Believe this or not, Fannie Mae and Freddie Mac could cost up to $1 trillion dollars to fix.
Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, said that a 20 percent loss on the companies’ loans and guarantees, along the lines of other large market players such as Countrywide Financial Corp., now owned by Bank of America Corp., could cause even more damage.
“One trillion dollars is a reasonable worst-case scenario for the companies,” said Egan.
An analyst gives a 25% probability of $1 trillion in taxpayer costs. Last December, Fannie and Freddie got an unlimited bail out. In 2009, the CBO estimated Fannie and Freddie added $291 billion to the budget deficit. In Q1, 2010, Fannie Mae lost $11.5 billion.
Fannie Mae and Freddie Mac are not included in the Financial Reform bill. Why is Congress and this administration ignoring the elephant in the room? One possible motive might be foreign governments hold $908 billion in Fannie and Freddie bonds. Another is the federal government is the residential real estate market.
Bring On The Bond Vigilantes
Despite whats happening in Spain ($250 Euro bailout they are trying to keep secret - $50 billion Euros from the broke US) THIS will bring the focus to the US.
The money is not there to support all this and the problem is many times greater than they are willing to admit.
Certainly the banks wanted to fill their coffers and they did by allowing mortgage standards to be easily defrauded but there were willing accomplishes who could not conceive that housing prices would come down but they did. It takes two to tango and the applicant who depended on refinancing before the interest rate changed or the balloon payment was due is equally at fault.
It doesn't matter who is responsible the question is how to deal with it. Its obvious that our bought and paid for politicians have neither the backbone nor the intention of stopping TBTF or of increasing taxes (something that I'll wager the majority of voters would be against) so whats left? Keep printing till a small pizza costs $100?
When this story as you wrote it reaches main stream media the party here is OVER.
Fannie/Freddie delisted
No longer on the NYSE, so shares plunged. Business Week.