Here is a great article that David Howell, the managing broker at McEnearney's McLean office recently published on the McEnearney website. We thought it was worth sharing! For more info, please go to
www.mcenearney.com and click on Market Watch.
In the first Shrek movie, Princess Fiona is a stunning beauty by day, but in the dark of night is an ogre, afraid for the world to see who she really is. Though an ogre from her early childhood, she manages to keep her true appearance secret for years - until she is rescued by Shrek, who is clearly an ogre all day and all night.
We see some parallels in the drama being played out on the national stage with the federal government's takeover of Fannie Mae and Freddie Mac. (OK, work with us here.) Fannie and Freddie have played the role of Fiona, and they provided the liquidity for all of those mortgages - the good and the bad ones - that fueled the unprecedented real estate boom of the first half of this decade. Yet from birth, these organizations were part ogre, "government sponsored enterprises" spawned by the feds. And without proper parental supervision, Fannie and Freddie began to morph into full-fledged ogres - at least by night. With growing, and some say unchecked, power, the fate of the real estate world rested in the hands of the financial viability - let's say "beauty" - of these two companies. And when their dark-of-night accounting irregularities came to light, there was no hiding the fact that they had become ogres. Well-intentioned ogres to be sure, but ogres nonetheless.
In the movie, the marriage between Shrek and Fiona was one of true love, each seeing the other for who they really are. In Washington however, the federal government's takeover of Fannie and Freddie isn't a marriage born of love or even convenience - it is a shotgun wedding of necessity. Without their marriage, the entire "kingdom," not just real estate but the financial system as a whole, might have come crashing down. In fact, the federal "Shrek" is something of an adulterer in his efforts to service the kingdom, with flings with Bear Stearns, AIG and to top it all off, a massive bailout/rescue bill.
Ah yes, the bailout. Talk about an on again, off again, on again relationship! The prenuptial agreement that had to be hammered out for this marriage is so complex that even those who wrote it aren't fully sure what it means. The federal government has become a full-fledged polygamist, taking on enormous and unprecedented responsibilities. And the hope chest that each of the brides had was supposed to be filled with only the necessities to get them past the first, rocky months of marriage became filled to overflowing with additional promises to make all of the relatives happy. A little bit here to this group, a little more over there to the next one so that ultimately the majority would give their blessing to the unions. Those hopes chests are so laden as to appear barnacle-encrusted, with special deals and favors that are clinging so tightly to the system that they will be very hard, if not impossible to remove.
What comes of these marriages is yet to be seen. We do hope that there is ample time allowed for counseling, because there are reasons that the financial system is in such disarray. There are those who believe that misguided federal social policy spurred the origination of too many mortgages to those who could not afford them, and there are those who believe unchecked greed is the culprit. Should the stability of the real estate markets rest on the viability of just a couple of institutions, or perhaps just in the hands of the federal government? Or is neither of these the right approach? Either way, we hope that the hastily arranged - but altogether necessary - marriages will provide some stability and reassurance, and ultimately some calm. Then and only then can all the parties, including the far flung relatives (the taxpayers) who are expected to foot the bill, thoroughly examine the alternatives for long-term solutions.
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