# Gov't conservatorship of Freddie Mac & Fannie Mae! **URL:** \ **Category:** Great Debates\ **Created:** [September 6, 2008, 2:44am UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279 "2008-09-06T02:44:41Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Sevastopol](https://avatars.discourse-cdn.com/v4/letter/s/cdc98d/32.png) [@Sevastopol](https://boards.straightdope.com/u/Sevastopol)\ **Post date:** [September 8, 2008, 10:26am UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/21 "2008-09-08T10:26:06Z")
> [@Scylla](#): > > The scary thing, is that that’s about right. > > Even scarier is that that may be the best plan we’ve heard. If you have a better one, I’d love to hear it. Preface the plan with: “Left to its own devices the free market did this …” ---
**Author:** ![Bill\_Door](https://avatars.discourse-cdn.com/v4/letter/b/50afbb/32.png) [@Bill\_Door](https://boards.straightdope.com/u/Bill_Door)\ **Post date:** [September 8, 2008, 10:31am UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/22 "2008-09-08T10:31:30Z")
> [@elucidator](#): > > (snip)Alas! What is moving your family into an SUV compared to such \*real \*suffering? _Oh, tempura! Oh, morays!_ Well said. I’d like to stir fry some of these guys and feed them to the eels. ---
**Author:** ![slaphead](https://avatars.discourse-cdn.com/v4/letter/s/e9bcb4/32.png) [@slaphead](https://boards.straightdope.com/u/slaphead)\ **Post date:** [September 8, 2008, 3:08pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/23 "2008-09-08T15:08:08Z")
> [@Kilvert\_s\_Pagan](#): > > Call me nuts, but I’m glad to see this. Heck, even _The Economist_ has been calling for nationalizing the FMs. > > Our government was, for all practical purposes, on the hook for the losses anyway. What this move does is removes the absurd situation in which, if the FM’s make money, they get to keep it, but if they lose money the government covers it. That’s not reasonable (nor is it even capitalism), and it helped lead to the recklessness that got both entities into this mess. Not even that. Both those institutions are utterly and totally unecessary. Every other capitalist country that I know of manages just fine and dandy by just letting banks and thrifts/building societies originate, buy and sell mortgages. The whole government-guaranteed money-printing mortgage-gorilla seems to be a uniquely US invention. I’ve even seen arguments that by using their government subsidy to hog the ‘normal’ mortage market they helped push the normal banks further into the minefield of ‘alternative’ mortgates. ---
**Author:** ![Ludovic](https://avatars.discourse-cdn.com/v4/letter/l/7ab992/32.png) [@Ludovic](https://boards.straightdope.com/u/Ludovic)\ **Post date:** [September 8, 2008, 3:25pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/24 "2008-09-08T15:25:21Z")
> [@Sevastopol](#): > > Preface the plan with: “Left to its own devices the free market did this …” No, you see, because everyone knew they would get bailed out so there was no moral risk… ---
**Author:** ![mazinger\_z](https://avatars.discourse-cdn.com/v4/letter/m/5f9b8f/32.png) [@mazinger\_z](https://boards.straightdope.com/u/mazinger_z)\ **Post date:** [September 8, 2008, 4:50pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/25 "2008-09-08T16:50:33Z")
> [@slaphead](#): > > Not even that. Both those institutions are utterly and totally unecessary. Every other capitalist country that I know of manages just fine and dandy by just letting banks and thrifts/building societies originate, buy and sell mortgages. The whole government-guaranteed money-printing mortgage-gorilla seems to be a uniquely US invention. I’ve even seen arguments that by using their government subsidy to hog the ‘normal’ mortage market they helped push the normal banks further into the minefield of ‘alternative’ mortgates. Exactly. I would’ve thought that this New Deal legislation would’ve been struck down long ago. The opportunities for corruption is outstanding given that the government will ultimately guarantee the loans. The fact that they now have been taking investor money is even more ludicrous. This is government subsidized market distortion at its finest. ---
**Author:** ![elucidator](https://avatars.discourse-cdn.com/v4/letter/e/8edcca/32.png) [@elucidator](https://boards.straightdope.com/u/elucidator)\ **Post date:** [September 8, 2008, 5:03pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/26 "2008-09-08T17:03:28Z")
Have we, by any chance, a Marxist MBA on the Boards? There’s a lot of this I just don’t get, despite many years as a DFH, there’s a lot about fiduciary markets and shit I just don’t have a grasp on. For instance, I’m reading that common stock investors are set to lose about 80% of their money. And I’m saying to myself “This can’t be right, there’s a metric buttload of money from pension funds and stuff here, even some rich folks money, which is about as close to sacred as you get!” And I’ve been hearing about this looming crisis for years now, here it comes, they said, getting closer, they said, “Hello! It’s here!”, they’re saying. So when did the “smart money” start to bail out? Or did they really, no shit, _really_ just keep plowing it in and hoping that tomorrow is The Day but not today? Nonetheless, despite such grim tidings, the “stock market rallies on the good news!”. Huh? I crave an explanation. A respectful explanation, mind you, pat me on the head and you’d best count yer fingers after… ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [September 8, 2008, 5:26pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/27 "2008-09-08T17:26:58Z")
Wait…people think that Freddie Mac and Fannie Mae are examples of free market Capitalism?? Seriously? And that their failure illustrate why Capitalism doesn’t work? As for the questions in the OP, everything I’ve seen seems to indication a ‘were screwed’ answer, to one degree or the other. I don’t think there is going to be much difference in the amount of screwage whether it’s McCain or Obama gets the nod. Maybe in the long run this will be a good thing by getting this fucking monkey off our back…but I seriously doubt that either McCain or Obama (especially not Obama) are going to take the hard and painful path this would entail. -XT ---
**Author:** ![Throatwarbler\_Mangrove](https://avatars.discourse-cdn.com/v4/letter/t/8c91f0/32.png) [@Throatwarbler\_Mangrove](https://boards.straightdope.com/u/Throatwarbler_Mangrove)\ **Post date:** [September 8, 2008, 5:37pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/28 "2008-09-08T17:37:25Z")
Canada has a similar system: > **[Canada Mortgage and Housing Corporation](https://en.wikipedia.org/wiki/Canada_Mortgage_and_Housing_Corporation)** > > Canada Mortgage and Housing Corporation (CMHC; French: Société canadienne d'hypothèques et de logement, SCHL) is Canada's federal crown corporation responsible for administering the National Housing Act, with the mandate to improve housing by living conditions in the country. > Originally established after World War II to help returning war veterans find housing, it has since seen its mandate expand to the mandate of improving access to housing overall. > The CMHC operates with a primary mandate ... ---
**Author:** ![ParentalAdvisory](https://avatars.discourse-cdn.com/v4/letter/p/53a042/32.png) [@ParentalAdvisory](https://boards.straightdope.com/u/ParentalAdvisory)\ **Post date:** [September 8, 2008, 7:16pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/29 "2008-09-08T19:16:44Z")
> [@SmartAleq](#): > > [From the New York Times.](http://www.nytimes.com/2008/09/06/business/06fannie.html?_r=2&hp&oref=slogin&oref=login) > …and anybody who needs a home loan or a refinance in the foreseeable future had pretty much better just kiss the concept goodbye. Doubtful. Anyone who needs a home loan or refi in the future, that can afford it, will get their loan (none of this 500k house on 50k salary crap, and you need a sizable down payment). The banks are not going to turn away someone like that. ---
**Author:** ![SmartAleq](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/smartaleq/32/163_2.png) [@SmartAleq](https://boards.straightdope.com/u/SmartAleq)\ **Post date:** [September 8, 2008, 8:03pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/30 "2008-09-08T20:03:31Z")
[On a related note–Sarah Palin makes it painfully obvious that she has no idea what the FM’s are or what they do.](http://www.huffingtonpost.com/2008/09/08/palin-makes-her-first-gaf_n_124792.html) :dubious: Isn’t it bad enough that the Republican led lack of oversight and regulation is responsible for the subprime mortgage bubble that’s driving the conservatorship of the FM’s without the GOP VP candidate showing the kind of abysmal ignorance that’s not likely to result in effective handling of the situation in future? So far McCain’s been for breaking it all up and privatizing the whole shebang, but I’m not seeing this as an optimum solution. I’m also not sure that nationalizing it is the best bet either, although it’s probably safer in many ways. I guess all we can be absolutely sure of is that it’s going to be a long, bumpy road with some very expensive stops on the way involving much misery to regular type folks before this whole mess gets settled. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [September 8, 2008, 8:24pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/31 "2008-09-08T20:24:10Z")
From [James Howard Kunstler’s](http://www.kunstler.com/) “Clusterfuck Nation” column, 9/8/08: > [@](#): > > Fannie and Freddie are near the center of this black hole of debt. So far, the black hole has been “papered over” by the old stage magician’s trick of diverting the audience’s attention. The systemic wound that Bear Stearns represented, was covered up with a band-aid applied by the Federal Reserve’s exchange of loans for worthless securities. In fact, the capital of Bear Stearns actually did disappear – a mere residue of it, a few cents on the dollar, was shifted to JP Morgan as payment for taking the wrapper off the band-aid. But, basically, the money is gone. > > Now, the same thing has happened with Fannie and Freddie, except that the scale is an order of magnitude greater. This time, the US Treasury Department is assuming worthless paper and paying out much larger loans to enterprises that are functionally bankrupt. The exact nature of the government’s chartered “sponsorship” has always been ambiguous. Professional opinion has generally held that government backing was implied rather than explicit – but that’s a ridiculous internal contradiction that went unchallenged for decades as Fannie and Freddie’s Ponzi-style operation lumbered on (and their executives made off with obscene payouts). Now the government’s role has suddenly been made explicit. It will probably only make things worse, since the enterprises are too big and over-scaled to work under any circumstances, let alone insolvency. > > One thing this points to is a truth that is uniformly overlooked by kibitzers: that what we developed over the past decade in America was not an “information economy” or a “consumer economy” but a suburban sprawl building economy, meaning an economy dedicated to building a living arrangement with no future. The climax of the sprawl building economy occurred in absolute lockstep with the climax of peak oil. You can date it virtually to the month – May, 2005. After that, the future asserted itself and all the financial expectations bound up with sprawl-building went up in a vapor – including the value of mortgages on suburban houses. Everything that followed has been an attempt to cover up this basic reality: that the way we live in America can’t continue. > > The reason our energy debate is so hollow and idiotic is because we can’t face this basic reality. The fantasy-du-jour among both political parties is that we can become “energy independent.” By this they mean we can keep on living the way we do by means other than oil. This is just not true. We have to make profound changes in everything we do from the way we inhabit the landscape to the way we produce our food. Lately, the only change we’ve shown any interest in is changing what our cars run on. But that is not going to rescue us, not even a little. Our inability to talk about anything else except the cars will drag us down into poverty and turmoil. > > The housing market is not coming back. Ever. In the form that we knew it. The suburban project is over. That version of the American Dream is over. We’ll be a lot better off if we put aside dreaming altogether for a while and start focusing on reality instead – that part of the day when we’re awake and capable of actually doing things. We’ve got a lot to face and a lot to do. ---
**Author:** ![Strassia](https://avatars.discourse-cdn.com/v4/letter/s/e8c25b/32.png) [@Strassia](https://boards.straightdope.com/u/Strassia)\ **Post date:** [September 8, 2008, 8:37pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/32 "2008-09-08T20:37:30Z")
> [@ParentalAdvisory](#): > > Doubtful. Anyone who needs a home loan or refi in the future, that can afford it, will get their loan (none of this 500k house on 50k salary crap, and you need a sizable down payment). The banks are not going to turn away someone like that. Yes and no. We bought our place near the peak of the market. My wife is always looking at the real estate closes near us and we saw a nearby unit identical to ours that sold for about 7% less (we are on the San Fran peninsula which has held up better than many other places). It sounds like we bought at the right time, but I took a look at the mortgage rates and the best we could have done would have been a percentage point higher. We would have saved a few thousand on the down payment, but our monthly payments woudl have been at least 400 dollors more. And that was before the FM issue. The prime rate is currently lower than when we financed and they raised the conforming limits since then, but the banks have kept the rates higher even on low risk loans because of all the bad loans that worry them. Now, if the FM’s go away or just stop buying loans for a while the banks will need to tighten up even more. Someone who can easily afford a 30 yr fixed at 6.5% may not be able to swing it at 10%. Eventually the housing prices should come down to compensate, but you are paying more for a less valuable assett. ---
**Author:** ![threemae](https://avatars.discourse-cdn.com/v4/letter/t/5f9b8f/32.png) [@threemae](https://boards.straightdope.com/u/threemae)\ **Post date:** [September 8, 2008, 8:57pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/33 "2008-09-08T20:57:31Z")
Would anyone in this thread care to have a serious discussion about the events leading up to or the actual bail out of the FM’s? So far the commentary has been rather asinine and it truly makes me wonder if the level of understanding of how they work [worked] or the manner in which the government will take them over parallels that of Governor Palin. Not a single person on this board except for maybe **Liberal** or some other libertarian or extreme financial conservative from its inception in 1999 to 2007 would have argued that the FM’s should never have been created or that the government should fully privatize them back when things were good. The FM’s are failing in the manner prescribed by their charter. Should the government never have created GSE’s with the purpose of extending home ownership through more levels of society than apparently could have truly afforded home ownership? Maybe not. But we as a country have long valued home ownership and set up the political infrastructure to provide relatively easy financing for homes compared with other types of debt. As it stands, I bow before all of your abilities to Monday morning quarterback. If you have any sort strength of conviction about this topic, I eagerly await the posts stating that the government should stop effectively reinsuring student loans too. As it stands, “rabble rabble rabble, those damn CEO’s and investors, (which, by the way, are effectively entirely wiped out by this), screwing the little guy somehow in a way that I don’t understand.” ---
**Author:** ![mazinger\_z](https://avatars.discourse-cdn.com/v4/letter/m/5f9b8f/32.png) [@mazinger\_z](https://boards.straightdope.com/u/mazinger_z)\ **Post date:** [September 8, 2008, 9:23pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/34 "2008-09-08T21:23:22Z")
> [@elucidator](#): > > For instance, I’m reading that common stock investors are set to lose about 80% of their money. And I’m saying to myself “This can’t be right, there’s a metric buttload of money from pension funds and stuff here, even some rich folks money, which is about as close to sacred as you get!” This depends on how people invested. For some people, they invest in the stock of Fannie Mae/Freddie Mac. Others invest in a mutual fund that has this stock in its portfolio. If it was paying out, and in an effort to keep bonuses and customers, the mutual fund (or whatever fund bought into it) was probably buying more of it. Now, with the price of the stock tanking and the lack of consumer confidence in it, investors are now going to have to sell most likely at a lost. My guess is that the stock was considered blue-chip or otherwise steady and worthwhile to have in one’s portfolio. With the rampant selling, the price drops even more so. > [@](#): > > And I’ve been hearing about this looming crisis for years now, here it comes, they said, getting closer, they said, “Hello! It’s here!”, they’re saying. So when did the “smart money” start to bail out? Or did they really, no shit, _really_ just keep plowing it in and hoping that tomorrow is The Day but not today? The really smart money bailed out a year ago, but it was probably mostly guessing at that point. Up until recently, the rest of the market had to hear about how bad things were from the quarterly statements or from third parties. This event will most likely cause even tighter restrictions wrt lending, and require more cash up front. Hopefully, the government will free up FM and allow it compete in the open market, and hopefully, allow more competition for loans, making it eventually cheaper for consumers. > [@](#): > > Nonetheless, despite such grim tidings, the “stock market rallies on the good news!”. Huh? I crave an explanation. A respectful explanation, mind you, pat me on the head and you’d best count yer fingers after… The stock market rallied on the good news because they know that the US government will not let the FM fail. Ultimately, if failings do happen, it will cost the tax payers and consumers in the end. The danger, the reason for the sell off, was because investors felt that the government would let FM fail. By having the government step in, investors are hoping that FM will continue operations and to help with the market of buying and selling of homes which are huge industries in of themselves, and touch the economy in so many ways. Anyone want to gamble? FNM is trading at $0.75. There’s gotta be more value in there than that. ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [September 8, 2008, 9:49pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/35 "2008-09-08T21:49:24Z")
> [@Kilvert\_s\_Pagan](#): > > … the absurd situation in which, if the FM’s make money, they get to keep it, but if they lose money the government covers it. That’s not reasonable (nor is it even capitalism), and it helped lead to the recklessness that got both entities into this mess. I disagree as to it not being capitalism. In a capitalist state, the government works for the wealthy landowner/investor class. Catching flak is part of that; taking losses for the bosses is too. ---
**Author:** ![mazinger\_z](https://avatars.discourse-cdn.com/v4/letter/m/5f9b8f/32.png) [@mazinger\_z](https://boards.straightdope.com/u/mazinger_z)\ **Post date:** [September 8, 2008, 10:19pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/36 "2008-09-08T22:19:04Z")
> [@foolsguinea](#): > > I disagree as to it not being capitalism. In a capitalist state, the government works for the wealthy landowner/investor class. Catching flak is part of that; taking losses for the bosses is too. Care to expand on that a little? :dubious: The government ensures property rights and advocates a free market economy. There is also private ownership of property. You can also throw in some convoluted definition of the commdoitization of products and output supply, but that’s something full-time economists would quibble over. ---
**Author:** ![Throatwarbler\_Mangrove](https://avatars.discourse-cdn.com/v4/letter/t/8c91f0/32.png) [@Throatwarbler\_Mangrove](https://boards.straightdope.com/u/Throatwarbler_Mangrove)\ **Post date:** [September 8, 2008, 10:23pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/37 "2008-09-08T22:23:30Z")
That’s the Marxist view of a capitalist society - the Bourgeoisie establish themselves as the ruling class and own all means of production as well as the means of coercion (i.e. the state, armed forces. etc). ---
**Author:** ![Leaper](https://avatars.discourse-cdn.com/v4/letter/l/4bbf92/32.png) [@Leaper](https://boards.straightdope.com/u/Leaper)\ **Post date:** [September 8, 2008, 10:55pm UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/38 "2008-09-08T22:55:00Z")
> [@BrainGlutton](#): > > From [James Howard Kunstler’s](http://www.kunstler.com/) “Clusterfuck Nation” column, 9/8/08: … Aaaaaand Peak Oil again. 🙂 (Yes, I know that it _can_ be connected to a huge variety of topics; I’m just not sure if it _should_, at least in this case; its effect on where people should build their homes strikes me as a whole other topic, even if it is related.) ---
**Author:** ![Lumpy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lumpy/32/446_2.png) [@Lumpy](https://boards.straightdope.com/u/Lumpy)\ **Post date:** [September 9, 2008, 2:03am UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/39 "2008-09-09T02:03:32Z")
So what does all this mean to someone who currently holds a mortgage and can continue paying it- if allowed to. Are we in danger of being told that (1). The equity we built in our home no longer exists- it vanished into our mortgage-holder’s debt? And (2). We now immediately owe the full value of our house, because the people who promised to wait to be repayed aren’t in business anymore, and the people who now own their holdings want their money now? ---
**Author:** ![threemae](https://avatars.discourse-cdn.com/v4/letter/t/5f9b8f/32.png) [@threemae](https://boards.straightdope.com/u/threemae)\ **Post date:** [September 9, 2008, 2:50am UTC](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279/40 "2008-09-09T02:50:12Z")
> [@Lumpy](#): > > So what does all this mean to someone who currently holds a mortgage and can continue paying it- if allowed to. Are we in danger of being told that (1). The equity we built in our home no longer exists- it vanished into our mortgage-holder’s debt? And (2). We now immediately owe the full value of our house, because the people who promised to wait to be repayed aren’t in business anymore, and the people who now own their holdings want their money now? Consult a professional for definitive advice, but no, absolutely not. The FM’s are now run by the goverment, but they will still continue to largely operate as they have in the past with the prime exception being that the US Treasury rather than the FM’s specific balance sheets backing up the debt that the FM’s resell on the debt markets. In fact, under government ownership, the FM’s will continue to make _new_ loans even. The entire point of this takeover is to minimize disruption to the credit markets and continue to make it affordable to borrow money to buy houses and keep some semblance of liquidity in the housing markets. I’m not sure of the details but I understand that the Treasury Department ultimately wants to unwind the FM’s positions over a two to three year time-frame with the hope that private lenders will have a chance to slowly enter and takeover the market in that period. For a more thorough explanation, follow the NY Times, The Economist, The WSJ, or any other semi-respectable news source. [http://www.nytimes.com/2008/09/08/business/08takeover.html?scp=9&sq=freddie&st=cse](http://www.nytimes.com/2008/09/08/business/08takeover.html?scp=9&sq=freddie&st=cse) [http://www.economist.com/finance/displayStory.cfm?story\_id=12078933&source=features\_box\_main](http://www.economist.com/finance/displayStory.cfm?story_id=12078933&source=features_box_main) [Previous page](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279.md?page=1) [Next page](https://boards.straightdope.com/t/govt-conservatorship-of-freddie-mac-fannie-mae/462279.md?page=3)