Taxpayers picking up the tab again
The New York Times leads with a piece on the pending taxpayer bailout of Fannie Mae and Freddy Mac for the second day in a row. Expect more to follow as the official announcement will probably come sometime later today. Today we learn:
The government’s planned takeover of Fannie Mae and Freddie Mac, expected to be announced on Sunday, came together after advisers poring over the companies’ books for the Treasury Department concluded that Freddie’s accounting methods had overstated its capital cushion, according to regulatory officials briefed on the matter.
But have no fear, the U.S. taxpayer is here!
The proposal to place both companies, which own or back $5.3 trillion in mortgages, into a government-run conservatorship also grew out of deep concern among foreign investors that the companies’ debt might not be repaid. Falling home prices, which are expected to lead to more defaults among the mortgages held or guaranteed by Fannie and Freddie, contributed to the urgency, regulators said.
Investors who own the companies’ common and preferred stock will suffer. Holders of debt, including many foreign central banks, are expected to receive government backing. Top executives of both companies will be pushed out, according to those briefed on the plan.
How much is the bill on this one? We don't seem to have an exact figure but estimates are in the tens of billions.
And if you are wondering just how this happened, again? Please do read the full article for all the details, at least as many as are available at this time. But the last paragraph is one that we need to remember, especially come election time this year.
“We have just had to nationalize the two largest financial institutions in the world because of policy makers’ inaction,” said Josh Rosner, an analyst at Graham Fisher, an independent research firm in New York, and a longtime critic of the government-sponsored enterprises. “Since 2003, when these companies’ accounting came under question, policy makers have done nothing.”
In other words, this didn't have to happen and even if it did, the losses could have been much lower.