McCain open to Fannie-Freddie bailout; Isn't everyone?

The dangerously declining duo known as Fannie Mae and Freddie Mac is dominating financial news today. Worth noting:

Tom Petruno reports on his Money & Co. blog that both stocks are sliding today "on fears that they won’t survive without a government bailout that could wipe out their shareholders’ stakes.

Not helping: A former regional Fed president says Fannie and Freddie "are insolvent." From Bloomberg via Calculated Risk: "Chances are increasing that the U.S. may need to bail out Fannie Mae and the smaller Freddie Mac, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules, he said. The fair value of Fannie Mae's assets fell 66% to $12.2 billion, data provided by the Washington company show, and may be negative next quarter, Poole said.

More from Poole: "Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,'' Poole, 71, who left the Fed in March, said in an interview.

Also: John McCain (pictured), campaigning in Michigan, says he's open to a federal bailout of the big loan buyers: "Senator John McCain said here Thursday that he would be open to federal intervention to save the nation’s two most important mortgage companies, Fannie Mae and Freddie Mac, the New York Times reports, quoting McCain: "Those institutions, Fannie and Freddie, have been responsible for millions of Americans to be able to own their own homes, and they will not fail, we will not allow them to fail,"

Two more to chew on: Reliably right of center CNBC talking head Larry Kudlow says if Fannie and Freddie need cash, they ought to get it the old fashioned way: by asking rich people investors for money: "I would prefer, at least at this point, that private capital do the job," Kudlow writes.

Why would a right-leaning economist bother to say he prefers a private solution? Because the Wall Street Journal today editorializes that Fannie and Freddie need public money (that would be your money): "Our own proposal, made months ago, is to require a more honest form of socialism by injecting taxpayer money now into both companies (say, in the form of subordinated debt or preferred stock) to recapitalize them enough to weather the current storm. This would help prevent a U.S. balance sheet debacle, and it would force the politicians to acknowledge the mess they have created."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo credit: Associated Press

Comments

[CD]

So, on one hand, we have Bernanke and Paulson telling everyone that Fannie and Freddie are solvent and have enough money, which is a lie, then there is MacCain who says we must bail them out....Could they all get their lies aligned together so we can all pretend we have a government ? This is total anarchy.....We have no government, where are Cheney and Bush ? Out hunting?

[MyLessThanPrimeBeef]

McCain needs to apotheosize himself, but not pander to hoi polloi, at this time to have a chance as his opponent has been made a god by the media already.

If this violates the doctrine of the separation of church and state, he will not be the first god to enter politics.

[anonymous]

WHY do taxpayers have to bail out all of these yo yos? The rich people who should be "investing" should be the CEOs that made out like bandits during the bubble. Seriously, let them pay for it. All the idiots that took out HELOCs to live above their incomes should pay that back, too.

I worked very very hard for 15 years to pay off the principle on my mortgage. I literally bought my clothes at Sam's Club! I own my home free and clear - and I've upgraded twice in seven years. It makes me VERY angry to think my tax dollars are going to pay for this irresponsible greed!

If you want something, then work for it! These people do not deserve a free lunch!

[Tombstone Realty]

Let's parse this shall we....

"Our own proposal, made months ago, is to require a more honest form of socialism ......"

Why don't we feel the same way about adding some socialism to our health care HMOs, or our oil producing firms - little bit of nationalization would go a LooOOoong way in reducing costs komrade. A potato for everyone!

"by injecting taxpayer money now into both companies (say, in the form of subordinated debt or preferred stock)"

So do the taxpayers get to have this preferred stock, say put into our IRAs and mutual funds that have been tanking because of this debacle?

"and it would force the politicians to acknowledge the mess they have created."

That last bit made me laugh the most. The politicians have been blaming the homeowner, the banks, the "speculators". They are NOT going to say it's their fault, especially since it really *wasn't*.

You can't elect some n00b to office, and expect him/her to know about the finer details of diversified risk portfolios, and all the other voodoo going on out there. The Fed should have stepped in, after all, they are the experts in this.

As long as the gravy train was flowing, everyone from the President to the next door neighbor was happy as a clam.

Now we're supposed to bail out all the CEOs and their investors? As some city manager said in a similar article the other day "I finally realized we were spending all this taxpayer money keeping bank assets safe".

If a city manager is starting to think that way, it won't be long until Washington gets a big NO WAY from everyone else.

[Cal]

They need to get rid of the dividend on the stock immediately and tighten up underwriting to reduce future taxpayer exposure.

They are worried about tightening too much and affecting the current book of business. So they make riskier loans to keep their previous risky loans performing better. Needless to say this might not end well. I don't think the politicians are helping by raising the conforming limits so high, it will just put additional pressure on the GSE capital at a time they don't need it.

You can tell the politicians only think in terms of "credit crisis" as in its a bad thing we don't have people giving away money to anyone who asks for any reason. But they won't ever realize it is a credit bubble that was unsustainable. They will do their best to sustain it. (evidenced by Fannie/Freddie talk, the student loan bill, the FHA bill, etc)

A problem can't be solved if you don't define it correctly to begin with.

[Anonymous]

Oh where, oh where, is shockg now? It's so sad. Fannie and Freddie have over 80% of the market for residential loans right now. What happens if they are really insolvent? What if they can't raise enough capital to keep making loans? Oh, that's right, home values go through the floor. Too bad, buddy. It was a good effort. I can't wait to see potential buyers pay all cash for your overvalued real estate because there isn't any debt to be found. Suitcases of cash. SoCal real estate only goes up!!!!

[Uncle Billy Went to Washington]

Wouldn't it be ironic if we found out that Rupert Murdoch had written that editorial in wsj himself.

[baronpilot]

As I look into management at Fannie Mae/Freddie Mac I keep coming across the same phrase...

...graduated from Harvard

Oh yeah, not to mention Enron of course.

[Baronpilot]

Why we have to bail them out...

Here is an ominous quote from an AFP article today:

"Freddie Mac has a loan portfolio of 1.5 trillion dollars and Fannie Mae's is over 700 billion. Together they own or guarantee some 5.2 trillion dollars in loans, or about 40 percent of the total value of home loans in the United States."

[Uncle Billy Went to Washington]

baronpilot: you see the part about how fnma has 47 vice presidents?

[CD]

oh my god! CNN is doing a special on Jonbenet's murder in Colorado, everything is fine people,we have Jonbenet, Brittney Spear, Madona.... move along.....nothing to see here.

[MyLessThanPrimeBeef]

Baronpilot, an elite university is not one that turns smart high school students into smart graduates.

An elite university is one that can turn the slowest high school students into the smartest college graduates.

Unless it can turn that trick consistently and for all their admitted students, they haven't proven a thing.

[gs]

Reuter's quote's McCain as saying there's no need to bailout Freddiemac or FannieMay in Michigan. So which news report is right????
http://www.reuters.com/article/politicsNews/idUS
WBT00936520080710

[Ray Juneau]

Bailout Freddie Mac and Fannie Mae?? The taxpayer already owns Bear Stearns, or has designated a surrogate mother to watch over her. Lehman and all the financials are in trouble. Aren't we fortunate that these companies were not "taking care" of our social security monies. Greed is what drives the capitalistic system, that is why this country needs a stronger regulatory system. People that denounce the regulators are only the crooks and theives that work on wall street.

[Kevin Morgan]

McCain opposed the dem bill that would have helped homeowners in foreclosure. But he favors bailing out these companies who business is loaning at risk. Everything the Obama people say about McCain is true. He doesn't care about people. He only cares about he fat cats.

[Jenn]

John McCain (R)
Top Contributors
This table lists the top donors to this candidate in the 2008 election cycle. The organizations themselves did not donate , rather the money came from the organization's PAC, its individual members or employees or owners, and those individuals' immediate families. Organization totals include subsidiaries and affiliates.
.

Merrill Lynch $249,960
Citigroup Inc $249,251
Blank Rome LLP $188,176
Goldman Sachs $171,945
Morgan Stanley $167,371
AT&T Inc $160,930
Greenberg Traurig LLP $157,087
JPMorgan Chase & Co $150,200
Credit Suisse Group $123,225
UBS AG $110,915
Lehman Brothers $99,550
Blackstone Group $97,200
Bank of America $96,525
US Government $96,306
Wachovia Corp $96,062
Bear Stearns $94,200
Bank of New York Mellon $89,500
Gibson, Dunn & Crutcher $81,000
PricewaterhouseCoopers $79,720
Deutsche Bank AG $79,561

[Uncle Billy Went to Washington]

CD: that's what the new war will be for.

[Mr.Mortgage]

When the Power Goes Out and Other Lessons.
http://thegreatloanblog.blogspot.com

Keep up the great work Peter!

[sheila]

"Why would a right-leaning economist bother to say he prefers a private solution? "

HA! this made my night. socializing the costs and privatizing the profits has always been the right wing financial philosophy. Look at Big Energy! Nearly 100% of costs are amortized across the grid, not to mention enormous tax breaks, super cheap land, subsidies and cheap capital while 100% of the profits are paid to bondholders of IOUs.

did ya really think T Boone Pickens was in wind power for the planet? this is no different. a few big players he wants in his VIP club (it works both ways) stand to lose their shirts, so mccrone is gonna socialize the costs onto us and bail them out.

no offense, but nobody on this blog is part of their club, nor will we ever be, so every vote for them is a vote against your own best interest. they will bleed all of us dry to keep the top 5% fat and happy...

[Heather]

McCain seems to be finished - between his flip flopping on what to do about the mortgage industry and economy in general, his inability this week to answer a simple question about birth control, calling SS a disgrace and his angry tirades getting more and more frequently caught on tape he'd be better off staying at home and praying for Obama to implode.

[Valley Observer]

From Pearlstein's column in today's WaPo:

A financial crisis is not a morality play. What matters most isn't the precedents that are set, the amount of taxpayer money that's implicated or whether people are made to suffer fully for their financial misjudgments. In the end, what matters most is that we get through it as quickly as possible with an economy and a financial system intact.

[home loans in charlotte north carolina]

Let's hope someone can buy them out before it's too late!