FRE, FNM Nationalized
By Tommy Leung on September 7th, 2008 in Economics, News, Politics
It was just a matter of time before Fannie Mae and Freddie Mac became nationalized. Secretary Henry Paulson had pledged the full faith of the United States government behind these two bankrupt institutions to try and calm investor’s fears. Fannie and Freddie lost over 90% of its stock value since the beginning of the year and is holding onto at least a trillion dollars in bad mortgages–$5 trillion in total mortgages.
Paulson is expected to make an announcement this Sunday to take over the two troubled institutions. This is a bailout of epic proportions. The biggest losers in this deal are the taxpayers. These two semi-private institutions decided it was a good idea to buy all these mortgages. They took the risk and now they should bear the responsibility–not us.
It is expected that the vast majority of the loans on Fannie and Freddie’s books will be default and this will only end up costing taxpayers tens of billions of dollars. The accuracy of this estimation is probably low considering the government estimates of the sub-prime mess. The worst outcome of this bailout is the future bad loans that will be created because the government is backing all the loans.
If this housing crisis has been bad, it is only going to get a lot worse if banks can continue to make bad loans knowing that Fannie and Freddie will have the money to buy them. There are many who argue that allowing Fannie and Freddie to fail is worse than bailing them out. That is simply not the case.
It will be bad for a short while if we let them fail and credit becomes tighter–a lot tighter. The long term result is that the economy gets back on its feet faster and we can start seeing some real economic growth. Politicians don’t look into the future. They only look as far as the next election cycle and by no means do they want to be the ones in charge when all hell breaks loose so they will prolong it as long as possible.
So while we the government continues to provide socialism for the rich. The rest of us will suffer with a lowered standard of living.
Tags: fannie mae, fannie nationalize, fannie take over, fnm, fre, freddie mac, freddie nationalize, freddie take over, nationalization, take over
September 8th, 2008 at 7:49 pm
This morning the news was talking about how great the bailout is going to be for the financial markets in the “long run” and used the soaring asian markets as an example. Sure the domestic market went up by more than 2% today, but this is not long-term. Now there’s no credibility in the financial markets as every major fail is just going to be expected to have a bailout from the government