Feds to take over Fannie Mae, Freddie Mac

http://freakonomics.blogs.nytimes.com/2008/07/28/from-good-t...

If the people leading the company are the same, though, then it would seem to contradict his theory, which (as I recall) places the greatest emphasis on that factor.

http://en.wikipedia.org/wiki/Take_Out_The_Trash_Day

http://www.economist.com/finance/displaystory.cfm?story_id=1...

An extremely oversimplified answer is that it would hurt confidence in the dollar, which would further damage its status as the foreign federal reserve currency, which would cause further inflation in the US.

http://en.wikipedia.org/wiki/Chrysler#Government_loan_guaran...

We are seriously compromising the well-being of future generations of this country in order to bail-out over-consuming house-owners and fat-cats in Wall Street. Absolutely outrageous.

Since Fannie and Freddie were implicitly backed by the Fed, they were able to leverage their capital much more than a normal bank in taking on loans -- only a few percent of their issued loans were backed up by real money. These beasts were designed to be too big to fail, and in the unlikely event that they did fail, the companies' histories indicated that the Fed would step in. This is a huge advantage for the two companies, and over the years they essentially squeezed other banks out of the prime mortgage market.

The entire housing market therefore depends on the ability of Fannie and Freddie to buy up the mortgage loans that other banks issue. Without them, the pool of available capital to support those loans would suddenly shrink dramatically, meaning much fewer loans can be issued. Meaning none of us could buy a house for the next few years.

The Fed is stepping in because (1) they created both companies originally, though they cut the umbilical cord at some point; (2) they're still tied into the companies' finances in various ways; and (3) crippling the housing market and setting off a chain reaction of more bank collapses is not something this economy needs, particularly in an election year. There are a few other government-sponsored enterprises that would also get this sort of rescue if needed. Boeing isn't one of them, but as a matter of national security, I doubt the government would allow them to fail. (I still can't quite explain why Bear Stearns got bailed out, but they did.)

Either the offered price is less than what these assets could otherwise be sold for (i.e. the transaction won't happen) or it's more (in which case the price criticism doesn't make sense).

Other than that, decent but fear-mongering article. Pretty much any scheme by which you exchange cash for a set of promised future cash payments is bound to be abused at some point. There is very little new here, except that this is another quasi-guaranteed asset.

Well, now that they have been nationalized, it's more like 100%. From my understanding (as gleaned from the Economist), this will wipe out shareholders, both common and preferred.

But either way, I think the Feds are doing a good thing, as these guys were pulling Enron-style shenanigans, (guaranteeing their own mortgages, etc) and dominating the conforming mortgage market due to their access to cheap debt. Let regular banks step in and serve that market, instead of being confined to riskier mortgages that the two giants weren't allowed to buy.

When a company isn't run by it's shareholders and beholden to the market, bad things happen. Many of the choices made by both groups wouldn't have made it had there been better oversight.

Government involvement was the problem here, not capitalism.