Oh, triple-crikey. God save us from bipartisanship again. Washington is in a tizzy over the Fannie Mae/Freddie Mac financial crisis. The stocks plunged yesterday and a former Fed governor declared them “insolvent.” Keep an eye on the markets this morning for more freefall. Panicked Republicans and Democrats have joined clammy hands to declare their fealty to these behemoth government-sponsored enterprises because they are “too big to fail.” The Drudge headline and descriptions in the MSM of a “takeover” are misleading. The long-troubled, corrupt institutions are already federally chartered, exempt from normal securities regulations, and enjoy multi-billion-dollar lines of credit from the US Treasury. This won’t be a “takeover,” but a massive, ginormous, Mother of All Bailouts:
Fannie Mae and Freddie Mac, the largest buyers of U.S. home loans, are too big for the government to allow them to fail, leading Republican and Democratic lawmakers said.
A government takeover of one or both companies is among several options that have been considered by White House officials, according to a person familiar with the discussions who spoke on condition of anonymity. Senior Bush administration officials are considering placing either or both firms in a conservatorship if their problems get worse, the person said.
The companies, which own or guarantee about half of the $12 trillion of U.S. mortgages, can count on a federal lifeline, said Republican Senator John McCain, and Democratic Senator Charles Schumer. Fannie Mae and Freddie Mac would have to post pretax losses and writedowns of about $77 billion before the U.S. would be compelled to start a rescue, according to estimates by Fox-Pitt Kelton and Friedman, Billings, Ramsey & Co.
“They must not fail,” McCain, of Arizona, said yesterday during a campaign stop in Belleville, Michigan. Fannie Mae and Freddie Mac “are vital to Americans’ ability to own their own homes,” he said at an earlier stop in the state, one of the worst affected by the surge in foreclosures.
The remarks by the presumptive Republican presidential candidate and Schumer, head of the Joint Economic Committee, indicate Congress would push the administration to use government funds to prevent the companies from failing.
The New York Times earlier today reported the government is considering a takeover of the companies, citing people briefed on the plan whom it didn’t name.
This morning, McCain says “I don’t think that there is a requirement for a government bailout” while reiterating that Fannie/Freddie “must not fail.” Cognitive dissonance, desperate straddling, or totally out of touch with reality? Take your pick. Even the free-market WSJ supports a federal bailout. Agh.
I’ve long warned of the inexorable bailout frenzy in the wake of last year’s stimulus-palooza. The Fannie/Freddie rescue will make the Bear Stearns bailout look like chickenfeed.