The federal government announced today that is was taking control of mortgage entities Fannie Mae and Freddie Mac. The ailing companies have lost most of their value since the downturn of the real estate market. The government will now need to sell debt to shore up the two companies and to provide capital to the companies bottom lines. Since the announcement, stock prices have risen and it looks like the markets are viewing this as a favorable event.
What you need to know: The government now owns a lot of people's houses. That flies in the face of our constitution and the right to own property. An argument could be made that it was the government that started the problem in the first place by reducing the restrictions on banks and the GSEs as it pertains to mortgage loans. The government, especially during the Clinton administration pushed for a sweeping increase in housing ownership and the Bush administration continued the action. Republicans in Congress have been sidetracked by Democrats in promoting legislation that would but restrictions on what the mortgage giants can do.
The common shareholders will lose out. Since many mutual funds, life policies, etc. have as part of their safe portfolio the stocks of both Fannie and Freddie, those people will see value being stripped from their accounts. Preferred shareholders will be taken care of. So, all in all another bailout for Wall Street, another debt for the government and more misery for the average citizen.
Comments(0)