Fannie Mae and Freddie Mac rejoin the federal government

Justin,

Am I the only one who thinks this is horrible? I think the number that tax payers are on the hook here is for something like $200 billion!!!

I would rather the housing market just be allowed to stall rather than continue this path down moral hazard. Yeah, the markets would freeze up and there would be a good deal of pain. But life is tough, and the sooner we all understand that nothing comes free, cheap or easy the better off America will be.

I probably sound like a crazy Republican, but I am just a moderate democrat that is radically fiscally conservative. Don't worry, I'm not running for office in the near or future, and I would never get elected because of my beliefs and there harsh consequences.

Okay, if Fannie and Freddie made it possible for tens of millions of Americans to buy homes more cheaply, then have they in fact contributed to the housing inflation of the recent past we are now paying for? Is the very existence of Fannie and Freddie part of the problem, rather than part of the solution?

Justin,
The claim that this bailout is somehow good for home buyers defies math. Sure interest rates will be lower, but that will only prop up the principle, ie the actual price.

The home buyer is the last person this bailout benefits. The big beneficiaries are the banks, the home owner and the home seller. Second to those are the mortgage brokers, realtors, wall street and home builders. All who benefit from Americans going into deep lifetime debt.

The general strategy of this govt is to keep home prices from becoming truly affordable. Hasn't there already been enough government subsidies to the housing industry?

I'm not sure that Fannie and Freddie behaved any worse than the mortgage industry as a whole. After all, they don't even originate mortgages, they just buy and package those originated by banks. The question of an implied government guarantee (now real), and whether they did their risk management conservatively enough is appropriate; but shouldn't a large part of the blame be shouldered by the oversight agency as well? A government sponsored agency needs to be actively regulated. It seems that the regulation part of the equation was woefully neglected. The Fannie/Freddie bailout is no different from the Bears Sterns bailout. It's just potentially bigger in magnitude, and reflects the true dimensions of the mortgage crisis brought about by a host of players.

True Believer,
Justin didn't say that the bailout benefits homebuyers. He said that the traditional role of FNMA and FHLMC in keeping rates lower helped home buyers in the past (and in general).

True Believer,

I think you are correct. There should be no more government subsidies for the housing industry or the banking/investment enterprises that engaged in this tomfoolery.

Recall, that Bush has already said that Wall Street got drunk!! You don't spike the punch bowl in that case...you take it away!!

This reminds of the story about the guy that went to an AA meeting, and while walking in, asked can I get a 'hair of the dog' before I have to quit drinking?

This is mind numbing in so many ways to me. Why is our government doing this bailout?

Nouriel Roubini called this whole scenario. He nailed this one two years ago.

Some folks will question the wisdom of this, but I think the government should run all of society's important businesses. Who else can guarantee us our security except the federal government? Like many others, I need to be able to sleep at night knowing my investments won't be worthless when I wake up. It's better this way - trust me.

I don't care how much sugar coating they apply, this does absolutely nothing for anyone except those who have invested in these long-term debt packages very cutely disguised as securities. This takes creative accounting into the realm of fraud, plain and simple. First, someone somehow stopped the age old requirements of verifying employment and income before granting mortgages, second, the federal government poured $trillions into the economy disguised as war spending creating a false economy, third, the rules, regulations and safeguards regulating business practices have been stripped away leaving a wide open free-for-all environment. How in the world can Paulson obligate our nation to potentially $trillions of debt without the approval of Congress??? Have we become a nation of cowboys free to roam spending freely answering to nobody??? This entire process along with this administration stinks to high heaven of the utmost corruption and thievery of our nation's finances. If the stock market rallies tomorrow the nation is dead on arrival as investors will reap profits from today and if the stock market dies tomorrow then the world will know, America is on borrowed time.

The problem I see with Fannie Mae and Freddie Mac is that they were allowed to get too big. Even with the subsequent creation of Freddie Mac to avoid a monopoly by Fannie Mae a monopoly was still created. The two virtually became one. Twins, combined at the head. Driven by greed and greater profitability Irresponsible mortgage brokers and mortgage bankers became lax in their borrowers requirements knowing their loans were covered by either Fannie Mae or Freddie Mac. There should have been a limit imposed by these agencies. After all the subsequent establishment of Freddie acknowledged the problems a monopoly would cause. Someone was asleep behind the wheel.

We all love to hate "big government" --until something goes wrong, and then we all cry "Save Me, Save Me!" FNMA and FHLMC were "privatized" and now look at the mess we're in. A mortgage industry without any government control is like a freight train running downhill without any brakes. Sooner or later there's going to be a crash.

The Republicans seem to have a nack for creating disaster both actively and inactively.

In foreign affairs, jump on the gun inappropriately and launch a prolonged, expensive, unnecessary war.

In finance, stiffle control and regulation, do nothing until it blows up in your face.

Thanks for your answer!