The Department of Treasury announced its plan to seize control of Freddie Mac and Fannie Mae on September 7, in what many deem one of the most dramatic bailouts in history.
“During the turmoil last year, [Freddie Mac and Fannie Mae] played a very important role in providing liquidity to the conforming mortgage market,” director of the Federal Housing Finance Agency, James B. Lockhart, said in a statement. “That has required a very careful and delicate balance of mission and safety and soundness. Given the recent market conditions, the balance has been lost.”
Here’s what the media is saying:
The Washington Post: “Not since the early days of the Roosevelt administration, at the depth of the Great Depression, has the government taken such a direct role in the workings of the financial system,” writes Steven Pearlstein, business columnist for the Washington Post. Read what a conservatorship means for the fallen mortgage giants.
Mortgage News Daily weighs in on the facts of the conservatorship in “Treasury Department Announces GSE Conservatorship.” For example, in return for providing funds to guarantee their debt, the Treasury Department will immediately receive $2 billion in preferred stock that will pay a 10% dividend. Also, the conservatorship is open-ended in terms of time, meaning the conservator (Dept. of Treasury) alone will make the determination that the companies have returned to a safe and solvent condition.
The Treasury will contribute cash capital to the GSE in an amount equal to the difference between liabilities and assets, according to the “Fact Sheet” from the U.S. Treasury Department Office of Public Affairs.
They may have failed as private companies, but Freddie Mac and Fannie Mae don’t constitute as emergencies, Portfolio reporter, Felix Salmon explains in his article, “Rescuing Frannie".
What’s the view from overseas? Click here to see how the BBC explains the fall of Freddie Mac and Fannie Mae.
A GLIMPSE INTO HISTORY
If you’re looking for a more in-depth look at what the two companies are, and their histories, view the updated timeline, “A history of Freddie Mac and Fannie Mae” on the Financial Times website, www.FT.com.
The past few months, alone could present an interesting analysis. On August 6, Freddie Mac posted a loss of $821 million, and two days later, Fannie Mae posted a second-quarter loss of $2.3 billion. Reuters breaks down the breakdown of Freddie and Fannie in their timeline, which covers specifics dating back to mid-July.
You may ask yourself, “Is there any good in this?” Jim Cramer says yes. What do you think?