Now That We've Bailed Out Fannie Mae and Freddie Mac, Let's Solve the Real Problem

The federal government has taken unprecedented but necessary action to quiet the turmoil in the U.S. mortgage markets and protect the thousands of homeowners who stand at the brink of foreclosure.

If Fannie Mae and Freddie Mac had been allowed to fail, serious calamities would have extended across our nation: America's working families would have suffered enormous harm, the dream of homeownership could have been destroyed for all, and the U.S. credit markets could have collapsed.

Unfortunately, the government's last-minute bold move was driven by crisis: the result of President Bush's failed economic policies that have created zero new jobs in the past eight years and phantom prosperity based on debt and outsized risk taken by the country's largest financial institutions.

In the short run, the move by Treasury Secretary Paulson is the right one. But this is what makes us nervous: Future back tracking could lead to full privatization of the secondary mortgage market, resulting in even less government oversight than we've had until now. If the end game is a transition to home mortgages being packaged and sold by Goldman Sachs and other Wall Street investment banks, then America's homeowners face even more risk in the markets.

Now that the federal government has moved to be the conservator of these mortgage giants, it should plan to operate mortgage credit as a utility that is managed for low fees and low risk for the purposes of affordable homeownership and a truly stable banking sector.

Yesterday's federal action tells Congress that it must come together and step up to the plate to stabilize our nation's economy. America deserves a real stimulus package - not more tax cuts for the rich - but a stimulus program that targets job creation and pumps money into the pockets of working people so they can stop falling deeper into debt just to make ends meet.

And while we're at it, let's address our economy's overall inequity - a system that allows failed CEOs of major financial institutions to walk away with tens of millions of dollars while our tax dollars bail them out of the horrendous mess they created.

Comments

[funkalicious]

this is a travesty of the likes America has never seen before we are being held up by Pirates in the banking sector.
We did not have to take the GSE into a conservator ship so Paulson and his buddies can keep flipping a dead body over and poke it with a stick. and pile up more dead things inside his mess. and bet on which side the body will land and how may flies stick to it.

The entities should have been put into receivership.. there will be pain... no matter what ..better to take your beating like a man up front and move forward. The way the government has dealt with it we will be limping along for decades trying to "fix" the system. while sharpies and insiders continue to play the taxpayer for a fool.

The only fix is the confidence game played on us by Paulson and his merry the grifters of wall street.

[CharlesMac]

Nothing has changed with the seizure.

The risk in the global markets/economies is a whole load of debt outstanding of which NOBODY knows what will be paid and what will be defaulted. That is what is making everybody somewhere between nauseous and frantic. Nobody has one more ounce of certainty what the numbers will be when this all sorts out, just because the US gov't took over Freddie and Fannie..

We are also stupid.....

1) Until 2000, Fannie only took conforming loans. Plain vanilla, fixed/30 yr type stuff. The POTUS gets to appoint 5 members to Fannie's board. Guess what Administration encouraged Fannie to start picking up Alt-A garbage mortgages... and what Congress was OK with it?

2) You can't do two things at once. In Feb/March, the WH, Congress, Paulson, and Bernanke publicly called for F&F to pick up more mortgages from the primary lenders. F&F went from 54% to almost 70% of all mortgages. Then in July, the White House, Congress and Paulson tell F&F they aren't keeping enough extra money in reserve????

How the h*ll are you supposed to use more capital to pick up more mortgages, AND keep more of your capital in reserve? Hello,lights on, nobody home?

Only one way. The credit markets, which have sucked for over a year. That's what F&F had to do.

And then they got taken over because they were "overleveraged"... i.e. had borrowed too much money.????

Go figure.

[JScott]

Too bad that our economy seems to have it's linchpin as houses and cars both industries which seem to not be doing too well and asking the government for help and $- so much for capitalism and the markets being efficient eh.

[dadw5boys]

The Federal Reserve is lieing to the American People.

90 % of the bad loans never wnet through Fannie Mae and Freddie Mac like they were suspose too.

Businesses like Country sold directly to Investors .

Investors thought they were being smart but were buying a lot of overpriced junk.

Now becuase they took shortcuts the taxpayers have to pay while they walk away millionaires.

[CharlesMac]

"The federal government has taken unprecedented but necessary action to quiet the turmoil in the U.S. mortgage markets and protect the thousands of homeowners who stand at the brink of foreclosure."

What are you talking about?

Freddie and Fannie are not in the primary mortgage market.

The primary lenders have moved hundreds of $billions of highly probable bad debt securities off of their books, onto the balance sheets of the Fed and the government. Which means US. Plus they got a 100+ $billions in guarantees on other mortgage backed securities which they kept on their books. Plus they can get money for 2%.

The only "turmoil" is that after this huge infusion of capital, the mortgage lenders are using stringent standards and higher profits to protect the capital we gave them. And are not making it easy to get a mortgage and reduce the house inventory.

And the foreclosures are conducted by the primary lender, if it has been sold to Fannie and Freddie. They will all still go to foreclosure. This had absolutely no effect on people going to foreclosure.

The bond market was the problem. Investors were buying more T-Bills instead of GSE mortgage backed securities. So it was costing the GSEs more to borrow. Even Fannie was buying T-Bills instead of putting capital back into play. That freaked out Paulson and his minor house problem.

[WASanford]

"If Fannie Mae and Freddie Mac had been allowed to fail, serious calamities would have extended across our nation: America's working families would have suffered enormous harm, the dream of homeownership could have been destroyed for all, and the U.S. credit markets could have collapsed."

Like that's not happening anyway? This isn't being done to protect or help any of those who find themselves upside down in their mortgages or those who find themselves suddenly unable to make thier mortgage payments as their interest rates reset. It isn't saving any jobs for those who're being laid off. It isn't helping those who find it almost impossible to feed their familys as food prices climb through the roof. And it isn't making it any easier to buy gas for that drive to work. All this is doing is helping the crooks keep the money they've stolen from us!

And oh yes, about home ownership, my dear old daddy used to tell me that it's alright to own something, just make sure that it doesn't end up owning you.

[oldpotsmuggler]

"operate mortgage credit as a utility" An interesting and tough issue? Put another way, should we have the federal government co-sign all home loans in this country? Or some sub set such as "first time home buyer", or "low/moderate income"?

But then we still do to some extent, and did more of it up until the recent mortgage bailout bill. The one that created the agency that just took over Fannie and Freddie (and likely does have plans to throw major parts of their functions back into the "market place", the place that just melted down causing this whole problem in the fist place). The one that created the $7,500 no tax credit "first time homebuyer tax credit".

FHA did a better job of what we want the government to do in promoting home ownership than Fannie and Freddie ever did or ever will. The only thing lacking was for Congress to give Bush the "no down payment required legislation" he requested. Instead the new bill raises down payment requirements while making down payment money harder to come by. I mean, I'm sure that Bush had no clue what he was requesting, and I'm not sure who killed it, but getting houses out of unsold inventory is noy going to happen faster by making mortgages harder to get.

[Henry]

FHA holds no candle to Fannie and Freddie. That is based on volume. Conforming Fannie and Freddie paper coupled with Fannie & Freddie rates commensurate with US Treasury rates have worked very well for decades. Plug in negative real interest rates to the market place and see the gyro-scope immediately out of balance.
The suggestion here is for owner occupied residence loans made on a conservative basis. No private entity is going to make a 30 year fixed rate loan secured by a house. We saw that picture in the 1980s and it was not pretty. (I know that is not your point but it makes the case for the "utility" notion, not for profit Fannie and Freddie)

[dadw5boys]

ROLL BACK THE BANKRUPTIZE LAWS FOR THE PUBLIC.

THE WEALTHY STILL HAVE ALL THE BANKRUTPIZE LAWS THEY EVER HAD ONLY THE LAWS FOR THE POOR CHANGED.

[wldnswmmr]

Yesterday's bailout only proves that when Paulson and Bush are faced with the prospect of a mutiny by Uncle Sam's creditors, such as China, Japan, Mexico & others, who were VERY unhappy about the prospect of a dishonoring of the MBS bonds purchased from Fan & Fred on the understanding that these "securities" were backed by the full faith & credit of the USA, then BushCo will move heaven and earth to solve the problem. Bush does not want the roof to cave in while he's in office. As for the idea that this new "public utility" will be put to work to enhance home ownership for the common folk, dream on. Their New Deal purposes were perverted long ago from a mortgage facilitator to part of the Wall Street bubble machine.