to strengthening, but
projections show Ike heading into the central or western
Gulf, which would include possible landfalls in
Louisiana or Texas. Ike has halted oil`s freefall toward
the $100 per barrel price, but the price has not yet jumped
substantially.
Less dramatic, but far potentially far more serious,
are reports that the Federal government will put
U.S. mortgage lenders Fannie Mae and Freddie Mac under
a `conservatorship.` The current leadership of the
lenders will likely be replaced, while owners of
common stock are likely to see their already badly
hammered wealth further reduce.
Owners of preferred stock, which includes many banks,
and company debt, which also includes banks and foreign
countries, would see their wealth protected. The
government needs to try to protect the value of preferred
stock because some banks use it as part of their reserves. If
that stock`s value fell, it might cause even more banks to
fail. It also is protecting the value of the debt because
a threat to that might throw world financial markets
into turmoil.
The difficulty for the Federal government is that the
2009 deficit is already projected to be over $800 billion.
Bailing out Fannie and Freddie may well push that total
near $1 trillion.
Both presidential candidates have been briefed on the
situation. Reportedly both Republican John McCain
and Democrat Barack Obama have given conditional support
to the the plan.
The continuing economic difficulties plus the drain
on Federal finances are going to make it difficult
for either candidate to launch any initiatives that
require additional expenditures.
Continued Problems in Housing
Monday: A 20 percent chance of showers and thunderstorms after 2pm. Partly cloudy, with a high near 91. Calm wind becoming east between 5 and 10 mph. 
