The Treasury hasn't - and won't - use the term "nationalization" to describe its plan for housing, Fannie Mae and Freddie Mac. It doesn't have to. It's clear enough.
In a remarkable turn of events, the Treasury announced today it will take over Fannie (FNM) and Freddie (FRE). The plan includes billions in purchases by the government of preferred shares of these two companies. It also provides a lending facility from the Treasury to a general fund. Watch for the common stock of these two companies to collapse tomorrow.
Treasury Secretary Hank Paulson would not say "nationalization" in the announcement of the plan, but his comment that the government will "have a large stake in the future value of these entities" says it all. The government (a.k.a. you, the taxpayer) is now gambling on the housing market and home prices. Remember whenever there are discussions of Treasury Department bailouts, you can generally substitute "taxpayer" for "Treasury." While the Treasury can "print" money and not necessarily be forced to grab it in the form of direct taxpayer dollars, the new money also has a deleterious effect on inflation and the value of the dollar. Simply put, there is no such thing as free money and in the end we will all pay somehow.
While all Americans should be upset, there are two groups who should be livid: those who own their homes outright, and those who waited patiently to buy a home.
This bailout was ultimately caused by irresponsible lending and the subprime mania of the last few years. The group that played no part in this are those who had already bought and paid off a home. They were outsiders looking in. But as taxpayers they will also likely be on the hook.
The other group are those who correctly believed that home prices would come down and waited to buy. Not only is credit much tighter now than it had been, possibly making it more difficult to buy a home even with more cash down, but there could be an artificial floor placed on home prices. The Wall Street Journal notes that while this isbad news for taxpayers, it's likely good news for homeowners, at least in the short term. Instead of allowing a free market of supply and demand to determine future home values, there is now a distinct federal interest in keeping home prices higher because it would help the value of the securities that the government is buying.
How far we have fallen since mid-summer. Remember the constant reassurance that these companies are adequately capitilized and will not be taken over by the taxpayer? Either officials didn't know the severity of the problem or denied it, hoping home prices would rise and raise the capital base of Fannie and Freddie. Regardless of which one of those it was, it's frightening.
Congress loves to hold hearing after hearing about high oil prices, looking desperately for blame. The shame is that no one in Washington - Republican or Democrat - said a word as the housing bubble inflated dangerously. As I wrote about on June 24th, apparently to Congress its not the bubble that matters, but the kind of bubble. If everyone is benefiting, it's fine. If its just the "evil" oil companies, it's wrong. Either way, it's just sad.
There is much more to come on this incredible (and tragic) story ... stay tuned to Fox Business.
Dozens of people have been warning of this impending economic disaster for decades,a fellow named Stormer wrote Death of a Nation and Some call it Treason back in the sixties.The problem is the media mock and silence all those who were trying to warn the sheep.Did you not notice how the media put down Ron Paul,turns out he,s been predicting this mess for a long time.The solution, my fellow sheep, is to educate yourselves,disregard the media,and get involved.Now this may require that we watch a little less basketball or football on tv, but I can assure you,once the politicians and media realize that the sheep have awoken,they will be more cautious spending our money.
September 10, 2008 at 10:19 pm
Cal
This is all Congress's fault. Why aren't we lining our politicians up against a brick wall?
September 10, 2008 at 4:47 pm
Dave Young
Housing markets are local markets, not a national market. The bubble is actually several local bubbles, some bigger than others. The biggest bubbles are inflated by aggressive housing development/ speculation....they should be dealt with locally (eg - auctions,regional solutions). The US taxpayer who lives outside these bubbles ( where housing prices never got out of hand in the first place) should be exempt from Fannie and Freedie bailout subsidation - how about letting Adam Smith`s "invisible hand" do its work?
Have we all lost faith in free market capitalism?
September 10, 2008 at 10:32 am
Dan
Why does everyone speak of all democrats and Republicans lied? What about Ron Paul, he's been warning Americans on theses issues for years.
September 9, 2008 at 3:01 am
Jeff Kannensohn
While I am a life long Republican, I am appalled by how both parties have sat by while Fredie, Fannie and the FED have pumped huge sums of money into the market place enabbling people that had no business buying homes (most of them on speculation) resulting in a hugh drive up of real estate prices to an irrational high. This was clearly predictable as early as 5 years ago. I am a real estate and banking attorney, and have also been appalled at the totally irresponsible approach to lending that most lenders had in the last five years. Now, we the taxpayers, are left holding the bag. We should be outraged and throw both parties out of office, but as usual, we "sheep" will merely sit by and swallow hard while the politicians and experts merely wring their hands.
September 8, 2008 at 4:42 pm
mark smith
on target brian, well done.
Treasury Secretary Hank Paulson ..intesting he can lie just like a russian
September 8, 2008 at 3:02 pm
Ted Sherman
Brian,
Whose fault do you think it is. It is a complacent electorite that sits back and watches its government print money like it is a donut shop. Social Security has been raided every year for 20 years building up a 2 trillion dollar bill. President Bush tried to stop it by telling us that if YOU CHOOSE to you can put your money into the stock market and if you don't the SSA will be there for you. The only catch is that it will cost that 2 trillion I mentioned earlier or we could in 10 years pay 10 trillion dollars. This is the same thing. The bleeding of the housing market has to stop. Is this it no, but what is the alternative? The market has taken this as far as our economy can go. If we had demanded better stewardship of our banks and government none of this would be neseccary. A gimmy society is now front and center and hopefully the me only society of 300 million will figure that they are not the only ones who matter. Next time you are on TV tell us thank you for the mess we are in I hope you (the american people)learn something from this. I won't hold my breath but it is worth a shot.
September 8, 2008 at 1:03 pm
Justin
Today's rally is already starting to fizzle out. We'll be on the hook for at least a trillion dollars of losses before it's all over. Maybe even more. We are no where near a bottom in housing. Who can buy the excess inventory when credit from over leveraged banks is as tight as a snare drum, rates are rising (and will continue to rise much higher), unemployment is rising, and inflation is eating away the purchasing power of the dollar.
September 8, 2008 at 12:04 pm
aboutthis blog
Brian Sullivan joined FOX Business Network (FBN) in April 2008 as an anchor. He co-anchors the 10am-12pm ET hours of the FOX Business block.
Prior to joining FBN, Sullivan served as an anchor for Bloomberg Television where he hosted the programs Morning Call and In Focus.
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B Scott
Dozens of people have been warning of this impending economic disaster for decades,a fellow named Stormer wrote Death of a Nation and Some call it Treason back in the sixties.The problem is the media mock and silence all those who were trying to warn the sheep.Did you not notice how the media put down Ron Paul,turns out he,s been predicting this mess for a long time.The solution, my fellow sheep, is to educate yourselves,disregard the media,and get involved.Now this may require that we watch a little less basketball or football on tv, but I can assure you,once the politicians and media realize that the sheep have awoken,they will be more cautious spending our money.
Cal
This is all Congress's fault. Why aren't we lining our politicians up against a brick wall?
Dave Young
Housing markets are local markets, not a national market. The bubble is actually several local bubbles, some bigger than others. The biggest bubbles are inflated by aggressive housing development/ speculation....they should be dealt with locally (eg - auctions,regional solutions). The US taxpayer who lives outside these bubbles ( where housing prices never got out of hand in the first place) should be exempt from Fannie and Freedie bailout subsidation - how about letting Adam Smith`s "invisible hand" do its work? Have we all lost faith in free market capitalism?
Dan
Why does everyone speak of all democrats and Republicans lied? What about Ron Paul, he's been warning Americans on theses issues for years.
Jeff Kannensohn
While I am a life long Republican, I am appalled by how both parties have sat by while Fredie, Fannie and the FED have pumped huge sums of money into the market place enabbling people that had no business buying homes (most of them on speculation) resulting in a hugh drive up of real estate prices to an irrational high. This was clearly predictable as early as 5 years ago. I am a real estate and banking attorney, and have also been appalled at the totally irresponsible approach to lending that most lenders had in the last five years. Now, we the taxpayers, are left holding the bag. We should be outraged and throw both parties out of office, but as usual, we "sheep" will merely sit by and swallow hard while the politicians and experts merely wring their hands.
mark smith
on target brian, well done. Treasury Secretary Hank Paulson ..intesting he can lie just like a russian
Ted Sherman
Brian, Whose fault do you think it is. It is a complacent electorite that sits back and watches its government print money like it is a donut shop. Social Security has been raided every year for 20 years building up a 2 trillion dollar bill. President Bush tried to stop it by telling us that if YOU CHOOSE to you can put your money into the stock market and if you don't the SSA will be there for you. The only catch is that it will cost that 2 trillion I mentioned earlier or we could in 10 years pay 10 trillion dollars. This is the same thing. The bleeding of the housing market has to stop. Is this it no, but what is the alternative? The market has taken this as far as our economy can go. If we had demanded better stewardship of our banks and government none of this would be neseccary. A gimmy society is now front and center and hopefully the me only society of 300 million will figure that they are not the only ones who matter. Next time you are on TV tell us thank you for the mess we are in I hope you (the american people)learn something from this. I won't hold my breath but it is worth a shot.
Justin
Today's rally is already starting to fizzle out. We'll be on the hook for at least a trillion dollars of losses before it's all over. Maybe even more. We are no where near a bottom in housing. Who can buy the excess inventory when credit from over leveraged banks is as tight as a snare drum, rates are rising (and will continue to rise much higher), unemployment is rising, and inflation is eating away the purchasing power of the dollar.