In my column today, I contemplate the worst case
scenarios presented by an Obama administration, but there
aren't many things he could do that would be more frightening than
this:
Shares of Fannie Mae and Freddie Mac, the
beleaguered mortgage finance companies, were poised to plummet
again on Friday morning, as senior Bush administration officials
consider a plan to have the government take over one or both of the
companies and place them in a conservatorship if their problems
worsen, according to people briefed about the plan....
Under a conservatorship, the shares of Fannie and
Freddie would be worth little or nothing, and any losses on
mortgages they own or guarantee -- which could be staggering --
would be paid by taxpayers.
The government officials said that the administration had also
considered calling for legislation that would offer an explicit
government guarantee on the $5 trillion of debt owned or guaranteed
by the companies. But that is a far less attractive option, they
said, because it would effectively double the size
of the public debt.
Emphasis mine.
This is a scary example of creeping socialism. When they were
created in 1970, Fannie and Freddie were granted a relatively
modest $2.25 billion line of credit from the government. Though
they have never dipped into it, the implicit government backing has
allowed them to finance bond purchases at cheap rates. The whole
idea was to boost home ownership by spreading risk around so that
mortgage lenders were more comfortable issuing loans knowing they
would be backed by Fannie and Freddie. Of course, what this
translated into was companies issuing loans to people who weren't
credit worthy enough, and instead of risk getting spread out, it
actually became heavily concentrated into these two companies.
While neither of these mortgage financiers loan money directly
to consumers, they hold the bundled mortgages from the companies
that do, and as a result own or back more than half of the nation's
$12 trillion in mortgage debt. Nationalizing their debt, on top of
the tremendous potential costs involved, would mean the federal
government ultimately owning a massive portion of American
homes.
John McCain, sadly, has already come out in favor of some kind of
bailout for Fannie and Freddie.
topics:
John McCain, Business, Socialism
