General Question

Joybird's avatar

Why is the US government going to bail out Freddie Mac and Fannie Mae?

Asked by Joybird (3159points) October 21st, 2010

Don’t tell me the mortgage system would collapse. Maybe it should.

Observing members: 0 Composing members: 0

5 Answers

WestRiverrat's avatar

Because it is Barney Frank’s pet project, and he controls the committee that oversees Fanny and Freddie. Also he gets lots of campaign contributions from the Board of Directors.

Personally I think both should fail. It will hurt some people short term, but in the long run it will make the economy stronger.

Nullo's avatar

@WestRiverrat I agree; the bailouts saved a lot of companies that probably ought to have been put out of their misery.

marinelife's avatar

It already has happened. It is a done deal. Under the most likely scenario, it will cost another $90 billion.


ETpro's avatar

Fannie Mae and Freddie Mac are a major part of residential real estate, and after the real-estate collapse, residential real estate has been a terrible business. The additional $90 billion mentioned above is if the economy falls back into recession—which would further depress the home real estate market. The idea is to not force that to happen by letting our outrage at the past mistakes cause us to cut our own noses off to spite our faces.

The two firms control $5 trillion worth of mortgage debt. If we tossed that on the bankruptcy market today with over 2 million homes in foreclosure already, we would likely loose a good deal of the future value of that debt. Those homes will recover value, and holding the firms together will likely cost the taxpayers far less than putting them up for a fire sale.

Conservatives will be told to support the fire sale approach by their media and information network, because the wealth behind the conservative think tanks can then swoop up millions of additional bargains to further pad their already overflowing vaults. The wealthiest 1% of Americans now own over ⅓rd of all the wealth in the USA, and they want way more.

The TARP was enormously unpopular, and still is. However, most economists agree that it prevented a total collapse of the US financial system and a second Great Depression. The money has been repaid, and the US taxpayers actually earned $83 billion on it. That’s 81/2%, or far better a return than we would have gotten from Treasury Bills or ordinary short-term investments. If that’s terrible policy, then I want to avoid what those defining it as such define as good.

marinelife's avatar

@ETpro Actually, it would be worse if home prices fall more or we fall back into recession:

“Under that most pessimistic scenario, Fannie and Freddie might need to draw an additional $215 billion from Treasury to stay afloat. But under the most likely scenario — that the recovery keeps slogging along — Fannie and Freddie would need an extra $90 billion over three years.” NPR

Answer this question




to answer.

This question is in the General Section. Responses must be helpful and on-topic.

Your answer will be saved while you login or join.

Have a question? Ask Fluther!

What do you know more about?
Knowledge Networking @ Fluther