Alarmed by the growing financial stress at the nation's two largest mortgage finance companies, senior Bush administration officials are considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, people briefed about the plan said on Thursday. The companies, Fannie Mae and Freddie Mac, have been hit hard by the mortgage foreclosure crisis. Their shares are plummeting and their borrowing costs are rising as investors worry that the companies will suffer losses far larger than the $11 billion they have already lost in recent months. Now, as housing prices decline further and foreclosures grow, the markets are worried that Fannie and Freddie themselves may default on their debt.Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee -- which could be staggering -- would be paid by taxpayers.
The government officials said that the administration had also considered calling for legislation that would offer an explicit government guarantee on the $5 trillion of debt owned or guaranteed by the companies. But that is a far less attractive option, they said, because it would effectively double the size of the public debt.
Would effectively double the size of the public debt. Think about that. Freddie Mac and Fannie Mae are pretty much the dictionary definition of "too big to fail." Well, is the US economy too big to fail? We're talking about potentially doubling the federal deficit, and that's before the Boomers even get started retiring.
This country is in a world of trouble.
UPDATE: Here's why this matters. Excerpt:
Like it or not, the U.S. economy and financial system just can't live without mortgage behemoths Fannie Mae and Freddie Mac, who are now pretty much all that is standing in the way of a complete collapse in housing....If you consider what the world would look like if they ran into very serious trouble you quickly realize that they are not just too big to fail, but pretty much too everything to fail.
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Rawlins,
The 80s may not have been good for the oil and gas industry (and please remember that Reagan convinced the Saudis to keep oil prices very low for many years in order to help starve the Soviet economy), but they were excellent for the country as a whole. Along with the 1920s, the 80s were one of the most prosperous decades in the entire history of the United States.
No amount of revisionism will change that. The 1970s, by contrast, were horror in every respect. And it's 1970s-style economics that we are in danger of reverting to presently.
Simon, whatever you say. I know how it works. Take it from Phil Graham. If my life is rosy, the world's a rose garden where we wear rose colored glasses.
Right now for instance in Rawlins land I'm debt free and own my home outright...no mortgage... so this mess we're in has no immediate overriding repercussion relevance to me. Unlike the 5 people on my street whose houses were foreclosed (including one who is in the ‘National Guard’ in Iraq) Anyone out there in a panic, get a grip. You'll look back and see how lucky you were with that ARM mortgage and don't worry about your 401K. You're taking this all too personal!
I am certain that someone in 25 years will spin that the housing bubble mortgage sub-prime market is just Americans whining. Oh. Wait. Isn't that Phil Graham's point? It was really not a big deal. Just a blip and regional rather than national, yadayada.
I get the game. Forget the oil industry. Just a regional thing kid. Bankrupt businesses everywhere, fire sale auctions, real estate values tanked, etc. (Hint: don't try that one in GWB's hometown Midland). Never mind when I was on commission at Neiman Marcus selling $5000 a day and overnight it became maybe $5000 a week. (IF you were good and I was.) Let's not talk the Southwest. Let's talk how good it was up there in Dukakis land when Okla./Texas were on life support the last third of the 80s.
Got it.
Here's how political discussion works these days:
When anyone reality checks the Wall Street/ Junk Bond/Saving and Loan deregulated collapse 80s, the 21% interest rate Jimmy Carter 70s become the topic. When George W. Bush gets called into question, it's always about Bill Clinton. If there's an oil shortage, blame the dinosaurs that practiced birth control.
Gothcha.
Re: Ponzi Scheme economics: don't despair folks, just yet!
Ron Paul's delegates are still attending the GOP convention,
read his "Manifesto" and compare to those of his competitors
http://www.youtube.com/watch?v=_YqJICwtRTs
(what, sorry? Did you say they don't have one? No published plans? What folly -- caveat emptor -- you're willing to elect someone with no clue what you're signing yourself up for?) Ditch McCain, Obama will be toast, then perhaps God willing we'll have a return to sanity. Indeed Swedish bank SAXO predicted as much six months ago, see forums.hannity.com/showthread.php?t=460861
Why did we not pay them any mind?
Too ridiculous by far, right, Sean Hannity deemed it "stargazing on the wild side". He's such an eminence gris (tongue in cheek) aka blow hard that we all follow right along like so many sheep... Those who heed not the augurs of Liberty do so at their own peril... get with the program:
rEVOLution! Ron PAul 2008!
Meanwhile, readers can get educated on the real Ponzi in the economic mess, the legal fiction behind fractional reserve banking -- the sinking sands on which we have built our house of cards these past two centuries) -- this is NOT a modern problem: "Money, Bank Credit and Economic Cycles" at www.mises.org/books/desoto.pdf
rawlins,
The thread is about the problems at Fannie Mae and Freddie Mac, not Phil Gramm's views of the economy, which I don't even share.
YOU are the one who diverted us with comparisons to another era -- the 1980s, an era when economic conditions were radically different than they are today. And it so happens that your depiction of the 1980s economy is preposterously wrong.
Yes, as a matter of fact, the oil and gas slump WAS merely a regional problem in the 1980s. Overall, the U.S. economy boomed like it hadn't done in more than half a century, and the vast majority of Americans felt it. That's why not only Reagan won his landslide reelection, but even his lackluster Vice President coasted into Reagan's third term in 1988.
Overall, the U.S. economy boomed like it hadn't done in more than half a century, and the vast majority of Americans felt it.
A Reagan supporting friend and I had a close look at this during the Nineties. The growth in GNP during the Eighties was always about the same in dollar amount as the federal debt taken up that year.
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