Paulson Seeks Authority to Shore Up Fannie, Freddie

UPDATE: Here's what is being reported on the Fed's plan to bail out Fannie Mae and Freddie Mac which underscores why McSenile needs to wake the hell up:

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July 14 (Bloomberg) -- The U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac is an ``unmitigated disaster'' and the largest U.S. mortgage lenders are ``basically insolvent,'' according to investor Jim Rogers. Taxpayers will be saddled with debt if Congress approves U.S. Treasury Secretary Henry Paulson's request for the authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac, Rogers said in a Bloomberg Television interview. Rogers is betting that Fannie Mae shares will keep tumbling.

One has to cringe at the thought of John McCain as president when his campaign - or at least up until such time as Phil Graham was shown the door - seems to think the nation's current economic problems are imaginary or the result of a depressed public mood. How anyone could make the remarks that Graham did is mind boggling in light of the emergency efforts to shore up Fannie Mae and Freddie Mac in order to avoid a collapse of the U.S. mortgage market. I continue to believe that until the housing market stabilizes and transactions resume on a normalized level, the economy will continue to head in a downward spiral. Let's hope that McCain has figured out now that the crisis is real. Here are highlights from Bloomberg.com that make it VERY clear that the economic mess is not imaginary:

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July 13 (Bloomberg) -- Treasury Secretary Henry Paulson swung the weight of the federal government behind Fannie Mae and Freddie Mac, the beleaguered companies that buy or finance almost half of the $12 trillion of U.S. mortgages. Paulson, speaking on the steps of the Treasury facing the White House, asked Congress for authority to buy unlimited stakes in and lend to the companies, aiming to stem a collapse in confidence. The Federal Reserve separately authorized the firms to borrow directly from the central bank.

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The announcement followed crisis talks between the firms, government officials, lawmakers and regulators, after Fannie Mae and Freddie Mac lost about half their value last week. Paulson and Fed Chairman Ben S. Bernanke are trying to prevent a collapse in the companies that would exacerbate the worst housing recession in 25 years and deepen the economic slowdown.

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Paulson proposed that Congress enact legislation giving the Treasury temporary authority to buy equity ``if needed'' in the firms, and to increase their lines of credit with the department from $2.25 billion each. The temporary authority may be for 18 months, a Treasury official told reporters on a conference call on condition of anonymity. As lenders retreated from the housing market, Washington- based Fannie Mae and McLean, Virginia-based Freddie Mac have grown to account for more than 80 percent of the home loans packaged into securities.

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Debt sold by Fannie Mae and Freddie Mac ``is held by financial institutions around the world,'' Paulson said today. ``Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets.''