Government Rescues Fannie and Freddie
The federal government will take over Fannie Mae and Freddie Mac, our largest and most troubled mortgage finance companies, with an estimated taxpayer price tag of $25 billion (one source told the New York Times that the number was a modest guestimate, though). In one of the county’s most expensive bailouts, the government can put…
The federal government will take over Fannie Mae and Freddie Mac, our largest and most troubled mortgage finance companies, with an estimated taxpayer price tag of $25 billion (one source told the New York Times that the number was a modest guestimate, though). In one of the county’s most expensive bailouts, the government can put up $100 billion for each company should they need cash — they handle about half of the country’s mortgages — and will encourage them to shrink their holdings; the Treasury can buy the two companies outright for a small pricetag, and is already changing the management team. The Fed sees the buyout as the silver bullet for the housing crisis, and already foreign markets have rallied since the announcement. Will it work, do you think?
In Rescue, U.S. Takes Over Mortgage Finance Titans [NY Times]
Fannie Mae. Photo by NCinDC.
“but it spreads the risk amoung all of us”
Thanks Prof. As I said, “Privatize the profits, socialize the losses. This won’t be the last.
I have to echo Dave’s comment at 11:25. Basically, this (like the Bear Stearns bailout) wipes out the stockholders who elected the directors who appointed the management who overfinanced the house that Jack bought. It bails out the creditors who own Freddie and Fannie debt. Failure to do this (as the Japanese central bank delayed for years) would, at best, keep the country mired in an economic slump driven by tight credit and inflation from increased fuel costs, and at worst, if Freddie and Fannie went bankrupt, could have started a debt-market meltdown to rival the equity-market meltdown of 1929-32. This may or may not end up costing the taxpayers billions, but it spreads the risk amoung all of us, and gives us the upside from stability and availabilty in the debt markets. The Bush Administration got this one right (thus proving that even broken clocks are right twice a day).
“Is anyone else curious that What is so quiet this morning? I expected him to come out guns blazing? Hmm.”
Nope, I just amazed there is no reaction to this story.
“Prodigal Son, you’re sounding very “What-like” today. Aren’t you too a taxpayer!!!!!???”
If someone sounds ” What Like” what is the problem, Dave? Everyone is not to the “Happy Happy Joy Joy” crap.
The bailouts will cost Taxslaves about 300 billion dollars! The last 5 years have been a joke. People selling houses to each other. Our Manufacturing jobs was sent overseas. Our saving rate fell and our standard of living has fell off. Are better off today than five years ago? I don’t think so. The average America has to work harder just to get by while the Big Boys get bail out.
If you believe the Fannie Mae and Freddie Mac bail out was good for us then you are a moron. The crash is being set up and when it happens. it’s going to very bad.
More “Bail outs” coming.
The What
Someday this war is gonna end…
BTW Interest rates are going to the moon!
MacD…i don’t think housing prices will rise in the short run. Although this move has lowered mortgage rates by about 35 basis points today the problem is still that banks continue to tighten lending standards.
If this move revalues upwards a lot of the securities being held by banks then perhaps they will loosen their lending standards.
There has been some discussion that once Congress is back in session and starts the blame game again that there will be an effort to force the FAHA (now Fannie & freddie’s boss) to direct them to lower lending standards….which is why we got into this mess in the first place!!!
Anecdotally, one of my colleagues just told us that a friend is in the process of selling a $1 mm plus condo here in Manhattan and two days before closing the buyers lender (Chase) came back and said they want 30% down instead of 20%.
Be aware thet the Treasury did not write any checks or give out any money to freddie & Fannie over the weekend. They will buy the mortgage backed paper in the open market and they wikll hold it as a saleable asset.
They took preferred stock that pays the government a dividend and they are likely to make money on that as fsrq points out.
This was all done only to assure the value of the mortgege-backed securities on the balance sheets of the banks throughout the world. Up until now they were only “quasi-guaranteed” b y the US government and thats why they went down in price. They are now guaranteed. fannie & freddie no longer report to their boards or the shareholders but now report to the FAHA.
When the Bank of Japan did a very similar preferred stock bailout of the Japanese banks in 2003, they made a ton of money on those preferreds.
Welcome back, DIBS:
Thank you for the information you posted. Any thoughts you’d like to share about what you see happening in the next 6-months or so in the stock market? Do you agree that this will help housing prices in the short-run (@9months)?
do I sell my fannie and freddie stock…I bought low, but it’s lower now….shit.
Is anyone else curious that What is so quiet this morning? I expected him to come out guns blazing? Hmm.
I’m not familiar with the First America data, but I have a question: are the 950 cities weighted equally? In which case, it is true that each city’s average housing prices would have equal representation in the sample, but the economy would not be fairly represented because the coasts account for a disproportionate share of population and economic activity.