THE ASTUTE BLOGGERS: FANNIE MAE AND FREDDIE MAC BAILOUTS LEADING TO NATIONALZIATION

Monday, March 02, 2009

FANNIE MAE AND FREDDIE MAC BAILOUTS LEADING TO NATIONALZIATION

THESE BAILOUTS HAVEN'T SOLVED THE FINANCIAL CRISIS OR THE REAL ESTATE CRISIS.

AND NOW, EXPERT DOUBT THEY CAN BE UNDONE!

NYTIMES: Fannie and Freddie Are Unlikely to Be Restored

Despite assurances that the takeover of Fannie Mae and Freddie Mac would be temporary, the giant mortgage companies will most likely never fully return to private hands, lawmakers and company executives are beginning to quietly acknowledge.

The possibility that these companies — which together touch over half of all mortgages in the United States — could remain under tight government control is shaping the broader debate over the future of the financial industry. The worry is that if the government cannot or will not extricate itself from Fannie and Freddie, it will face similar problems should it eventually nationalize some large banks.

The lesson, many fear, is that a takeover so hobbles a company’s finances and decision making that independence may be nearly impossible.

... Last week, Fannie Mae announced that it lost $58.7 billion in 2008, more than all its net profits since 1992. Freddie Mac is also expected to reveal record losses in coming days.
Most important, by taking over the companies, lawmakers have gained a lever over the housing market and national economy that many — particularly Democrats — are loath to discard, legislators say.
“Once government gets a new tool, it’s virtually impossible to take it away,” said Representative Scott Garrett, a Republican of New Jersey and member of the Financial Services banking subcommittee. “And Fannie and Freddie are now tools of the government.”
One reason that Fannie and Freddie will never return to their earlier forms is simple mathematics: to become independent, Fannie Mae and Freddie Mac must repay the taxpayer dollars invested in the companies, plus interest. Even if the firms achieve profitability, it could take them as long as 100 years — or longer — to pay back the government. And almost no one expects the companies to return to profitability anytime soon.
Moreover, the takeover has provided legislators with a long-sought ability to influence the mortgage marketplace directly and pursue social goals like low-income housing.