The C-Word

Friday, August 22, 2008
The U.S. stock market has taken the fall of Fannie and Freddie very well. America's two largest mortgage companies are nearing zero worth, and yet the overall stock market is rallying today, up more than one percent.

This rally is a sign of desperation. Fannie and Freddie's fate are sealed, but the stock market continues to be in denial.

When they do fail, however, there's a going to be a maelstrom - and these piddling rallied will quickly disappear from memory.

For a preview of the catastrophe, listen to a former official at China's central bank.

Fannie and Freddie Failure Could Be 'World Catastrophe'

When they fail, billions of dollars in Chinese investments will be wiped out. Makes you think that the Chinese won't want much to do with the American economy after this. Unfortunately, the American economy can't function without Chinese liquidity constantly greasing the wheels and the gears.

Anyway, let's see what happens. Fannie and Freddie are both down today many percent. Warren Buffet, America's multi-billionaire sage, wrote them off in an interview today. He did so offhandedly! Even Buffett has no idea what's coming.