UPDATED: As Joe Sudbuy at America Blog notes, the plan for Fannie Mae and Freddie Mac in essense constitutes a nationalization of the the secondary mortgage market and isn't it interesting that the plan was announce one day after the last day of the Republican Convention. Or am I too cynical? Here's what Joe said:*
Who would have guessed that Bush was such a fan of euro-socialism? Technically they are saying the two are in "conservatorship" and not "receivership" though as usual, this is mostly parsing to help prevent Bush being associated with the word "nationalize." What an amazing coincidence of timing we saw last night as Bush stepped in after the GOP convention was finished and the weekend was starting for most Americans. It should come as no surprise that McCain and Palin avoided any talk of the economy, because that might be of interest to Americans (and the world, I might add) as we work through the second half of the trillion dollar plus credit crisis. . . . Americans have been on a thirty-plus year decline in real purchasing power and sooner or later, that has to be addressed. It is not sustainable to live on credit as individuals or as a country.
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Both the New York Times and Washington Post are reporting that the federal government is about to take over Fannie Mae and Freddie Mac and place them in conservatorship status. In short, the federal government is being forced to use taxpayer dollars to clean up the mess crated by the Bush/Cheney economic policies which John McCain is poised to continue. Before it is over, the cost of these takeovers to taxpayers will be immense. Losses to investors, including mutual funds and pension funds will likewise be huge. It is mind numbing to me that given the utter disaster the U.S. economy is turning into that anyone rational would be supporting the McCain/Palin ticket. Oh, but I forget - the Christianist base of the GOP is patently NOT rational.
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It is very important to remember that the insanely bad loans that helped launch the real estate market melt down were made back PRIOR TO the Democrats' takeover of control of Congress in January, 2007. Thus, try as they might to blame the debacle on Congress or the Democrats, the Republicans and Bush/Cheney/McCain own this disaster. Worse yet, McCain still doesn't get it in terms of what is happening in the economy or to regular Americans. Why would he when Cindy McCain can wear a $300,000 outfit and jewels for a single evening. Here are some highlights for the New York Times:
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WASHINGTON — Senior officials from the Bush administration and the Federal Reserve on Friday called in top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, and told them that the government was preparing to place the two companies under federal control, officials and company executives briefed on the discussions said.
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The plan, which would place the companies into a conservatorship, was outlined in separate meetings with the chief executives at the office of the companies’ new regulator. The executives were told that, under the plan, they and their boards would be replaced and shareholders would be virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.
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It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation’s history. Under a conservatorship, the common and preferred shares of Fannie and Freddie would be reduced to little or nothing, and any losses on mortgages they own or guarantee could be paid by taxpayers. A conservatorship would operate much like a pre-packaged bankruptcy, similar to what smaller companies use to clean up their books and then emerge with stronger balance sheets.
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In issuing their quarterly financial statements last month, the two companies reported huge losses and predicted that home prices would fall more than previously projected. The debt securities the companies issue to finance their operations are widely owned by mutual funds, pension funds, foreign governments and big companies.
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After stock markets closed on Friday, the shares of Fannie and Freddie plummeted. Fannie was trading around $5.50, down from $70 a year ago. Freddie was trading at about $4, down from about $65 a year ago. With Fannie and Freddie guaranteeing about $5 trillion in mortgage-backed securities, and a big share of those securities held by central banks and investors around the world, Mr. Paulson appears to have decided that the stakes are too high to take any chances.
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