billbays.com
  • Home
  • Blog
  • Video Archives
  • Contact

Fannie and Freddie

7/26/2008

0 Comments

 
Nationalize may be a word we will be hearing more of in the future. Nationalize is a more palpable word than socialism. Other names for socialism are receivership and semi-socialist. But, in the end, European-style socialism is the issue! The glory of America, the uniqueness of America, and faith in the free enterprise system is at stake.

  An odd variety of socialism rescued Bear Sterns. Intervention by the Administration by way of the Federal Reserve which was probably illegal. It was Wall Street taking care of their own at the expense of the rest of us because such action has incremental effects. Socialism will soon restore Fannie(Federal National Mortgage Association) and Freddie Mac(Federal Home Loan and Mortgage Corporation) as soon as the Senate can take care of the formalities. Of course, it will not be called socialism, as that word has a justifiable fear associated with it. The Fannie and Freddie package will give the companies a blank check from the federal government. There has been an “implicit guarantee” for government backing of the two companies, but soon that will mature to a full-fledged and open-ended government backing. Now, tell me that is not socialism. The beneficiaries of this government support is the Wall Street investors,other stockholders and the banks.

  Just today it was announced that foreclosures have increased 121% in one year. But, that is free enterprise. Free enterprise has a discipline that goes with it. Sometimes, it can be harsh discipline. The 121% made the same miscalculations as did Fannie and Freddie. The difference is Fannie and Freddie will be socialized. That is, their losses will be socialized. When everything is going well, as in the nineties and early this decade they become “private” again and enjoy the profits. Wall Street investors have a one-way bet. Fannie and Freddie’s stock prices are down now, but they will creep back up with the security that the Senate will soon codify.

  Advocates for government ownership of the mortgage insurance business(i.e. Frannie/Freddie) say their demise would choke off the mortgage business. Most people,they say, would not be able to finance a hew home or at a prohibitive rate of interest. Others argue that is not only inaccurate, but nonsense.  They contend the federal government has no more business in mortgages than they do in the car business, the furniture business, or the soft drink business. The mortgage business would function just as well without Fannie and Freddie. Also, banks would be more disciplined. The “ownership society” would continue to provide homes for people at the right time and at the right price.

  When Fannie was created in the depression in 1938 there was no sunset provision. Later joined by Freddie Mac they grew to handle roughly three-fourths of all mortgages. Why no siblings?  Even if this level of mortgage security was deemed essential why only two companies? Why not 4 or 8 or 20, and let the risk be spread and manageable.

  There is another important part of this Fannie and Freddie story. Getting the two companies back on their feet is not free. Nobody knows what it will cost the taxpayers, but 25 billion has been suggested by the Congressional Budget Office. When you hear someone refer to “taxpayers” picking up the tab, they are talking about your CHILDREN and GRANDCHILDREN. But the federal debt is now piling up and one day the Fannie and Freddie troubles may be America itself.



0 Comments



Leave a Reply.

    Author

    Bill Bays

    Archives

    April 2016
    August 2015
    June 2015
    April 2015
    February 2015
    January 2015
    December 2014
    November 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013
    March 2013
    February 2013
    January 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012
    May 2012
    April 2012
    March 2012
    February 2012
    January 2012
    December 2011
    November 2011
    October 2011
    September 2011
    August 2011
    July 2011
    June 2011
    May 2011
    April 2011
    March 2011
    February 2011
    January 2011
    December 2010
    November 2010
    October 2010
    September 2010
    August 2010
    July 2010
    June 2010
    May 2010
    April 2010
    March 2010
    February 2010
    January 2010
    December 2009
    November 2009
    October 2009
    September 2009
    August 2009
    July 2009
    June 2009
    May 2009
    April 2009
    March 2009
    February 2009
    January 2009
    December 2008
    November 2008
    October 2008
    September 2008
    August 2008
    July 2008
    June 2008

    Categories

    All

    RSS Feed

Website by Creative Cat
  • Home
  • Blog
  • Video Archives
  • Contact