Taxpayers to Bail-out Fannie Mae, Freddie Mac, and IndyMac
In an effort to bolster confidence in the financial markets and prop up the housing market, the federal government is moving to bolster Fannie Mae and Freddie Mac, the two Government Sponsored Entities that buy up about 50% of mortgage loans.
Treasure Secretary Henry Paulson made the announcement on Sunday in an effort to halt the ongoing slide in financial stocks. It didn’t work. Bank stocks and other financial stocks took a big hit in Monday’s trading.
There have been many headlines in recent weeks outlining various bail-outs. Usually they give the impression that the government is doing the bailing-out. I think the media needs to be more accurate in their reporting and clearly state that when the “government” steps in to bail-out a financial institution, it means that the taxpayers are going to pay the bills. It’s really the taxpayers that are being required to bail-out these fat cats.
On Friday, IndyMac, a bank I’d never heard of, closed its doors after depositors set off a run on the bank. Turns out it’s the third largest bank failure in history. Until it can be liquidated, the bank has essentially been nationalized and is being run the the FDIC.
Many depositors who had more than $100,000 in individual accounts will lose a portion of their money because $100,000 is the limit on FDIC insurance. The FDIC has said they will pay 50% of amounts over $100,000.
The irony is that the more the government moves to “bolster confidence” with more bailouts, investors are losing confidence in the system and the continuing decline in the stock market reflects this lack of confidence.
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