Plan unveiled to shore up Fannie, Freddie

Jim Kim — Mon, 14 Jul 2008 08:52:39 -0400

Wow! To think that just a month or so ago, people were saying that the worst of the credit crunch had passed. That line of thinking clearly was way too premature. Not only did the Bush Administration has ask Congress this past weekend to approve a plan that would provide a credit line of some $300 billion to the troubled GSEs and buy their stock, but the Fed now will allow both Freddie Mac and Fannie Mae to borrow at its discount window. The government's hand was forced by a $3 billion Freddie auction scheduled for today. It pretty much has to go well, given the quick-trigger feel in the markets. So the credit crunch has hit Main Street in a huge way. It's unclear as of now exactly how much all this will cost Joe and Jane Taxpayer, but it looks like there will be a price to pay. This is stunning. The real estate industry may never be the same. Critics note that for years, people have argued that the twin pillars were poorly capitalized. But the bubble mentality in real estate prevailed. Until now.

For more:
- here's the Washington Post article
- here's a Washington Post article on the two GSE's reserves

Related Article:
Fannie and Freddie, the final shoe to drop?

Fannie and Freddie, the final shoe to drop?

Jim Kim — Thu, 10 Jul 2008 22:13:41 -0400

We tend to take Fannie Mae and Freddie Mac for granted. They have long been securitizing mortgages, and that expanded liquidity greatly, without a doubt. That they were government-sponsored enterprises made their guarantee seem fail-proof. But all noble securitization eventually gave way to casino practices. Now, the idea that both could actually fail has gained steam, pushing their stocks to new lows, notes Fortune. William Poole, former president of the St. Louis Federal Reserve, has been quoted as saying the entities are already insolvent. That may be overstating it, but we really do not know. This fresh worry for the industry is keeping regulators up at night. They were scrambling to reassure the markets yesterday. Plans for possibly placing the agencies in conservatorship were leaked to the New York Times. Wow! If they were to fold, the real estate market as we know it would crumble. We can't have that.

For more:
- here's the Fortune article
- here's the New York Times article

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Government Sponsored Enterprises

Plan unveiled to shore up Fannie, Freddie

Fannie and Freddie, the final shoe to drop?