Well, it looks like the "crybaby capitalists" will get their way. Fannie Mae and Freddie Mac have been taken over by the US Treasury Department, and the much-anticipated bailout of the "quasi-public" mortgage lending giants is now underway.
A quick overview of the government conservatorship:
"The U.S. government seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies making up almost half the U.S. home-loan market...
The FHFA will take over Fannie and Freddie under a so-called conservatorship, replacing their chief executives and eliminating their dividends. The Treasury will purchase up to $100 billion of senior-preferred stock in each company as needed to maintain a positive net worth. It will also provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and purchase mortgage-backed debt in the open market."
Unintentionally hilarious excerpt from that Bloomberg article:
"Fannie CEO Daniel Mudd, 50, and Freddie CEO Richard Syron, 64, will serve in a transition period as consultants."
Yes, please do consult us on how to better turn these companies around! Oh wait...
So why were Fannie and Freddie bailed out in the first place? Why not let these government sponsored lending agencies fail?
Well, besides the almost sacred nature of Fannie and Freddie's stated social mission (providing houses to all Americans), there was also the very big political and economic problem of their agency debt ownership (with which the Chinese are stuffed to the gills), as well as the frequently trumpeted spectre of worldwide financial collapse.
Take it Hank:
“Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe,” Mr. Paulson said.
“This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation.”
That is serious stuff. And quite a turnaround from a year ago when these subprime mortgage related problems were said to be - wait for it - "well contained".
In any case, Fannie and Freddie are the taxpayers' problem now. The cost to taxpayers for the government's backstop of Fannie and Freddie has been estimated at anywhere from "tens of billions" of dollars to $200 billion.
I could try and list all the reasons why this bailout, and others, should not happen, but I feel Peter Cohan has already done a great job of outlining all this in his Blogging Stocks article, "Five reasons the Fannie/Freddie bailout should not happen...and some reasons why it is anyway".
So what I'd like to do now is just offer up some of the articles and posts I've accumulated in my Fannie and Freddie folder. Maybe this will help us get a handle on the outcome of this bailout and how we arrived here in the first place. See the list below.
Related articles and posts:
1. "Winners, losers in the US takeover of Fannie/Freddie" - L.A. Times.
2. "Fannie and Freddie: an overview" - Finance Trends Matter.
3. "The Fannie Mae Gang" - Wall Street Journal.
4. "Fannie plan a 'disaster' says Jim Rogers" - Finance Trends Matter.
5. "Freddie, Fannie, and Curses on FDR" - Mises Institute.
A quick overview of the government conservatorship:
"The U.S. government seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies making up almost half the U.S. home-loan market...
The FHFA will take over Fannie and Freddie under a so-called conservatorship, replacing their chief executives and eliminating their dividends. The Treasury will purchase up to $100 billion of senior-preferred stock in each company as needed to maintain a positive net worth. It will also provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and purchase mortgage-backed debt in the open market."
Unintentionally hilarious excerpt from that Bloomberg article:
"Fannie CEO Daniel Mudd, 50, and Freddie CEO Richard Syron, 64, will serve in a transition period as consultants."
Yes, please do consult us on how to better turn these companies around! Oh wait...
So why were Fannie and Freddie bailed out in the first place? Why not let these government sponsored lending agencies fail?
Well, besides the almost sacred nature of Fannie and Freddie's stated social mission (providing houses to all Americans), there was also the very big political and economic problem of their agency debt ownership (with which the Chinese are stuffed to the gills), as well as the frequently trumpeted spectre of worldwide financial collapse.
Take it Hank:
“Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe,” Mr. Paulson said.
“This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation.”
That is serious stuff. And quite a turnaround from a year ago when these subprime mortgage related problems were said to be - wait for it - "well contained".
In any case, Fannie and Freddie are the taxpayers' problem now. The cost to taxpayers for the government's backstop of Fannie and Freddie has been estimated at anywhere from "tens of billions" of dollars to $200 billion.
I could try and list all the reasons why this bailout, and others, should not happen, but I feel Peter Cohan has already done a great job of outlining all this in his Blogging Stocks article, "Five reasons the Fannie/Freddie bailout should not happen...and some reasons why it is anyway".
So what I'd like to do now is just offer up some of the articles and posts I've accumulated in my Fannie and Freddie folder. Maybe this will help us get a handle on the outcome of this bailout and how we arrived here in the first place. See the list below.
Related articles and posts:
1. "Winners, losers in the US takeover of Fannie/Freddie" - L.A. Times.
2. "Fannie and Freddie: an overview" - Finance Trends Matter.
3. "The Fannie Mae Gang" - Wall Street Journal.
4. "Fannie plan a 'disaster' says Jim Rogers" - Finance Trends Matter.
5. "Freddie, Fannie, and Curses on FDR" - Mises Institute.