U.S. seizes Fannie and Freddie
Treasury chief Paulson unveils historic government takeover of twin mortgage buyers. Top executives are out.
Federal officials on Sunday unveiled an extraordinary takeover of Fannie Mae and Freddie Mac, putting the government in charge of the twin mortgage giants and the $5 trillion in home loans they back.
The move, which extends as much as $200 billion in Treasury support to the two companies, marks Washington's most dramatic attempt yet to shore up the nation's housing market, which is suffering from record foreclosures and falling prices.
* Treasury Secretary Henry Paulson told Fannie Mae CEO Daniel Mudd (whose name is good as...) and Freddie Mac CEO Richard Syron that they and their boards were fired.
* The companies will be placed into conservatorship of the Federal Housing Finance Agency.
* Common shareholders will be virtually wiped out. Preferred shareholders (banks) will be protected.
* Instead of providing a massive headline-grabbing infusion of cash upfront, the government will provide quarterly subsidies to cover losses.
* Freddie and Fannie will continue to operate normally, except taxpayers will be on the hook for future losses.
This is just a lessening of the noose on the American consumer. Once the trap door opens it will tighten up once more. Backing Freddie and Fannie only benefits those people who took all the stupid risks when issuing those crappy loans. To cover the losses, the Federal Reserve will print more money to loan to the government. Inflation is already at least 12% and will likely go higher. The government will never admit to a more than 2 or 3% inflation rate though. Backing F&F is not going to stabilize home prices. They are going to continue to drop because Americans don't have the jobs they had 10 years ago to pay for them. The US has been living off their credit cards for a decade and it has finally caught up to them.
With global warming, Canada is looking pretty damn good right now...
In my opinion home prices should continue to drop. Things were just crazy the previous 8-10 or so years prior to all this happening. When I was living in MD the townhome I was at originally went for 85k. I think the last I heard (before the housing market tanked) was 230k (in only a 5-6 year span) which is totally ridiculous. That's unfortunate for those who got stuck with overvalued houses but it's good news for those who are now considering buying a home. People might actually be able to afford them.
As someone who just moved to a new town, has his first steady job, and has absolutely no debt, and a high credit score, the time is perfect for me to buy a house.
Now, if I just had the balls to do it. I'm a music teacher, so in a bad economy I'm the first to go.
