Massive housing bailout likely on the way
(Will dwarf the S and L crisis)
July 25, 2008
By Jake Sudderth
It is becoming clear that government officials are clearing the way for the next president elect to work with congressional officials to bail out mortgage financing giants Fannie Mae and Freddie Mac. Standard & Poor's has estimated the price tag in this doom scenario may reach $1.1 billion in taxpayer dollars.
For comparison, helping banks survive during the savings and loan crisis in the late 1980s and early 1990s cost taxpayers about $250 billion in 2008 dollars.
At the end of January, 82% of all mortgages in the United States were backed by either Fannie Mae or Freddie Mac. This figure has grown from 46% in the second quarter of 2007. The role of both is likely to grow now that Congress has recently allowed them to back larger mortgages, up to $729,750 from the previous limit of $417,000.
The recent government plan to shore up mortgage guarantors Fannie Mae and Freddie Mac is designed to protect two firms that appear to be on the brink of insolvency that together guarantee $5 trillion in mortgage debt. While the Federal Reserve is expected to lend if necessary, the primary guarantor of the two firms would be American taxpayers.
"When I picked up my newspaper yesterday, I thought I woke up in France," said Senator Jim Bunning, Republican of Kentucky, during a congressional hearing. "But no, it turns out socialism is alive and well in America."
Obviously, Bunning has not been paying attention to American commerce for quite some time.
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