By Mike Colpitts
Oh, how I hope the majority is wrong!
The Bush Administration is handing over a proposal to Congress for the U.S. government to buy stock in America’s two biggest insurers of home mortgages, Fannie Mae and Freddie Mac. The plan would buy stock to keep them afloat, and essentially transforms both companies into government backed conduits to keep the country’s mortgage business running. As recently as this month, the two supply the funds for as much as two-thirds of all home mortgages.
If Congress approves the plan, which Bush felt pushed into the corner to produce after both companies stock took record tumbles on Wall Street last week, as a nation we will turn a new corner in American financial history. Fannie Mae and Freddie Mac are going to be owned essentially by the American tax payer for better or worse. – Good bye to the illusion of the free market when it comes to lending.
That’s right! — Just not home mortgages but all of lending. The mortgage companies, banks and Wall Street have robbed us blind and until now I think far too few people have realized it unless you’ve been one of the millions who have been foreclosed. It isn’t just the poor subprime borrowers anymore.
The fact is we really haven’t had completely free business markets in this country for decades. People like to tout “free market capitalism.” But there’s no disputing the facts. Governments make or at least try to control the markets and by their very actions take “FREE” out of the equation. We’ve liked to live under the illusion of free markets in America for years. But now as the nation ages, the rose colored glasses are being replaced. As they say, there’s a price to pay for everything.
Faced with the serious threat of another Great Depression, President Bush finally appears to have gotten something significant going with his advisors. Consumer confidence is in the tank– at historical lows. In a Housing Predictor survey 81% said they believed Congress would fail to come up with a solution to the nation’s housing crisis. Oh, how I hope the majority is wrong.
The plan will be criticized heavily on both sides of Congress, but needless to say a major “FIX” is needed in the nation’s financial mess. Fannie Mae and Freddie Mac executives, mortgage executives, and lenders at all levels made fortunes during the boom. The mania of markets is tough to judge because in its simplest form the manias are driven by the madness of people. It’s a case of privatized gains and socialized pain.
Jim Crammer, the host of CNBC Mad Money, who speaks from the heart, says President Bush blinked. “The crisis,” he wrote, “which is going to claim most of America’s banks, could not claim Fannie and Freddie Mac without causing a second Great Depression…”
The two companies guarantee or hold mortgages valued at upward of $5 trillion. Fannie has $800 billion in debt today, while Freddie has $740 billion as the nation’s two biggest holders of mortgages. Without government assistance foreclosures could well wipe them out.
The bail out for the housing market may play hell with the U.S. dollar and Wall Street for sometime. Each company has now had their credit lines increased by the Fed. It was inevitable that the government steps in to bail them out, which essentially means Congress is going to be forced to cooperate. We’re now in the 11th hour and the government is trying to keep us out of another Depression – not that they’ll ever say that publicly. Actions are what counts.
Oh, how I hope the majority is wrong!