A government bailout of Fannie Mae and Freddie Mac would cost U.S. taxpayers $25 billion over the next two years under a plan being proposed by the Bush administration, according to an analysis by the Congressional Budget Office.The July 14th proposal by the administration would grant the Secretary of the Treasury temporary authority to purchase obligations and other securities issued by Fannie, Freddie and the Federal Home Loan Banks. Congress is expected to vote on the proposal soon.
CBO used historical data to estimate expected losses on the different types of credit risk the GSE's (government-sponsored enterprises) have in their portfolios.
"That analysis suggested that there was more than a 50 percent chance that the GSEs' future losses would not exceed those already recognized, but there was almost a 5 percent chance that the added losses will total more than $100 billion," the CBO said
Though Treasury Secretary Hank Paulson has said a bailout is not necessary, the stock market sure seems to think one is coming. In a speech today, Paulson argued that it was critical that Congress approve the lifeline to Fannie and Freddie quickly because their continued operations were "central to the speed with which we emerge from this housing correction," according to the Associated Press..
Even those numbers sound huge, members of Congress breathed a sigh of relief after the report's release. As Bloomberg News noted, Sens. John Tester and Richard Shelby said they were concerned that the bailout costs could reach $1 trillion.
About the only positive thing that will come from all of this is that the American public may finally understand the role played by Fannie and Freddie in the housing market thanks to an endless series of 30-second political commercials.
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Reader Comments (Page 1 of 1)
7-22-2008 @ 5:38PM
twowhel said...
This cure is far too simple for politicians to use:
Create Tax Free Gov Bond investment into Fannie-Freddie to raise cash. Coupon fixed at 1.0% below rate offered on new home loans (spread for service and expense) and put them in business making loans. Also take all loans that are set at higher rate, do one time only modification and extension and let the people keep their homes rather then be FC out. Those that don't do this deal did not want home or could not afford in first place. Will save taxpayer money; will give incentive for people to invest; will cause people to keep their home; will keep real estate market from crashing.
Far to easy for any Dem or Repub to figure out.....