Stop Talking Unless You Know What You’re Talking About
As I’m sure everyone has heard by now, over the weekend, Freddie Mac and Fannie Mae, the two largest mortgage companies in the country, were taken over/bailed out by the U.S. government. Between them, they provide over three quarters of all home mortgages and hold about $5.5 trillion in mortgages and guarantees. Without them, housing finance in our country would grind to a halt - no new mortgages, for anyone.
I have seen all kind of people on the internet lamenting the takeovers. Their two main arguments are these:
1.) “Oh my god! Fannie and Freddie just nearly doubled the national debt! The sky is falling, the U.S. is going to hell in a handbasket, etc.”
2.) “Typical Republicans! Privatize the gains, socialize the losses! The taxpayers are the only ones getting screwed here.”
I wish people would take a couple minutes to analyze and research a situation before they open their mouths or fire up their keyboards - because the facts are these:
1.) Yes, the government just took on a lot of additional debt. However, balance sheets have two sides. As of their most recent annual reports, Freddie and Fannie had a combined $1.7 trillion in ASSETS that the government also just took over. Also keep in mind that these assets are likely worth even more than that on a cash flow basis, as accounting rules have forced them to be marked down during the credit crisis because of lack of liquidity.
2.) This is a ridiculous argument. In May 2007, Freddie had a market capitalization of $44.3 billion, and Fannie of $63.2 billion. As of today, those numbers stand at $581 million and $1.1 billion, respectively. The private shareholders of the two companies, the same ones that people are claiming are getting bailed out, have lost over $105 billion (a 98.5% loss). They are in a world of hurt.
I’m not saying the bailouts are right, I’m not saying they’re wrong - I’m not even saying they’ll fix things in the long term. But I am saying that if you don’t know what you’re talking about, please stop contributing to the hype, fear, and conspiracy theories.
