An article in yesterday’s Wall Street Journal presents a thorough summary of the situation at Fannie Mae and Freddie Mac. The article is titled, “No Exit in Sight for U.S. As Fannie, Freddie Flail.” Here is the link to the story:
I’ve commented extensively on the U.S. real estate situation, and the national attempts to intervene in this market. Those posts can be found under the “Real Estate” and “Intervention” categories.
With regard to the aforementioned article, there are three items that I feel are especially notable. For now, I will post them without comment; I may comment on them in the future. The first is this:
“On a recent afternoon, employees at Freddie’s headquarters here peppered Mr. Haldeman with concerns about the company’s future. He responded that they were “fortunate” to have such a clear mission—the government’s foreclosure-prevention drive. “We’re doing what’s best for the country,” he told them.”
The second is this:
“We’re making decisions on [loan modifications] and other issues, without being guided solely by profitability, that no purely private bank ever could,” Mr. Haldeman said in late January in a speech to the Detroit Economic Club.”
The third is this:
“The government is willing to tolerate such open-ended exposure for two reasons. First, it sees the companies as essential cogs in the fragile housing market. Fannie and Freddie buy mortgages originated by others, holding some as investments and repackaging others for sale to investors as securities. Together with the Federal Housing Administration, they fund nine in 10 American mortgages. Worries about potential insolvency would cripple their ability to fund home loans, which would hamstring the market….By using Fannie and Freddie for such initiatives, the White House doesn’t have to go to Congress for funding. The Treasury and White House can simply issue instructions to Fannie and Freddie via their federal regulator, the Federal Housing Finance Agency, or FHFA.”
In December 2008, I wrote an article titled, “Business Planning Principles Applied to the Stimulus / Intervention Efforts.” That article can be found listed along the right-hand side of the home page.
I wrote the article for many reasons…perhaps chief among them because it was clear that the various interventions lacked a suitable managerial framework. The “exit strategy” bullet point in the article seems particularly germane to the current intervention efforts being orchestrated through Fannie Mae and Freddie Mac.
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SPX at 1070.52 as this post is written