Here’s a scary, and relevant, question to ponder as the housing market continues to slide: What would it take for the government to step in and help Fannie Mae and Freddie Mac, and how would a rescue affect you, the taxpayer?
A Lehman analyst’s note on Monday sent shares of both companies plunging. Though they’ve recovered some, the fall, and Fed Chairman Ben Bernanke’s downbeat outlook for housing issued Tuesday, is forcing investors to consider what would happen if a bailout is needed….
The doomsday scenario could cost taxpayers more than $1 trillion, says the S&P report. The report went so far as to say that a government bailout of Fannie or Freddie could force the agency to lower its rating on the creditworthiness of the United States.
It is scary to read things like this at a time when the Government seems to further want to slow the economy by keeping energy prices high and taxing industrial output that involves carbon dioxide. A perfect storm?
The video now pulled from You Tube but available here (and well worth the watching) http://www.jwharrison.com/blog/2008/01/03/the-long-johns-a-perfect-explanation-of-subprime-lending/ would be funnier if not so true and tragic. I’m no economist but I didn’t finance my home based on an upward spiraling market. I financed it with the realistic hope of owning it at the end 20 years. I’ve made and make plenty dumb economic decisions but my home mortgage was not one of them. Now, it seems, our government/politicians feel it necessary to bail out the banks and individuals responsible for poor (and in some cases devious) choices. I just hope their fix doesn’t foil my dream.
A year ago commenters on this site pooh-poohed my assertions that indicators pointed to us already being in a global crisis. Perhaps “American interests” are not being served by this administrations failed policies. America ignored the words of Ron Paul and will now suffer the consequences.
The article overstates the problem by ignoring several limiting factors. First, FNMA/FHLMC never did subprime mortgages. Nor did they do Option ARMs, a bigger problem than subprime. Third, their exposure was at most 80% of the value; anything above 80% was covered by mortgage insurance. Unfortunately, media inaccuracy such as this only makes the problem worse.