The Saga Of Fannie And Freddie

[Terri]

By Lawrence Kudlow
July 17, 2008

"Too big to fail" was the verdict in the U.S. Treasury decision to backstop mortgage lenders Fannie Mae and Freddie Mac. But is the taxpayer risk of moral hazard still as big as ever?

Investors trashed shares of these government-sponsored enterprises last week, knocking them down almost 50 percent on a wave of bankruptcy rumors. Former St. Louis Fed President Bill Poole argued that, technically, the two are already in bankruptcy, while fears spread they couldn't even raise overnight money to finance their operations.

So Treasury Secretary Paulson stepped in. His full-throated-support plan raises Fannie and Freddie's line of credit from $2.25 billion to $300 billion and leaves the door open for the Treasury to buy stock in the banks. The Federal Reserve, meanwhile, would make its discount-lending window available to the pair if necessary.

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[fred w hensel]

The U.S. Government should NOT be bailing ANYONE out! It should be simply reporting results every quarter so something like this CANNOT grow large enough to be a threat to our financial and economic stability!!!

Currently, our dollar is only worth about $0.08 from its worth in 1963/1964. What are we going to do next, make it worth only $0.008 in the next few years???

People can recover from foreclosures, I am in the process right now, and bailing people out only enables them and actually prevents them from getting on the road to recovery!

[Cynical Pete]

Unlike the Enron CEO who was prosecuted, these CEOs of these two companies are still on the payroll for millions of dollars a year. They will probably get government support.

[83ragtop50]

I admit to having very limited knowledge of the justification for establishing Freddie and Fannie as quasi-government agencies in place of letting the private sector function in a free market manner. However, my opinion is simply that these are yet two more examples of government mismanagement. Examples of helping to build an economy based upon the house of cards called credit. One that has a shakey foundation that cannot withstand the normal ups and downs of the real world. Sounds like the leadership of these two fiascos have carte blanche. Now the chickens are coming home to roost and the taxpayers will be left to shovel the poop.

[Mary Gaspar]

My take on this mortgage crisis is loaning to people who had NO right to one, they didn't have to put any $$ down, they sold to illegal aliens who weren't even supposed to be able to be here.
Also, it provided jobs for the illegal aliens, ever see how many of them were in construction, you know doing jobs Legal US citizens didn't want to do. Please tell that to my LEGAL son, whose family on both sides goes back to the 1600's and who has been in construction for more than 20 years, tell that to his friends who were doing other work in construction, only to watch the Amigos work for less than they would. So we had all these "homes", condos, apartments, then we had to FILL these homes built with the labor of illegals, who better to sell them to than the very illegals who were building them. My question is, IF they can't read or write English, how in the heck can they build a proper house????
I got RID of my credit cards who issued them to the illegals!!! Want them as your customers, YOU then suffer the consequeces of YOUR greed, me, I'm moving on!!!

[TRUTHTELLER]

So Fannie and Freddie are in trouble now. Gee,
I guess when you take hi-flyers in the junk(sub-prime) mortgage market this sort of thing just seems to happen.

Oh well, not to worry, we can speculate with as much of our portfolio funds as we want. If if the junk investments tank, Uncle Sammy will bail us out and we can go merrily on our way to look for another sleezy, high profit scheme to invest in.

Bail Fanny and Freddy out. But, if we are going to bail them out with our money, we should be able to limit the percentage of hedge fund speculation, to avoid a repeat.

That's the truth

[FlaJim]

These two institutions were begun in order to be certain that those who were 'unfairly' discriminated against when seeking mortgages would get them, regardless. The outcome is another example of how liberal 'it's the thought that counts' thinking can screw things up. Neither of these two outfits even pays any taxes.

If even for-profit mortgagees were making risky speculative loans, imagine the lax standards Fannie and Freddie must have had.

It's ridiculous that these two outfits now control half of the mortage market but as such, there would be pandemonium in the market if they were allowed to fail. They should be given temporary loans (not grants) until stability is assured, then they should slowly be forced to put themselves out of business or be made to follow the same rules as the purely private sector.

[ds77]

I admit to having very limited knowledge of the justification for establishing Freddie and Fannie as quasi-government agencies in place of letting the private sector function in a free market manner. However, my opinion is simply that these are yet two more examples of government mismanagement.

I agree; and must say i am still completely baffled as why these banks should be allowed to continue to exist. Im all for refunding customers who made deposits for the bank. The mortgages should be transferred to the private sector to someone like bofa or usbank and if mortgage fails... then bofa or whoever should be reimbursed by the feds. I am unsure why the fed has to "buy" stock in these failed banks. When banks fail, people are more concerned with just getting there deposits out; the protection of stock value has little to do with this.,,i still dont completely understand the reason the stock value has to be protected...anyone know on this?

[ddrinsp]

The proposal to open the Federal Reserve discount window to Fannie and Freddie may essentially put the Fed in charge of yet another part of our financial system. The central bank is already becoming the lender of last resort and regulator of Wall Street investment banks.

The way I see it, this is nothing less than the federal government lending money to Wall Street. And although, it is apparently necessary to avoid a further financial disaster, the whole situation sticks in my throat. Gag!

[MrJLDoug]

This is more like "The Saga of Frankie and Johnny". You know someone is going too get it in the end. The end belongs to you and me......