Fannie Mae and Freddie Mac
Thus far the collapse of the US housing market and [near] failure of Frannie Mae and Freddie Mac have cost US tax payers $145B… and it’s far from over.
The New York Stock Exchange have announced that the two companies will be delisted from the exchange next month (the stocks had been trading at the $1 per share mark — the minimum threshold to remain on the exchange — for over two years (since before the federal government took control of the companies).
The Federal Housing Finance Agency states that the delisting “does not constitute any reflection on either [company's] current performance or future direction.”
Right…
Fannie and Freddie were created by an act of Congress decades ago… as private companies. They buy mortgages from banks, re-sell them to investors, and guarantee to pay off the loans if borrowers default.
And, of course, for the last decade they’ve been buying junk mortgages that banks irresponsibly made to people who couldn’t possible afford them on vastly over-valued property.
Of course, the bank’s weren’t the losers; the shareholders of Fannie Mae and Freddie Mac largely lost their proverbial shirts — but the tax payers bailed out the banks (and continue to fund Fannie and Freddie — and they continue to lose money).
Congress will have to decide how to handle this mess. A GAO report last fall included these points.
- Create a government agency to buy mortgages and re-sell them to investors. This would eliminate the profit motive that, some critics say, drove Fannie and Freddie to take the risks that led to their demise. It would also continue to subsidize the mortgage market, making it easier for Americans to buy homes. On the other hand, the government would still be putting lots of taxpayer money at risk to subsidize the housing market.
- Reconstitute Fannie and Freddie as government-sponsored enterprises, similar to the way they were before. This might be accompanied by new rules limiting the risks the companies can take. Still, this would bring back the problematic ambiguities of having private, government-sponsored companies.
- Dramatically reduce the government’s role in the mortgage business. In this model, there would essentially be no replacement for Fannie and Freddie. But the government might still take some role, such as selling insurance to cover mortgage default. This would reduce (but not eliminate) the risk to taxpayers, but it might also make it more difficult for people to get mortgages.
Related posts:
- The Nightmare Continues… With the bailout of Fannie Mae and Freddie Mac continuing to drain tax coffers, the first quarter 2010 reported a substantial increase in home owners...
- Minerals Management Service Yesterday a report was released by the US Department of the Interior’s inspector general indicating that inspectors with the Minerals Management Service (the agency charged...
- Economic Recovery The Fed is telling us that we’re on the road to recovery… that economic activity improved across all 12 regions tracked, and have reminded us...
- BP Profits Byron Grove, BP’s chief financial officer said a week after the Deepwater Horizon drilling rig explosion that it was too early to talk about how...
- What’s Happening to MY $700B? Oh, that’s right, we all spend seven hundred billion dollars so often I should be more specific… that would be the $700B “we” Americans authorized...
- Volcker’s views being echoed by Obama Paul Volcker for years has been adamant that banks should not be allowed to use federally insured money to gamble on the market. Hard to...
- Connect for the Cause I’m a huge fan of credit unions; be they state or federal chartered; and I hate banks (all banks). There’s a huge difference between what motivates...
- Humankind and Socialism I’ve often said that the one fundamental human trait that Karl Marx always failed to consider when he talked about socialism was the intense greed...
- Due Process Dies On Monday 17 May 2010 the Supreme Court of the United States of America handed down a 7-2 decision that affirms the ability of the...
- It’s not our fault we went bankrupt… I wasn’t sure it it was a new daytime sitcom or a hearing when former Lehman CEO Dick Fuld delivered his 1680 work prepared testimony....
