Next time someone mentions it would be a good idea to set up an Aussie mac clip them over the head to wake them up and then show them this:
The Bush administration seized control Sunday of troubled mortgage giants Fannie Mae and Freddie Mac, aiming to stabilize the housing market turmoil that is threatening financial markets and the overall economy.
Treasury Secretary Henry Paulson is betting that providing fresh capital to the two firms will eventually lead to lower mortgage rates, spur homebuying demand and slow the plunge in home prices that has ravaged many areas of the country.
The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.
“A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance,” Paulson said.
But more importantly, “Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe,” he added in a televised announcement.
The companies, which together own or guarantee about $5 trillion in home loans, about half the nation’s total, have lost $14 billion in the last year and are likely to pile up billions more in losses until the housing market begins to recover.
These schleps were leveraged 35:1! And the senior staff received large bonuses for writing business and expanding the balance sheet.
There are actually are people referring to this as another example of market failure. Fred and Fannie were nothing other than two socialist beasts and some have a hide to call this another example of the failure of free enterprise system. It just boggles the mind just how mendacious or stupid some commentators can be.
One commenter/blogger has now is implying market failure because the market wasn’t able to bail out Fred and Fannie without government assistance. This is more insane than the earlier suggestion.