Unlimited Line of Credit for Fannie and Freddie

[Voltaire]

It's buried at the bottom of this article, but here's an interesting tidbit. The Housing Rescue Bill which has now been pushed through Senate, includes a provision allowing the Treasury to supply Fannie Mae and Freddie Mac with an "unlimited line of credit for up to 18 months.

While the Congressional Budget Office has estimated that this will only cost the government (That is, the taxpayers) 25 billion dollars, they've also admitted that there is a very small chance it could cost up to 100 billion. Awesome!

I think I echo the opinions of many on this board, in saying that I am very torn on this issue... while the collapse of these two GSE's would obviously be devastating, this bail-out sounds more and more dangerous the more you learn about it.

Link: http://money.cnn.com/2008/07/26/news/economy/housing_bill_Senate/index.htm?postversion=2008072614

 

[Charles_Main]

Yep, It is a real rock and a hard place situation. Either way it goes it is going to hurt. the bail out will increase the deficit right away, but allowing them to fail would also do so in the long run by further lowering the value of the dollar, and further slowing the economy and revenues to the Fed.

 

[Avatar4321]

let it fail. It might be tough, but feeding it more money is like letting an open wound bleed out. We are just going to be throwing more money away. The organizations will be less inclined to engage in any business practices that would fix the problems because they will have complete confidence that the government is just going to turn around and bail out their bad habits.

Not only that, but they are going to turn out being a shining example to all other businesses in our economy that the government will bail you out if you struggle. Its going to cause a ripple effect of bad business decisions through the economy. Let's stop the hermoraging and let the damn companies collapse if they have to. Delaying things will make it worse.

Its time we stopped running from problems and start doing things we know need to be done NOW.

 

[Voltaire]

let it fail. It might be tough, but feeding it more money is like letting an open wound bleed out. We are just going to be throwing more money away. The organizations will be less inclined to engage in any business practices that would fix the problems because they will have complete confidence that the government is just going to turn around and bail out their bad habits.

Not only that, but they are going to turn out being a shining example to all other businesses in our economy that the government will bail you out if you struggle. Its going to cause a ripple effect of bad business decisions through the economy. Let's stop the hermoraging and let the damn companies collapse if they have to. Delaying things will make it worse.

Its time we stopped running from problems and start doing things we know need to be done NOW.

Yes, the moral hazard argument is particularly persuasive, especially when you consider the difficulties that will be encountered if Wachovia and some of the other big boys bite the dust. "But you gave Fannie and Freddie AN UNLIMITED LINE OF CREDIT! Why not us?"

Oh well, guess everybody should get ready to be a customer of the Federal Bank of the United States, if this is any precedent...

 

[Avatar4321]

Yes, the moral hazard argument is particularly persuasive, especially when you consider the difficulties that will be encountered if Wachovia and some of the other big boys bite the dust. "But you gave Fannie and Freddie AN UNLIMITED LINE OF CREDIT! Why not us?"

Oh well, guess everybody should get ready to be a customer of the Federal Bank of the United States, if this is any precedent...

I think the Federal Bank of the United States is going to be bankrupt before that ever happens.

 

[editec]

I think the Federal Bank of the United States is going to be bankrupt before that ever happens.

Never happen.

Not as long as it is a bank owned by the private banks which run our nation, at least.

Yeah, socialism for the superwealthy, capitalism for the working and professional classes.

Nothing new here.

The left has been pointing this out for years, folks.

Atlas can't shug because Atlas is riding on the backs of the workers and always will.

 

[Chris]

This legislation is going to have the opposite effect of what it is intended to do. They are eliminating 100% loans for first time home buyers, and this will be a disaster. Most first time home buyers have no money to put down. I can't believe the are doing this.

 

[editec]

I haven't read the details, Kirk.

But I'm sure that the outcome will protect big capital and if by some happy coincidence working class people also benefit, it will be a collatorial outcome.

It is, I think, however, a bad idea to give out 100% loans, no income verification loans, and so forth, too.

It drives up the cost of RE thus exascerating the problem of RE getting too expensive for woking people the next go round.