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Hope you didn't have any Fannie Mae or Freddie Mac stock


The Federal Housing Finance Agency ordered the two mortgage giants to pull their stock off the market today. Annie Lowrey, who was late for the bus this morning, ran the numbers:

In the past five years, both stocks have fallen more than 99 percent. And the news sent the share prices even lower.


By Ezra Klein  |  June 16, 2010; 11:20 AM ET
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Actually, American present and future taxpayers own the liabilities, whether we want to or not. All negative $400B and whatever more of the $5T plus portfolio blows up. So, the shareholders are wiped out (good), foreign central bank bondholders made whole with our tax dollars (very very bad (for us)). The shareholders only put in a very small portion of the capital of the company anyway, like 2%. The whole thing was a bond running scam, allowing people to get higher rate notes than straight Treasuries, on the assumption that the risk would be similar. If we pay any of these bondholders back, they should at least have to take a haircut to rates offered by the Treasury, since these really turned out to be risk-free instruments.

Of course, many of these bonds were probably held by union and state pension funds, so we'll end up bailing those guys out anyway. And if the foreign country goes under because our housing prices drop, we end up bailing them out, via the IMF.

We need to accept that it is possible to lose money. We need to accept that recessions are necessary corrections and let them do their work of reallocating resources. We can't play these private gains with public losses games any more.

Stop bailing out the losers. The whole tea party kicked off with the idea that my tax dollars could go to pay the mortgage of the guy down the street that put 5% down on his house instead of 20% so he could go on more vacations, while I sat home working to pay my mortgage.

If we do anything, we need to stop lending taxpayer backed money out for mortgages with less than 80% LTV, stop lending to homes with second mortgages, stop lending to homes with huge home equity lines of credit. We all know the housing market could see another big price hit, yet the government still gives out loans with 3.5% down, backed with our tax dollars, with deductible interest that encourages bigger loans and higher prices.

"When the choice is 'jobs and homes before the next election' vs. 'limiting a small probability of extreme tail risk,' guess which one wins out? " -Tyler Cowen

Posted by: staticvars | June 16, 2010 12:59 PM | Report abuse

--"Hope you didn't have any Fannie Mae or Freddie Mac stock"--

What a maroon you are, Klein. Every person in the United States is an involuntary shareholder in those two bankrupt (and criminal) enterprises. And delisting means nothing in terms of the ongoing disaster of it.

Posted by: msoja | June 16, 2010 1:42 PM | Report abuse

Delisting from the exchange is not the same as "pulling their stock off the market." It just means the stock is going to go OTC.

Posted by: raylehmann | June 17, 2010 8:31 AM | Report abuse

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