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We're All Homeowners: Nationalization of Fannie, Freddie Unavoidable
Posted Jul 08, 2008 12:09pm EDT by Aaron Task in Investing, Recession, BankingOn Monday, Freddie and Fannie shares plummeted after a Lehman Brothers analyst said a new FASB rule could require the two firms to write-down as much as $75 billion.
Rather than the accounting rules, what's really got investors spooked is a growing realization the government will have to nationalize Fannie and Freddie, says Kevin Depew, executive editor of Minyanville.com.
The two mortgage lenders are simply too big to fail and too critical to the housing market, Depew says. Given Fannie and Freddie own or guarantee 50% of all housing debt, according to the WSJ, continued stress on their balance sheets means higher borrowing costs for the firms, and ultimately higher mortgage rates for individuals. It also means another round of write-downs for the battered financial sector generally, which owns a lot of Fannie and Freddie-backed paper.
But nationalizing the firms, each created by an act of Congress, would mean a wipeout for equity holders, who have already seen their holdings decimated in the past year.
The nationalization of Fannie and Freddie and would put U.S. taxpayers on the hook for the socialization of the housing market, but Depew says we're already there whether we know it or not.
71 Comments
derrobb - Tuesday July 08, 2008 12:44PM EDT
right on fubar - just how long can the fed prop up these insolevant entities - the U.S taxpayer is getting hosed
russmyu - Tuesday July 08, 2008 12:50PM EDT
Our economy should be based on supply / demand. We need to let the housing market correct to levels that the population can afford. We cannot artificially prop up an overprice market and call ourselves a market based economy. Please let supply & demand control prices. The housing industry is overpriced based on income.
somest0ckguy - Tuesday July 08, 2008 12:52PM EDT
Haha, "moral hazard" is out the window. Let's just get it over with and raise the sickle and stars...
Yahoo! Finance User - Tuesday July 08, 2008 12:53PM EDT
He's not offering an opinion about it either way. He's commenting on the buzz from others about what is probably a certainty given the current state of affairs with these two GSEs.
Yahoo! Finance User - Tuesday July 08, 2008 12:55PM EDT
I thought we won the cold war and beat the commies? Guess not.
dvcambodia2000 - Tuesday July 08, 2008 12:57PM EDT
the meat has been picked from the bones so now it's time to dump it on the public. if it had any value whatsoever there would be no talk of nationalization.
Richard B - Tuesday July 08, 2008 12:59PM EDT
Welcome to the Communist States of Amerika!
nelsje13 - Tuesday July 08, 2008 12:59PM EDT
Taxpayers are already getting hosed. Nationalizing would mean tighter regulation so firms can no longer make risky investments using taxpayer money to back it up.
Yahoo! Finance User - Tuesday July 08, 2008 01:00PM EDT
Author of this article is an uninformed idiot. His status as an author should always be questioned if he cannot keep track of a simple fact. Fannie/Freddie and a bunch of other whale-sized loan operations are government sponsored enterprises (GSE) http://en.wikipedia.org/wiki/Freddie_Mac
mpapet - Tuesday July 08, 2008 01:01PM EDT
Author of this article is an uninformed idiot. His status as an author should always be questioned if he cannot keep track of a simple fact. Fannie/Freddie and a bunch of other whale-sized loan operations are government sponsored enterprises (GSE) http://en.wikipedia.org/wiki/Freddie_Mac
Velma M - Tuesday July 08, 2008 01:02PM EDT
bye bye Republicans --- that's all I can say.
wisdom-seeker@sbcglobal.net - Tuesday July 08, 2008 01:02PM EDT
NO SOCIALIZATION OF BANK LOSSES! THIS IS NOT "NATIONALIZATION", it is ROBBERY. People who did the right things should NOT pay for the mistakes of the FRAUDSTERS. PROTEST - This Thursday - Washington DC - http://www.tickerforum.org (see "General" and "Breaking" threads)
mulanijem - Tuesday July 08, 2008 01:07PM EDT
It makes you want to give up, I mean why work just let the gov bail you out. I should go out and buy a 500k McMansion with a neg amortizaton arm make one payment and then quite job and stop paying mortgage claim I'm a 'victime" and get bailout, also collect wellfare and foodstamps, and then if I have to get medical care pretend I'm an illeagle who does'nt speak english, of course when winter comes I will need more gov money to cover my heating bill for my 3000 sqf McMansion....Where is the motivation to get ahead? I'm tired of paying for wars for the rich and for subsidies to appease the poor...
Crazy Cheney - Tuesday July 08, 2008 01:08PM EDT
Why don't we privatize oil? Because the new capitalism only socializes losses not gains.
Yahoo! Finance User - Tuesday July 08, 2008 01:11PM EDT
Nothing wrong with owning houses, but will American taxpayers also take their flipside - mortgage debt?
Dale C - Tuesday July 08, 2008 01:13PM EDT
Isn't it amazing ... over the decades ... Some would argue with good cause, it goes all the way back to 1913 or so with the creation of the "FED" ... we just continue to move to being the United Socialist States of America. Whose to blame ... find the closest mirror ... and take a good look. Even back to the days of the great Depression ... look at photos from that era ... there is still determination in their eyes ... Folks there were VERY reluctant to accept the offer of government help, and when they did they did so with great reservation. NOW, we just stand in line with our collective hands out. Probably one of the better examples of the sheeple we have become is Katrina. Compare that terrible, terrible disaster with another, the 1906 San Francisco Earthquake ... Where was FEMA, The Federal Government Handouts ... it was the people, helping people along with what the Federal and State government could do .. NOT EXPECTED to do. Perhaps this is why I really fear the outcome of another great depression, I am afraid we no long have the metal that it takes to survive.
Jeff B - Tuesday July 08, 2008 01:13PM EDT
How about banks stop giving money to people who can't afford houses.
Dale C - Tuesday July 08, 2008 01:14PM EDT
Isn't it amazing ... over the decades ... Some would argue with good cause, it goes all the way back to 1913 or so with the creation of the "FED" ... we just continue to move to being the United Socialist States of America. Whose to blame ... find the closest mirror ... and take a good look. Even back to the days of the great Depression ... look at photos from that era ... there is still determination in their eyes ... Folks there were VERY reluctant to accept the offer of government help, and when they did they did so with great reservation. NOW, we just stand in line with our collective hands out. Probably one of the better examples of the sheeple we have become is Katrina. Compare that terrible, terrible disaster with another, the 1906 San Francisco Earthquake ... Where was FEMA, The Federal Government Handouts ... it was the people, helping people along with what the Federal and State government could do .. NOT EXPECTED to do. Perhaps this is why I really fear the outcome of another great depression, I am afraid we no long have the metal that it takes to survive.
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fubarrabuf - Tuesday July 08, 2008 12:35PM EDT
Why stop that Aaron? Why not "nationalize" oil while we are at it? What a joke, just what country am I living in? Your opinion is not only misguided it shows just how ignorant you really are...