I’m from the government and I’m here to help
The Wall Street Journal reported yesterday that the U.S. government is expected to place Fannie Mae and Freddie Mac “into the conservatorship of their regulator, the Federal Housing Finance Agency.”
Conservator: a person, official, or institution designated to take over and protect the interests of an incompetent.
Ouch.
So why is the government stepping in?
A couple of years ago, the idea of Freddie or Fannie failing would have been unthinkable. They are THAT big. However, stock in the two Government Sponsored Enterprises has nose dived 80% in the last 3-4 months and they have lost BILLIONS of dollars in the last year:
Freddie and Fannie own or guarantee more than $5 trillion of mortgages. They have suffered combined losses of about $14 billion over the past four quarters as they make provisions for a wave of defaults. Investors worried that a government bailout would wipe out the value of existing stock, and those fears have sent the shares down about 90% from a year ago. Many U.S. banks as well as foreign governments own stock or debt in the two giants, meaning their financial woes could cause broad problems beyond the housing market.
Read the entire Wall Street Journal article
The fact is that these two giants either own or guarantee half of our country’s outstanding mortgage debt.
While this story is a big one, it’s not quite a shock by now. The government has been taking a hands-on role all year as we navigate through unprecedented economic times. With Fannie and Freddie so deeply intertwined into our national debt, it’s no wonder. But is more government intervention the answer? And you gotta wonder, once they show up to the dance will they ever leave?
Related posts:
{ 2 comments… read them below or add one }
I know its been a few weeks since you posted… but I think you have your answer. Ain’t pretty.
Hi Todd,
It’s hard to even guess what long term, unintended consequences we’ll be facing with the government poised to get so deeply involved in a “free market.”