This is in addition to the $200 billion in Treasury notes the Federal Reserve announced it will loan to bail out bond dealers who are stuck with mortgage-backed securities and other collateralized debt obligations (CDO's) that they can't resell on the secondary market. (See Fed $200 Billion Loan Probably Won't Help)
What It Means to You
If Fannie, Freddie and the Fed get stuck with the $400 billion in bad debt, then this will cost three times as much as the Savings and Loan Crisis, which "only" cost the taxpayers $124 billion.In all likelihood, however, last week's actions have avoided a financial meltdown. Although it is possible that the economy is already headed for a recession, it will be less painful than if the government had done nothing. The worst case scenario is that this debt would get added to the $9 trillion national debt, which is a chronic situation that continues to depress the dollar and raise the price of imports.


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