Fannie and Freddie set to be socialized.
The Treasury Department is putting the finishing touches to a plan designed to shore up Fannie Mae and Freddie Mac, according to people familiar with the matter, a move that would essentially result in a government takeover of the mortgage giants.
More. Seriously – why does this have to happen (on a weekend, no less)?
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I think it’s going to go a long way to help stabilize mortgage rates and protect the market, all we have to do is smile as taxpayers and swallow a multi-billion dollar deficit…. Boy…. I think W is determined to be the president that leaves us with more debt than anyone else in the history of the world!
Johnathan,
I know your question is rhetorical (why does this have to happen)–but the fact is that F & F owned or backed nearly half of the 13 TRILLION US mortgage market–and economies around the world are also in trouble because of them–China’s Central Bank, for example; and yesterday Russia declared no more F & F buys.
LEVERAGE: these GSEs have been operating on 1/60th capital to back their trillion $ exposures. HOW IS THIS LEGAL?
It’s legal, but it’s INSANE.
And Jonathan, you’re right. The best W had to offer was to let this takeover happen AFTER the RNC.
It’s a sad sad sad time for our country.
Panic – that’s why takeovers always happen Friday PM – to prevent panic. Panic leads to bank runs–customers takin out money. Or, in this case, as Barrons notes, investors walking away from buying more securities. Big investors, as Larry notes, such as China and Russia.
Re: buying or selling a house – we have a post on our sidebar entitled “How Do You Price A House To Sell?” And it speaks to buyers’ psychology. This bailout may do something to stabilize the mortgage market, but it takes a hit on buyer psychology….
What we know right now is that thanks to W & his 8 terrible years, we need to choose a language–Chinese or Russian?–to start teaching our children.
Okay, as a mortgage broker, I have a vested interest in this issue. While I don’t agree with the process that has gotten us this far, we are on the path that we must take. Stabilizing the markets is expected, especially with a paternalistic government. Letting foreign interest in our real estate markets and financial markets crumble will cause a depression. That being said, I don’t think it’s particularly helpful to vilify Bush for what has occurred. Remember that the all-powerful Greenspan was appointed by Reagan and served through 20 years of both party’s control of Congress and the presidency. He navigated our markets to this point – now Paulson and Bernanke have to muddle through to a solution.
Also remember that real estate is cyclical – that is if the new entity that will control F&F can see clearly to the future (like RTC did in the 80’s), then they can actually turn a profit. Unfortunately, there will probably be tremendous pressure to unload these “underperforming” assets before they can turn around for only liquidity purposes.
I’d write on this longer, but it’s too depressing. It’s also a shame to see my brethren in the mortgage biz who have been busted by foreclosure, drummed out by lack of closings or have “sold” junk products like Pay Option ARMs, when they were expedient and profitable for their employers to do so.
Letting a failed operation fail is the most direct path to stabilizing the marketplace.
Matt
Bush did sign the bailout bill, so he does have a direct role in this affair. Also, there is a large amount of evidence showing that Bush knew how big of a problem the subprime abuses were becoming and he did absolutely nothing. Remember the pressure Spitzer was putting on the feds and Countrywide about the shady sub prime industry. I don’t think it was a coincidence that Spitzer’s call girl fiasco became public after the pressure he put on Bush. Bush has a role not only in the current $9 trillion deficit, but also this new $5 trillion addition.
Andy
Duane – you’re right – it would be quite the creatively destructive event to allow a nice fast knee-jerk correction. It would certainly cull the field and wipe out the imprudent.
I for one would enjoy seeing a nice hard boom/bust absolutely wipe out the transaction parasites. Let’s go for state-of-nature capitalism and let true ‘free market’ principles rule. Of course, corporate welfare dependents would get squashed too…I wonder who would be left standing? More Reds or more Blues?
Save the Randian fantasies for teenage masturbation fodder – such events annihilate everyone, even the prudent and sensible, much as the unregulated RMBS markets went bust and are finally taking out the somewhat prudent GSEs.
The GSEs are badly flawed entities – guaranteed to upset ideological purists on both sides, a true hallmark of an adult compromise – but they were clearly the least bad actors, certainly relative to the Spectacular Free Market F’ups of Morgan Stanley, Bear Stearns and Lehman Brothers, along with their SIV Hedgies. Oh, and aren’t we all so much better off as regular working joes (citizens) with the utter collapse of these wondrous free market entities? I mean: the void was immediately filled by some other better competitor, right? I mean…mortgages are easy and cheap to get…right?
At least Paulson is getting this part right: the taxpayer and government are last in, first out. We will not be privatizing the profits moving forward.
I think that you need to look at who caused this. Not the president not paulson. Could it be the bond traders on Wall Street. Didn’t they fail to do here Due Diligance by providing the mortgage industry with guidelines that could only lead to a downfall. The SEC let us all down.