Would You Buy A Bailout From This Man?
President Bush along with others in his administration have told us repeatedly as the housing bubble burst and the credit crisis swept around the globe that the American economy was sound. Now he’s singing a different tune and the name of that tune is “700 Billion Dollar Bailout.”
Now Bush says the U.S. is in the midst of a serious financial crisis.
In his speech last night he said very little about the causes of the current credit problems which are largely due to government monetary policy and their cozy relationship with Wall Street. Bush did mention Fannie Mae and Freddie Mac but made them sound as if they were the victims of the mortgage meltdown rather than one of the main causes.
Bush said:
See, in today’s mortgage industry, home loans are often packaged together, and converted into financial products called “mortgage-backed securities.” These securities were sold to investors around the world. Many investors assumed these securities were trustworthy, and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac. Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.
While he acknowledged that they helped fuel the market for questionable investments, he inaccurately described their role. They are the creators of mortgage-based securities, not the buyers. They buy loans and package them into securities that are sold all around the world and they guarantee the loans and the principle. When borrowers began to default, Fannie and Freddie had huge liabilities which is why the government took them over to keep them from failing.
The government takeover of both companies put the taxpayers on the hook for the loan guarantees.
Wikipedia describes their role:
Fannie Mae (and Freddie Mac) buy loans from mortgage originators, such as banks and non-bank mortgage firms. It repackages the loans, as mortgage backed securities, and sells them on the secondary mortgage market, with a guarantee that the interest and principal will be paid, whether or not the original borrower pays. Also, Fannie Mae may hold the purchased mortgages for its own portfolio. By purchasing the mortgages, Fannie Mae and Freddie Mac provide banks and other financial institutions with fresh money to make new loans. This gives the United States housing and credit markets flexibility and liquidity.[6]
If he doesn’t understand the cause of the problem, can Bush and Co. be trusted to fix it?
We must not forget how we got conned into the war in Iraq with a lot of fear-mongering. Remember how little it was supposed to cost and quickly that problem was supposed to be fixed?
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