by Cheryl Rofer
Fannie Mae and Freddie Mac, like Bear Stearns, have been victims of a "run on the bank." The feds are going to step in to restore confidence.
The "run on the bank" is largely a psychological phenomenon. Investors don't want to be the last to get their money out, because if they're last, there won't be any money. But it's that very fear of being last to get out that causes the failure and the ruin of the last to get out. A self-fulfilling prophecy.
I won't claim to understand the economic fundamentals of any of those financial institutions, which may or may not have contributed to the fear.
But I can't help but wonder how much the fears that the Bush administration has used to manipulate the public have contributed to the easy spooking of the investors. Fear can become a habit.