• News
  • Celebrities
  • Finance
  • Crypto
  • Travel
  • Entertainment
  • Health
  • Others

Another Free Bailout

Image has not been found. URL: /wp-content/uploads/2008/09/foreclosure1.jpg

The official spin from Washington today is that the government’s rescue plan for Fannie Mae and Freddie Mac was aimed mostly at reassuring jittery financial markets, and that the two mortgage giants weren’t actually likely to go under. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee who is leading the effort in Congress for a mortgage rescue plan, made just that point to Politico, saying “in the long run, markets are rational, but there are moments when they can be hysterical as well.”

But not everyone sees it in those terms. The government’s moves may stabilize the markets, but there’s more going on here to worry about, they say. Once again, just as it did with the bailout of Bear Stearns, the feds stepped in with a rescue plan that doesn’t require anything from the group being thrown a lifeline.


Illustration by: Matt Mahurin

Where, some economists wonder, are the conditions for Fannie and Freddie accepting possibly billions of dollars in investments and loans from the Treasury Dept. and the Federal Reserve? Shouldn’t the two be required to submit to more oversight and regulation? If the largest buyers of U.S. home loans are now getting an additional boost from the government, can they still argue that the big paychecks for their CEOs – $12.2 million for Fannie Mae’s Daniel Mudd and $13.3 million for Freddie Mac chief Richard Syron – are still solely the function of the private market? Perhaps most important, exactly how much is all this going to cost taxpayers?

There’s a lot of money involved in all this,” said Dean Baker, co-director of the Center for Economic Policy and Research. “It’s mind-boggling. The really crucial question is where do we go from here? Given that it’s up to the government how things are going to look post-bailout, everything in principle should be up for grabs.”

But it’s not. As far as Baker and other economists can tell, the help wasn’t tied to any conditions. To Baker, the government didn’t require any of Bear Stearns, either, because of pressures from the financial industry. No one wants to cross the biggest political contributors during election cycles.

As a result, some economists said that Fannie and Freddie face a slew of difficulties ahead, caused by too little capital, too many bad loans and housing values that still are falling. Boosting their bottom lines may reassure the markets, at least temporarily, but it does little to actually address the crisis at hand.

Fannie and Freddie’s woes show just how far the housing market has yet to go before it bottoms out, rescue plan or not. At creditslips.org, Georgetown University law professor and credit expert Adam Levitin described the stock market meltdown of Fannie and Freddie as the “Oh S…t moment” in the housing mess:

The truth is that there isn’t anything that can really fix Fannie or Freddie other than an improvement in the mortgage market. And that isn’t going to happen any time soon (don’t count on the FHA bill). We’re looking at a bumpy landing….

There’s just no way to immediately restructure Fannie and Freddie, and their troubles show that “we’re on our way to a protracted recession,” agreed Desmond Lachman, an economist at the American Enterprise Institute, a conservative policy institute.

It was Bear Stearns in March; Fannie and Freddie in July, and probably Merrill Lynch or Lehman Brothers down the pike, Lachman said. “In the next three months it will be something else,” he said. “There’s going to be more takeovers, more Bear Stearns-type rescues. The government is going to be heavily involved in all of it.”

When — and if — it all ends, the result will be new regulation of investment banks, since the Federal Reserve gave them access to its discount window, thereby opening the door to applying the same rules that commercial banks follow. To Lachman, growing anger over Fannie and Freddie’s rescue could lead to overregulation of the investment banks, in a Sarbanes-Oxley-like fashion.

“The real risk is that you’re going to get the pendulum swinging in the opposite direction,” Lachman said.

Alan Mallach, a visiting scholar at the Federal Reserve and a senior fellow at the National Housing Institute, sees other problems. The rescue plan might not be so reassuring to investors after all, he said, considering it’s further proof that “things are really risky out there and it’s time to pull your horns in.”

Investors aren’t the only ones with interests here. Community redevelopment and affordable housing efforts are hurting now, with lines of credit drying up and promised financing falling through due to the credit squeeze. A government rescue plan for Fannie and Freddie isn’t likely to make much difference to community groups struggling to get those projects going, he said.

In the blogosphere, Naked Capitalism took a similar view, saying the plan could wind up being unbelievably costly to taxpayers. Yet it would not address the structural problem of having government-sponsored entities with an implied backing from the federal government — now an assured backing — playing the largest role in the mortgage market by directly or indirectly financing 70 percent of all mortgages. There was also surprise at what was seen as a generally positive reaction to the rescue plan. From Naked Capitalism:

I must admit to being hopelessly naive. The Fed opens its discount window to Freddie and Fannie, which is an admission that there is a problem but not much of a solution, since the GSEs are certain not to use it (accessing the discount window is a kiss of death, seen as an admission that a firm is desperate).Treasury Secretary Paulson makes a statement which presents in the vaguest possible terms a plan which falls far short of a remedy for the GSEs. These measures merely serve to stabilize the patient; there is no, zip, nada acknowledgment that major surgery is needed. Oh, minor detail, the plan still has to be approved by Congress, which will hopefully roll over. But what if it doesn’t? Anyone with an operating brain cell knows that these moves put the US on the path to having taxpayers assume Fannie and Freddie liabilities. That in the end is probably unavoidable. But the largely positive reaction in the press is simply mind-boggling and the Asian market response, particularly a rise in the dollar against most currencies, says that investors approve (update: gains early in the day reversed, largely on oil worries). Um, having to admit you are moving down the path of the lesser of two evils is far from good, at least in my book. particularly when six months ago most people had no knowledge that this course of action was even remotely a possibility.

When the stock market opened early Monday, it looked at first like the government’s ploy had worked; the Dow Jones Industrial Average moved up 100 points. But by the afternoon shares had tumbled again.

If the markets can’t be reassured even by a dramatic and unprecedented effort from the government to help Fannie Mae and Freddie Mac, fears about the housing market and the economy must be run so deep that even the powerful in Washington can’t spin their way out of it.

Discussion & Comments (0)

    Recent Articles

    • Things You Should Know about North America

      Things You Should Know about North America

      Get to know more about North America.

    • Eurovision 2010 Paula Seling Unpredictable Contest

      Eurovision 2010 Paula Seling Unpredictable Contest

      Paula Seling's experience on the Eurovision stage led her to declare that "Eurovision is an unpredictable contest". Which may explain the success of the young Lena from Germany, about whom the predictions before the event did not offer much chances for victory.

    • VIPRow.me - The Best Sports Streaming Website Today

      VIPRow.me - The Best Sports Streaming Website Today

      Have you ever contemplated creating a user-friendly site dedicated to sports-related free live streaming channels?

    • Learn How To Download, Install, And Use The Xnxubd 2022 Frame App

      Learn How To Download, Install, And Use The Xnxubd 2022 Frame App

      XNXUBD 2022 Nvidia users are able to watch thousands of videos and other contents online. XNXUBD 2022 Nvidia New is a piece of software that enables people to watch videos online without having to pay for memberships. On a graphics card, the XNXubd also provides some of the best gaming and virtual reality experiences.

    • Xvideostudio Video Editor Apk Free Download For Pc Full Version In 2022

      Xvideostudio Video Editor Apk Free Download For Pc Full Version In 2022

      A new edition of the Video Editor Apk for xVideostudio.Video Studio has all the latest features, including support for multiple video download formats in HD, FHD, and even 4K resolutions.

    • 9 Best Lotion For Masturbation - Popular Choice For 2022

      9 Best Lotion For Masturbation - Popular Choice For 2022

      Masturbation is a common activity for men and women. It's a natural and risk-free way to explore your body, experience pleasure, and release sexual tension.

    • Reasons Why You Need To Stop Watching Movies From Sflix

      Reasons Why You Need To Stop Watching Movies From Sflix

      Without having to sign up or pay anything, you can watch movies online for free with SFlix. It has more than 10,000 movies and television shows.

    • Coi Leray Mom And Dad's Family History & Wife, Explained

      Coi Leray Mom And Dad's Family History & Wife, Explained

      Coi Leray Collins (born May 11, 1997) is a rapper from the United States. Leray started publishing songs to SoundCloud in 2014, and in 2018 she released her breakthrough track "Huddy" as well as her first mixtape, Everythingcoz.

    • Listen And Download Music On MyFreeMP3 For Free

      Listen And Download Music On MyFreeMP3 For Free

      Are you in a bind and looking for a place to obtain free mp3 songs? Never again will you need to bother, since this article has everything necessary to obtain your solution. Download free music from MyfreeMP3.com, one of the world's most popular websites.