The Bush Administration is about to psych out over the extent of America’s mental recession. The regime that refused to regulate any part of the economy before it was thoroughly plundered is considering a take over and bail out of two of the largest corporations in the shattered housing business.
From today’s NYT:
WASHINGTON — Alarmed by the growing financial stress at the nation’s two largest mortgage finance companies, senior Bush administration officials are considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, people briefed about the plan said on Thursday.
The companies, Fannie Mae and Freddie Mac, have been hit hard by the mortgage foreclosure crisis. Their shares are plummeting and their borrowing costs are rising as investors worry that the companies will suffer losses far larger than the $11 billion they have already lost in recent months. Now, as housing prices decline further and foreclosures grow, the markets are worried that Fannie and Freddie themselves may default on their debt.
Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee — which could be staggering — would be paid by taxpayers.
How important is this?
Fannie Mae and Freddie Mac are so big — they own or guarantee roughly half of the nation’s $12 trillion mortgage market — that the thought that they might falter once seemed unimaginable. But now a trickle of worries about the companies, which has been slowly building for years, has suddenly become a torrent.
Virtually every home mortgage lender, from giants like Citigroup to the smallest local banks, relies on Fannie Mae and Freddie Mac to grease the wheels of the mortgage market. Virtually every Wall Street bank does business with them. And investors around the world own $5.2 trillion of the debt securities backed by the companies.
Now they have to be bailed out to keep the housing industry from completely collapsing . . . further. Just another consequence from the self-enriching folks who advise the McCain campaign, who thought it would be really swell to leave the nation’s financial industry woefully under-regulated, while it made them rich. Sorry about the whining.
Update: Secretary Paulson tries to hold on as market tanks. (h/t Atrios)