Soros told Reuters Monday the crisis over Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) will not be the last, and that the wider credit crunch will continue to effect the already anemic-growth (or worse) U.S. economy.
On Monday, the U.S. Treasury announced a plan to shore-up Fannie Mae and Freddie Mac, including authorization to buy unlimited stakes in and lend to the companies, aimed at stemming a collapse in confidence, Bloomberg News reported Monday. Soros said the U.S. Treasury's plan, and if need be, the resources of the U.S. Federal Reserve, will keep Fannie and Freddie functioning, but that does not blot-out the main negative: the drag effect of home foreclosures on the U.S. economy, Reuters reported.
'Most serious financial crisis of our lifetime'
Calling the year-long global financial market turmoil "the most serious financial crisis of our lifetime," Soros said the negative impact of foreclosures and the credit crisis is likely to increase, creating a deeper U.S. recession.
Economist Peter Dawson told BloggingStocks that "while Soros provided a candid description of current events, no doubt derived from considerable research, he may have been a little too stark . . . seeing too much of one side of the asset / liability ledger."
"Both in terms of income and wealth, even after all the hits the economy and market has taken, the United States still has considerable resources at its disposal. The resources are there to solve the problems," Dawson said. "How those resources are allocated and who pays are political questions and will have to be resolved by the political process."
Economic Analysis: Investor Soros says there's more heavy lifting ahead concerning defaults and foreclosures, and we will have to side with his analysis. Economist Dawson, in FDR-like terms, does provides a ray of light, but also notes that at this juncture it remains an open question whether the United States, politically, will take the substantive actions necessary to correct previous policy errors.
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