The Bush administration’s seizure of troubled mortgage giants Fannie Mae and Freddie Mac is potentially a $200 billion bet that it will help reverse a prolonged housing and credit crisis.
The historic move announced Sunday won support from both presidential campaigns, but private analysts worried that it may not be enough to stabilize the slumping housing market given the glut of vacant homes for sale, rising foreclosures, rising unemployment and weak consumer confidence.
Officials announced that both giant institutions were being placed in a government conservatorship, a move that could end up costing taxpayers billions of dollars. Treasury Secretary Henry Paulson said allowing the companies to fail would have extracted a far higher price on consumers by driving up the cost of home loans and all other types of borrowing because the failures would “create great turmoil in our financial markets here at home and around the globe.”
Mark Zandi, chief economist at Moody’s Economy.com predicted that 30-year mortgage rates, currently averaging 6.35 percent nationwide, could dip to close to 5.5 percent. That’s because investors will be more willing to buy the debt issued by Fannie and Freddie – and at lower rates – since the federal government is now explicitly standing behind that debt.
“Effectively, the federal government has now become the nation’s mortgage lender,” he said. “This takes a major financial threat off the table.”
[blockquote] The impact of the government takeover on existing common and preferred shares, which have slumped in value in the last year, will depend on how investors react to Paulson’s assertion that they must absorb the cost of further losses first. Under the plan, dividends on both common and preferred stock would be eliminated, saving about $2 billion a year.[/blockquote]
Excellent. These beneficiaries of the real estate bubble should get what the Penn Central shareholders got when that company was nationalized.
[blockquote]”They have a huge problem with the mortgage and housing market story, and everyone is missing it,” says a Republican political media consultant with ties to the Obama campaign due to the bipartisan nature of the firm he does work with.
“You look at Obama’s economic advisers, the guys he has counted on from day one and who have raised him a ton — and I mean a ton — of money: Franklin Raines and Jim Johnson, both of them are waist to neck deep in the mortgage debacle.”
Both Raines and Johnson have served as CEO of Fannie Mae, with Raines taking over from Johnson. Both are key political and economic advisers to Obama. [/blockquote]
http://www.spectator.org/dsp_article.asp?art_id=13841
So the American taxpayer has effectively taken on several trillion dollars in debt, a significant share of it will default, and six months, a year, two years down the line, we will find ourselves in worse shape than we are now. Mark my words – – this jump to socialism is doomed to failure, and our great-grandchildren will rue the day we did it.
This is worse than socialism. As has often been said, it privatizes the profits and socializes the losses. There should be people going to gaol who are living in style on the multi-million packages they took out of these organizations. But letting Freddie and Fannie fail could have brought down the world’s financial system. It is a disgrace that they were allowed to operate so far from their founding mandate.
What of the fiduciary responsibility of the board of directors for these corporations? Where is their any penalty for their failures? They are the ones that gave Fannie Mae CEO Daniel Mudd $12.2 million in total compensation in 2007. He received a $990,000 salary, a $2.23 million bonus and a $9 million “long-term incentive” award!
WHAT OUTRAGEOUSNESS!!! What was his bonus for, bankrupting the company? What kind of “long-term” is there for a bankrupt company? He got TEN TIMES his normal salary for “long-term incentive”. The folks that gave that to him should GO TO JAIL! There is no justification for such outrageous conduct. NONE.
Freddie Mac CEO Richard Syron got $19.8 million in compensation. That board of directors gave Syron $1.2 million salary, a $3.45 million bonus (including $1.25 million to remain at the company) and $771,585 in other compensation. He also got $14.3 million in stock and options. He got this while Freddie Mac lost HALF ITS VALUE!
These guys are getting paid to run their companies into the ground and ruin the economy. They are worse than useless and their boards of directors are giving them huge compensation packages…for WHAT!?
These guys need to go to jail! The money that they frittered away was not their own. They had fiduciary responsibility! Where is the moral hazard? I agree with #4 Austin…this is worse than socialism.
Socialism??!! Good grief, some folks will use any pretext to drag in that old screed! Try this analysis: This is a great example of CORPORATE socialism, to preserve the $25 million payouts to the jerks who drove them into this ditch!!
It’s also still another sign of the tremendous need for regulation of our financial markets. (Yes, my right-wing friends, it is largely the laissez-fare attitudes of the past 8 years which has brought us to this pass. No denying it: deregulation has simply meant the little guy and taxpayers get the shaft.) The US taxpayer simply canNOT be continually left holding the bag — we have needed real reform of the financial markets for years.
# 6. Right again, Little Cabbage! How did you get so smart? Little Cabbage for President!!!