There is a point, in financial markets, when things stop being psychological in origination and become real as hell. The housing market has been bad enough in recent months, but it’s a fairly good indicator that reality is in the parking lot when federal officials scramble to keep federally-backed paper from becoming just as worthless as the commercially-owned paper before it.
(from the Department of the Treasury website)
July 11, 2008
Statement by Secretary Henry M. Paulson, Jr. on Fannie Mae and Freddie Mac
Secretary Henry M. Paulson, Jr. made the following comment today on news stories about “contingency planning” at Treasury:
“Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission.
“We appreciate Congress’ important efforts to complete legislation that will help promote confidence in these companies. We are maintaining a dialogue with regulators and with the companies. OFHEO will continue to work with the companies as they take the steps necessary to allow them to continue to perform their important public mission.”
and . . .
Paulson Statement on Freddie Mac, Fannie Mae: Full Text (from Bloomberg)
July 13 (Bloomberg) — Following is the text of a statement issued today by Treasury Secretary Henry Paulson:
Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction.
GSE (government sponsored entity – ed.) debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore we must take steps to address the current situation as we move to a stronger regulatory structure. In recent days, I have consulted with the Federal Reserve, OFHEO, the SEC, Congressional leaders of both parties and with the two companies to develop a three-part plan for immediate action. The President has asked me to work with Congress to act on this plan immediately.
First, as a liquidity backstop, the plan includes a temporary increase in the line of credit the GSEs have with Treasury. Treasury would determine the terms and conditions for accessing the line of credit and the amount to be drawn.
Second, to ensure the GSEs have access to sufficient capital to continue to serve their mission, the plan includes temporary authority for Treasury to purchase equity in either of the two GSEs if needed.
Use of either the line of credit or the equity investment would carry terms and conditions necessary to protect the taxpayer. Third, to protect the financial system from systemic risk going forward, the plan strengthens the GSE regulatory reform legislation currently moving through Congress by giving the Federal Reserve a consultative role in the new GSE regulator’s process for setting capital requirements and other prudential standards.
I look forward to working closely with the Congressional leaders to enact this legislation as soon as possible, as one complete package.
And add to that the run and panic on Indy Mac late last week:
LOS ANGELES (AP) — IndyMac Bank’s assets were seized by federal regulators on Friday after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures.
The bank is the largest regulated thrift to fail and the second largest financial institution to close in U.S. history, regulators said.
The Office of Thrift Supervision said it transferred IndyMac’s operations to the Federal Deposit Insurance Corporation because it did not think the lender could meet its depositors’ demands.
IndyMac customers with funds in the bank were limited to taking out money via automated teller machines over the weekend, debit card transactions or checks, regulators said.
Other bank services, such as online banking and phone banking were scheduled to be made available on Monday.
“This institution failed today due to a liquidity crisis,” OTS Director John Reich said.
While Shrub and his gang of idiots certainly have their share of the blame in this fiasco, they’re just part of a longer-term fiscal and financial idiocy amongst the government and citizenry of this fair land.
If anyone believes that the Democratic Party will be able to carry on with classic post-1960 American liberal policy and philosophy if Obama wins in November 2008, then you may want to go back and read some applied economics.
On the other hand, if anyone believes that a Republican-controlled 1600 Pennsylvania Ave can carry on with classic post-1979 American conservative thought and philosophy, then you might want to read up on the French Revolution, the Weimar Republic and 1929-1933 in the U.S. and Germany.
Brother can you spare a million Deutschmarks and a wheelbarrow?