The government is in a position of having to select among bad alternatives, so whatever they do will be criticized. We can look back and see manifold mistakes by both the government and the private sectors. The government's mistakes make this a self-created crisis, and one that was warned about repeatedly. I think it is important to draw a distinction between the housing/mortgage meltdown and the problem with the GSEs, although they are clearly intertwined. If private mortgage issuers and underwriters want to behave imprudently but within the bounds of the law, that is their perogative. Any bailouts of them need to pass a very high burden of skepticism. Otherwise, all the criticsms voiced here of privatizing profit but socilaizing loss are valid, as are the moral hazard concerns. With FNM and FRE the situation is somewhat different. These are institutions that willfully violated their public trust. The implicit backing of their paper was based on their fulfilling a fairly narrow role. They vastly exceeded it, then compounded that error by engaging in accounting fraud that has still not been resolved. They defied their regulator and ran to their allies in congress, largely democrats, any time there was a dispute. Jim Cramer has it right that the Bush adminsitration was in a war with them, but he is wrong in suggesting somehow the adminstration was at fault. It should be blindingly obvious that the administration, far from waging some petty partisan battle against democrat hacks like Franklin Raines getting obscene comp packages, was in fact worried about precisely the situation we are now in. The monumental incompetency and recklessness of the poltiical hacks running FNM and FRE created a situation where these corrurpt hacks pocketed enormous amounts of money and left the government holding the tab. As things stand now, a bailout is inevitable. It is unfortunate albeit typical that the administration is not pointing out who the real villians are. Not Paulsen for sure, but the democrat leaders in congress who shielded the crooks running these enterprises. It will be an outrage if the former execs are not prosecuted and put in jail. That seems the least the public can expect for the tax money that will be wasted here.
We aren't too stupid, we literally cannot do anything about it. The public's only means of control over the government anymore is Congress, which is rarely ballsy enough to knock on the executive branch's door and call them out.
The main problem with this bailout is that the Government wants the GSEs to remain in private hands as stockholder operated companies. So any bailout will try to maintain that structure. That's why it's such an odd bailout, the Treasury is proposing to buy direct equity stakes in FNM and FRE, sure this will dilute current stockholders but it will still be better than the alternative of the stock going to 0 and the companies getting completely nationalized. So at the worse it's a subsidized loss for equity holders. In that sense owning stock in FNM or FRE is getting real, verifiable support from the "PPT". In any case though, this is a nightmare scenario for taxpayers which never got any of the profits during the last 20 years when the GSEs were pumping out profits but now that the shit has hit the fan they get stuck with the bill. I think that pretty much summarizes why ET is so critical of this plan and the Gov in general.
There is absolutely no correlation between YTD gains and the opinion about the bailout of Fannie and Freddie. I agree with the guy before me actually. I think it's MORE American to be against the bailout. For those who make these naivetes statements with preconceived notions, know that I am: A. Currently in the green YTD for both my personal stocks and my professional futures account. and B. I am a damn proud American The fall of giants allows for the BETTER run companies to be rewards by having a chance to start running the show. If these poor companies with horrible lending practices get immunity, then capitalism as I see it is a joke. It's a joke. Why do these guys get a save from bankruptcy while the well run companies get nothing.