View Full Version : Sarah Palin drops the ball on Fannie, Freddie

09-08-2008, 04:57 PM
Source: Chicago Tribune

Alaska Gov. Sarah Palin stumbled this weekend when she commented on the federal takeover of mortgage giants Fannie Mae and Freddie Mac. The Huffington Post "helpfully" pointed out her mistake to anyone who missed it the first time around.

Speaking before voters in Colorado Springs, the Republican vice presidential nominee claimed that lending giants Fannie Mae and Freddie Mac had "gotten too big and too expensive to the taxpayers." The companies, as McClatchy reported, "aren't taxpayer funded but operate as private companies. The takeover may result in a taxpayer bailout during reorganization."

Economists and analysts pounced on the misstatement, saying it demonstrated a lack of understanding about one of the key economic issues likely to face the next administration.

"You would like to think that someone who is going to be vice president and conceivable president would know what Fannie and Freddie do," said Dean Baker, co-director of the Center for Economic and Policy Research. "These are huge institutions and they are absolutely central to our country's mortgage debt. To not have a clue what they do doesn't speak well for her, I'd say."

Added Andrew Jakabovics, an economic analysts for the progressive think tank, Center for American Progress: "It is somewhat nonsensical because up until yesterday there was sort of no public funding there. Even today they haven't drawn down any of the credit line they have given to Treasury. 'Gotten too big and too expensive' are two separate things. The too big has been a conservative mantra for a while and there is something to be said of that in that they hold about half of the mortgage guarantees that are out there. And in the last year they have been responsible for roughly 80 percent out there. The 'too expensive to tax payers,' I don't know where that comes from."

Read more: http://www.swamppolitics.com/news/politics/blog/2008/09... (http://www.swamppolitics.com/news/politics/blog/2008/09...)

u think charlie gibson will throw softballs at her ?( she is on abc this thru)

I bet yes.


09-08-2008, 05:01 PM
Ouch. Even I know that those were private companies and I'm not really a finance guy.

This whole mess is just like the Savings and Loan mess in the 1980's.

09-08-2008, 05:06 PM
Well, there some features of the bailout package not to like, according to Doug Elmendorf, (http://www.brookings.edu/experts/elmendorfd.aspx) a senior fellow at the Brookings Institution think tank who has worked at the Federal Reserve, Treasury Department, White House Council of Economic Advisers and Congressional Budget Office.
His problems are with the way the rescue will continue payment to some bondholders who should have suffered a similar fate to shareholders, who were wiped out.
Also, he doesn't like how the rescue requires the Treasury Department and the two government-sponsored enterprises or GSEs, as the companies are called, to continue to purchase mortgage-backed securities.
Here's his analysis:
"The rescue plan for Fannie Mae and Freddie Mac announced this weekend is mostly very good: The plan keeps the companies' operations going, which is absolutely necessary for financial and economic stability. The plan does not bail out the existing shareholders but mostly limits the government's financial investment to the amount needed to bring the enterprises back to positive net worth. The plan recognizes that we cannot immediately restructure Fannie and Freddie to fix their hybrid public-private nature, but it ensures that the government has full control over the enterprises so that long-run decisions about our system of housing finance can be made in the best interest of society as a whole.

"However, I have concerns about two pieces of the plan: the continuation of payments to the subordinated debt holders, and the purchase of additional mortgage-backed securities by Fannie, Freddie, and the Treasury. Continuing payments to this set of debt holders will help to stabilize financial markets. However, the crucial role of subordinated debt for any company is to create a group of investors who know they will lose if the company fails, so that they scrutinize and attempt to influence the company's actions, and so that the price of the debt is a visible signal of the perceived risk of the company failing. By continuing to make payments on Fannie and Freddie's subordinated debt, the rescue plan risks setting a precedent for rescues of other financial institutions and thereby undermining this market discipline.
"The purchase of additional mortgage-backed securities for the Fannie and Freddie portfolios (up to roughly $150 billion) and for the Treasury (in unspecified amounts) will offset some of the recent fall in demand caused by a pullback of foreign and domestic investors. Thus, the purchases serve a worthy short-term stabilizing role in the mortgage market. However, increasing the size of Fannie and Freddie's portfolios goes in the opposite direction of the appropriate long-run goal to reduce the scale of these enterprises (however we resolve the public-private problem). Moreover, direct Treasury purchases of mortgage-backed securities are a significant new step toward a larger government role in supplying funds for housing, which may complicate an appropriate long-run resolution of the public-private hybrid problem.


this situation is not entirely black and white.........is any????

09-08-2008, 05:09 PM
Its true they are/were private companies but their holdings are backed by the US treasury, so that $5.3 trillion is the responsibility of the taxpayer.