All NEW Investors: Your gift matched $ for $ this week! GIVE NOW

Markets not sold on rescue plan

Scott Jagow Jul 15, 2008

Markets not sold on rescue plan

Scott Jagow Jul 15, 2008


Scott Jagow: It appears the stock markets see right through the U.S. government’s first aid kit for lenders.

This plan to bail out Fannie Mae and Freddie Mac if necessary has done very little to restore confidence in the American financial markets. Wall Street had losses yesterday. Today, stocks in Europe and Asia are getting hammered.

Let’s get the opinion of one investor who’s been skeptical for some time. Jim Rogers is based in Singapore.

Jim, what’s wrong with this plan for Fannie and Freddie?

Jim Rogers: Well, this plan is adding huge amounts of debt to the American government’s burden. Last weekend, we ran up $5 trillion, the same amount of debt that it took 200 years to accumulate. The world knows that’s an unbelievable burden added to any government, especially the one which is already deeply in debt. It’s bad for the economy, it’s bad for interest rates, it’s bad for inflation and it’s bad for the currency.

Jagow: As you say, $5 trillion in debt — that’s what Fannie and Freddie control; about half the U.S. mortgage market. How in the world can we let them fail?

Rogers: Well, it’s better to let them fail now if you ask me than wait two or three years when it’s going to be $10 trillion or who knows how much else because if we keep doing this, the United States government, who’s going to buy American government bonds? If you were a foreigner and you saw that the government added huge amounts of debt annually, would you continue to buy American government bonds? I mean, I wouldn’t and I’m an American.

Jagow: Alright, so if we don’t backstop Fannie and Freddie, what do we doe?

Rogers: Well, my view would be we let them fail and they’ll be reorganized in bankruptcy court. We’ve been having bankruptcies for a couple hundred years and for a few thousand years through the world. Let them go bankrupt, let them be reorganized, we clean out the system, I’d hope we put a few people in jail from Fannie Mae and Freddie Mac and we can start over. I’d rather do that, as painful as it’s going to be, than have to do it in two, three, five, whatever number of years it’s going to be.

Jagow: What do you think it will take to restore the confidence of foreign investors?

Rogers: Well, you’ve got to change the whole government structure of running up gigantic deficits in America and it’s going to cause some very radical changes. You know, most countries throughout history, when they’ve gotten themselves in financial trouble, they’ve never gotten themselves out unless they had a crisis or a semi-crisis. I’m afraid we’re going to be just like every other country and we’re going have to have our crisis or our semi-crisis and then maybe we’ll make some needed changes.

Jagow: Alright, Jim Rogers, CEO of Rogers Holding in Singapore. Thank you.

Rogers: Thank you Scott. Any time.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.