Alpha Ralpha
09-09-2008, 07:36 PM
An interesting opinion column: http://www.venturacountystar.com/news/2008/sep/09/bailout-saves-economic-dip/
EDITORIAL: Bailout Saves Economic Dip: Mortgage Crisis Averted
Source: Ventura County Star
Publication date: 2008-09-09
By Ventura County Star, Calif.
Sep. 9--Fannie Mae and Freddie Mac are, at least for the time being,
curious entities called Government Sponsored Enterprises, federally
chartered mortgage giants run as private for-profit businesses. And for
a long time its executives and shareholders did very well out of them.
The two firms had an almost bulletproof business model. Even though
there was never an explicit guarantee, buyers of Fannie Mae and Freddie
Mac bonds -- and the buyers included a large number of foreign
governments -- believed that, in the crunch, the federal government
would step in and back the bonds. The buyers were right, to the tune of
about $100 billion in taxpayer guarantees for each company.
Over the weekend, Treasury Secretary Henry Paulson basically
nationalized the firms. He had no choice, despite the jeers of
"socialism" from economic purists. The two own or underwrite half the
nation's mortgages, a figure closer to 70 percent over the past few
months. Allowing them to fail -- and by week's end efforts to round up
infusions of private cash proved fruitless -- would have had damaging
repercussions in the mortgage markets, the financial markets and the
broader economy.
The bondholders are safe -- and with interest. But Fannie Mae and
Freddie Mac are in something akin to bankruptcy. Their top executives
are out, replaced by officials chosen by the Treasury. The stockholders,
who have seen their stock sink to the single digits, will have their
equity in the company diluted from 100 percent to 80 percent. The
companies will pay no dividends. While the number of mortgages they
underwrite will go up in the short term to stabilize the market, by 2010
they are required to reduce their role in the mortgage markets each year
for 10 years. No more "too big to fail."
The two giants were able to stave off Congress and the regulators while
they pursued a path of reckless and risky growth because of their large
and very skilled lobbying operation.
They are now barred from lobbying and any political involvement.
Congress, which bears much of the blame for this sorry pass, must decide
when it returns in January the future of Fannie Mae and Freddie Mac.
They could be nationalized, privatized, folded or combined into a more
modest public-private entity. It certainly will be time for the
lawmakers to make good on that talk of bipartisanship.
It is irony of some kind for economic-conservative and free-marketer
President Bush that, with the passage of the Medicare prescription drug
benefit, he presided over the largest expansion of entitlements since
the Great Society -- and in the bailouts of the two lenders, he oversaw
the largest federal intrusion into the economy since the New Deal.
Congress, which bears much of the blame for this sorry pass, must
decide when it returns in January the future of Fannie Mae and Freddie
Mac.
The irony of the Republicans still trying to pass themselves off as being for small government and between the Medicare expansion and the Freddie and Fannie takeover and the creation of the HSA, the Federal government is expanding at a pace unlike anything ever seen ...
And people still fall for the "Party of Reagan" line? :rolleyes:
EDITORIAL: Bailout Saves Economic Dip: Mortgage Crisis Averted
Source: Ventura County Star
Publication date: 2008-09-09
By Ventura County Star, Calif.
Sep. 9--Fannie Mae and Freddie Mac are, at least for the time being,
curious entities called Government Sponsored Enterprises, federally
chartered mortgage giants run as private for-profit businesses. And for
a long time its executives and shareholders did very well out of them.
The two firms had an almost bulletproof business model. Even though
there was never an explicit guarantee, buyers of Fannie Mae and Freddie
Mac bonds -- and the buyers included a large number of foreign
governments -- believed that, in the crunch, the federal government
would step in and back the bonds. The buyers were right, to the tune of
about $100 billion in taxpayer guarantees for each company.
Over the weekend, Treasury Secretary Henry Paulson basically
nationalized the firms. He had no choice, despite the jeers of
"socialism" from economic purists. The two own or underwrite half the
nation's mortgages, a figure closer to 70 percent over the past few
months. Allowing them to fail -- and by week's end efforts to round up
infusions of private cash proved fruitless -- would have had damaging
repercussions in the mortgage markets, the financial markets and the
broader economy.
The bondholders are safe -- and with interest. But Fannie Mae and
Freddie Mac are in something akin to bankruptcy. Their top executives
are out, replaced by officials chosen by the Treasury. The stockholders,
who have seen their stock sink to the single digits, will have their
equity in the company diluted from 100 percent to 80 percent. The
companies will pay no dividends. While the number of mortgages they
underwrite will go up in the short term to stabilize the market, by 2010
they are required to reduce their role in the mortgage markets each year
for 10 years. No more "too big to fail."
The two giants were able to stave off Congress and the regulators while
they pursued a path of reckless and risky growth because of their large
and very skilled lobbying operation.
They are now barred from lobbying and any political involvement.
Congress, which bears much of the blame for this sorry pass, must decide
when it returns in January the future of Fannie Mae and Freddie Mac.
They could be nationalized, privatized, folded or combined into a more
modest public-private entity. It certainly will be time for the
lawmakers to make good on that talk of bipartisanship.
It is irony of some kind for economic-conservative and free-marketer
President Bush that, with the passage of the Medicare prescription drug
benefit, he presided over the largest expansion of entitlements since
the Great Society -- and in the bailouts of the two lenders, he oversaw
the largest federal intrusion into the economy since the New Deal.
Congress, which bears much of the blame for this sorry pass, must
decide when it returns in January the future of Fannie Mae and Freddie
Mac.
The irony of the Republicans still trying to pass themselves off as being for small government and between the Medicare expansion and the Freddie and Fannie takeover and the creation of the HSA, the Federal government is expanding at a pace unlike anything ever seen ...
And people still fall for the "Party of Reagan" line? :rolleyes: