To The Rescue

Hank Paulson's announced some dramatic measures to prevent a Fannie/Freddie collapse where, among other things, he's going to ask congress to approve an increase in the debt ceiling so that the government can buy up a lot of their stock. Basically, it seems like a quasi-nationalization to me though I'll be interested to see what more serious econ types think in the morning.

Meanwhile -- the shocking true tale of how these companies managed to evade oversight is worth a read. Chuck Schumer done bad.

Comments

Watch the dollar drop, gas go up, as the US treasury backs nearly 5 trillion in debt. My bet, the DOW dips below 10K this week.

But remember, you whiners, that its all in your head.

Posted by jvoe | July 13, 2008 10:59 PM

Yeah, this isn't a failure, we're just opening the doors to the treasury so the government can buy as much stock as necessary to recapitalize them. Dollar to the basement, oil and gold to the moon.

Posted by daveNYC | July 13, 2008 11:03 PM

Also see this piece in the New York Times.

This may be one of the rare cases where the Democrats come out looking worse than the Republicans.

Posted by ed | July 13, 2008 11:12 PM

I don't see where this article says Treasury is buying stock in Fannie or Freddie. Can somebody excerpt that part for me?

APS

Posted by Ape Man | July 13, 2008 11:20 PM

"Housing policy" has turned into this disaster because it was never a "housing policy" to begin with. It was (and is) a reward to the powerful real estate/banking interests which bankroll both parties.

It's also a monument to the the stupidity of the American sheeple that they can be conned into supporting any nonsense as long as it's dressed up with mom and apple pie crap like "promoting home ownership", "building stronger communities", and "building the American Dream". Thus the "poor victim who is in danger of losing his home" is just a front for bank and private company bailouts.

And finally, you gotta love how our gov't, itself going broke, is now going to prevent others from going broke.

Monumental idiocy all the way around.

Posted by kafka | July 13, 2008 11:23 PM

I assume tomorrow the usual talking point will be that the problem has been dealt with and contained. Such assurances are similar to the infamous Friedman unit.

Posted by CarlP | July 13, 2008 11:29 PM

Basically, the Republican economic plans all come down to the same thing: lower taxes, esp. on the rich, deregulate, do not enforce existing regulations. It's not hard to be a Republican economist.

Then watch while things go to garbage, and the people end up paying far more in hidden taxes.

Posted by cm | July 13, 2008 11:30 PM

APS:

"Paulson proposed that Congress enact legislation giving the Treasury temporary authority to buy equity ``if needed'..."

from

http://bloomberg.com/apps/news?pid=20601087&sid=aGFaSjTJmUZ0&refer=home

Posted by J Bartlett | July 13, 2008 11:38 PM

This blog is the clearest description of what happened I've seen:

http://billburnham.blogs.com/burnhamsbeat/2008/07/fannie-maes-gol.html

Posted by Dan | July 13, 2008 11:42 PM

Note to self: Withdraw all bank deposits today and convert them to something more stable... like the Mexican peso.

Posted by Jack | July 14, 2008 12:39 AM

Schumer comes off looking really bad in that WaPo article. Ouch!!

Posted by Joe Klein's conscience | July 14, 2008 1:34 AM

It's also a monument to the the stupidity of the American sheeple that they can be conned into supporting any nonsense as long as it's dressed up with mom and apple pie crap like "promoting home ownership", "building stronger communities", and "building the American Dream".

I would bet that most Americans have never even heard of Fannie Mae or Freddie Mac, much less have any idea what they do or any opinion about them. Sure, it was dressed up, but to sell to journalists, not average Americans, who weren't paying even the slightest bit of attention. Nor should they have to be. It's not possible for everybody to be educated about every piece of federal arcana, and it's not even remotely fair for you to blame Americans as "sheeple" for lacking that education in this particular case.

Posted by Antid Oto | July 14, 2008 2:52 AM

I would bet that most Americans have never even heard of Fannie Mae or Freddie Mac, much less have any idea what they do or any opinion about them.

That's a depressing thought, given that Fannie Mae should at least be part of a New Deal history class.

Anyway, Nouriel Roubini has proposed a way to handle this, as excerpted here.

Posted by pseudonymous in nc | July 14, 2008 3:32 AM

Meanwhile -- the shocking true tale of how these companies managed to evade oversight is worth a read. Chuck Schumer done bad.

Since the Great Depression, one of the major props for the United States' economy is that the Federal Government effectively has cosigned the banks' notes.

Nowadays, however, the Feds themselves are in hock.

Which reduces the value of their guarantee.

Posted by Duncan Kinder | July 14, 2008 7:55 AM

Matt, you've let your matthewyglesias.com hosting lapse. Please fix this.

Posted by trouc | July 14, 2008 8:25 AM

Its a good thing that Iran is the biggest danger to the US. I would hate for a Fannie/Freddie collapse to be an infinitely larger crisis.

I'm sure our President will protect us. He's never let us down before, has he? He is the CEO president.

Posted by CJ_n_PA | July 14, 2008 10:21 AM