Taxpayers will pay billions for years to come to help the Federal Reserve bailout two large mortgage companies.

The following is an excerpt from a Yahoo article (read the whole article, click here) concerning a US Federal government decision that will cost tax payers billions of dollars over the next few years, not unlike the government authorized financial institution “bailout” that cost American Taxpayers $124.6 billion in Taxpayer dollars from 1986-1996. (click here to read about that “bailout”)

“WASHINGTON – The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation’s mortgage debt, a person briefed on the matter said Friday night.

Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies’ chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government’s plan to put the troubled companies into a conservatorship.

The news, first reported on The Wall Street Journal’s Web site, came after stock markets closed. In after-hours trading Fannie Mae’s shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac’s shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government’s actions.

The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.

That confirmed what investors saw in Fannie and Freddie’s recent financial results: trouble in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with little or no proof of their income and assets.

Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.

While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.

Many in Washington and on Wall Street hadn’t expected Paulson to intervene unless the companies had trouble issuing debt to fund their operations.

This summer, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the two companies if needed.

Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.

Supporters, however, argue the Bush administration had little choice but to support Fannie and Freddie, which together hold or guarantee $5 trillion in mortgages — almost half the nation’s total.

Representatives of Fannie and Freddie declined to comment on the government assistance plan.”

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One Response

  1. The banking industry is just wolf in sheep’s clothing.

    I can’t help but wonder what children are learning when they see corporations and national banks socialize their losses, while privatizing their profits. The later is often done by multi-national banks that have no interest but to eat the US economy alive.

    Don’t think for a second that multi-national banks didn’t know what they were doing when they offered sub-prime loans. It’s a little slower than traditional military warfare, but why use a military option when you can bankrupt a country, then buy it? De-value the dollar, invest in cheap real estate, and build another Walmart. Combine that with credit card laws that marginalize middle class Americans and you get a perfect storm.

    It’s time for a change.

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