u s treasury

Bailout Turning All Banks into Freddie/Fannie

by Cord Blomquist on November 24, 2008 · 2 comments

in Bailout Watch

Freddie Mac & Fannie Mae were the catalyst for our current financial crisis. By buying up risky sub-prime mortgages, Freddie & Fannie encouraged banks to make risky loans to folks who otherwise wouldn’t have received mortgages.

Freddie & Fannie did this because they had the backing of the U.S. Treasury.  The executives at Freddie/Fannie knew that if they made a bad move and lost billions in the market, the government would bail them out.

This notion was laughed at a few years ago by Rep. Carolyn Maloney (D-N.Y) when Fred L. Smith, the president and founder of CEI, suggested that Freddie & Fannie might use more than their allotted line of credit at the Treasury.  Maloney scolded Smith and said of what was then a $2 billion credit line:

It is really symbolic, it is obsolete, it has never been used,

Mr. Smith responded that it was still important to repeal any such promise of credit from the Treasury, stating:

As long as the pipeline is there, it is like it is very expandable. It is only $2 billion today. It could be $200 billion tomorrow.

Fred was wrong, but only because he underestimated. Freddie & Fannie took more than $300 billion of our tax dollars for their foolish decisions.

Now it seems that every bank in the country is backed up by the Treasury.  Look no further than the Citigroup and its bailout.  Citi has already received $7 billion in taxpayer dollars and will now receive a possible $300 billion more.  This is sounding a lot like a sequel to Freddie Mac and Fannie Mae, and yet this is a private business, not a “government sponsored entity” like Freddie/Fannie.

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Quotes of the Day

by Iain Murray on October 7, 2008 · 1 comment

in Bailout Watch, Economy

Arnold Kling:

Instead of thinking of the pending bailouts and financial regulation as a new era of government supervisions of markets, think of it as preserving the system in which a Harvard elite controls other people’s money. In fact, very little is likely to change. Reading the news stories about how Secretary Paulson plans to implement the bailout, it seems as though the same people will be in charge of the money. Print some new business cards, change the logo on the front from “Goldman Sachs” to “U.S. Treasury,” and everything else continues as it was. It’s just that it becomes a lot more difficult for ordinary people to opt out of using the elite’s money management services.

Indeed. Alexander Hamilton would be so happy.

And from across the pond, Eamonn Butler:

When the government is persuading the casino to hand out free chips and the regulators are standing drinks at the bar, you shouldn’t be surprised if the customers place a few risky bets.

There’s a Gamblers Anonymous and an Alcoholics Anonymous, but no-one has yet devised a 12 steps program to wean the world off government.