My younger brother, Joshua age 14, wrote the following article at my request on Freddie Mac & Fannie Mae’s recent bailout by the US Government.
Two major mortgage companies (Fannie Mae and Freddie Mac) have been sinking into the hole that is the housing slump in today’s America. Fannie Mae and Freddie Mac are these two companies founded by the U.S. government around the 1970’s to secure secondary housing loans. Soon the two corporations monopolized the market causing the government to decide to make the two companies private to virtue free market trade principals.
Fannie Mae and Freddie Mac either own or insure around 40% of the residential mortgages in the U.S., and their share of recent loans is even higher due to other loan securitized have been hit out of the business by the credit squeeze. But their shares came under fire when investors frantically assumed that losses on their portfolios and guarantees would cause them to raise impossibly giant sums of money by giving out share
On July 23, shares in Fannie Mae and Freddie Mac soared on hearing of a deal, closing the day at double their numbers of July 15, when optimism about their potential prospects was at a high point. Fannie Mae elevated 1.59, to 15, while Freddie Mac ascended 1.10, to 10.80.
The House gave Fannie Mae and Freddie Mac a get out of debt free pass on July 23, passing a bill that authorizes the Treasury Department to give the mortgage-finance moguls a rescue line excluding any of the conditions that the companies’ critics had demanded. The bill now goes to the Senate, where passage is expected within days. President Bush has changed his mind on vetoing the bill, and the signing is expected to be rather fast.
The bill would allow the Federal Housing Administration back up to $300 billion in new loans thus homeowners who could not afford their house payments could attempt to avoid foreclosure by refinancing into more affordable mortgages. Lenders would have to agree to take a fair amount of loss on the standing loans, and in return, they would break free and avoid the costly foreclosure process.
The package also carries around $15 billion in housing tax breaks, including a credit of up to $7,500 for first-time buyers, and raises the statutory extent on the national debt by $800 billion, to $10.6 trillion.
But old peoples fears aside, lets get down to how this will hurt the economy. Already, the national debt is at approximately 9.5 trillion dollars, and if we give financial aid to these two companies the debt could jump to 9.8 trillion dollars. Thus, causing the crisis to deepen. The corporations need to split into 10 smaller companies to avoid having to bring in the tax payers to save the day. The government needs to realize that if they move forward with this plan, things can only get worse.
If the two mortgage titans get the government financial aid, then this will cause other companies to take more risky and stupid decisions because they will feel that the government is the lifeguard there to pick them up when they start to sink. Thus, this hopeful ideology will cause the economy of the U.S. The two corporations are attempting to save themselves with the taxpayer’s dollar. It should be clear that this bill will only hurt the country’s economy. The crisis deepens…