Could Fannie, Freddie avoid a bailout?
Despite speculation that some sort of federal intervention was likely, nothing happened with Fannie Mae and Freddie Mac today. But the pair aren't out of the woods just yet. John Dimsdale reports.
Signs at Fannie Mae, Freddie Mac buildings (Getty Images / Marketplace)
More on Investing, Housing - Real Estate, Wall Street
TEXT OF STORY
KAI RYSSDAL: Even if you weren't paying real close attention last week, you probably noticed something was amiss with Fannie Mae and Freddie Mac. Share prices for the government-sponsored mortgage companies were going nowhere but down. There was respectable speculation that some sort of federal intervention was likely.
And then all of a sudden it was this morning. And nothing. No panic. No takeover. And no problem for Freddie Mac as it tried to sell off $2 billion-worth of short-term debt. That suggests Fannie and Freddie just might be able to keep on going without help from the Treasury Department. But our Washington Bureau Chief John Dimsdale reports the pair aren't out of the woods just yet.
JOHN DIMSDALE: Most investors are betting the housing slump will leave Fannie and Freddie insolvent without some sort of emergency support from the government.
MARILYN COHEN: I think we're talking about a monumental problem.
Marilyn Cohen, the president of Envision Capital Management, says the government has to help Fannie and Freddie because shareholders include some major cogs in the economy's machinery. Pension funds and small banks rely on Fannie and Freddie dividends for capital that they couldn't raise anywhere else, especially given the current credit crunch. Small banks might be pushed into bankruptcy -- not to mention international central banks that hold Fannie and Freddie's preferred shares.
COHEN: Considering we rely not only on the kindness of foreigners and foreign central banks to help prop up our huge deficits, we are really relying on their need for safety. And I think the thought of them not making their payments is pretty unthinkable.
DIMSDALE: Essentially, you are looking at a Treasury bailout to save the world's financial system.
COHEN: Well, I don't think that's too overdramatic. Yes.
Not helping Fannie and Freddie could also mean higher priced mortgages. Still, Peter Wallison of the American Enterprise Institute thinks the government should do nothing.
PETER WALLISON: To see whether they can survive by raising their own capital. Or, because the real estate market has stabilized. And if it does not happen, then the government should put them into receivership.
In Washington I'm John Dimsdale for Marketplace.
Comments
Comment | Refresh
Post a Comment: Please be civil, brief and relevant.
Email addresses are never displayed, but they are required to confirm your comments. All comments are moderated. Marketplace reserves the right to edit any comments on this site and to read them on the air if they are extra-interesting. Please read the Comment Guidelines before posting.
You must be 13 or over to submit information to American Public Media. The information entered into this form will not be used to send unsolicited email and will not be sold to a third party. For more information see Terms and Conditions and Privacy Policy.