More on Fannie, Freddie and the Christmas Eve “Checkbook”
by Tom on December 31, 2009
in Market Musings
Tim Duy has a very solid explanation of what happened with Fannie and Freddie over the Christmas holiday when it gave them an open checkbook. A couple of “points” from his article:
- After December 31, they would have had to get Congressional approval. That would have been messy at best and they didn’t want to do that.
- They expect the financial reports from Fannie and Freddie to continue to be bad for quite some time.
- Without doing this, the markets perception of Fannie and Freddie would have been “shakier” than it already is. That would have caused the likelihood of increased rates due to fear of default by the two entities.
So, the losses continue and continue to climb and the government continues to throw more money at it. Doesn’t seem to be making things better yet, even if it is slowing down how “less bad” things are.
Tom Vanderwell
Tim Duy’s Fed Watch: Why Christmas Eve?
In short, there are plenty of ulterior motives for Treasury’s expansion of the Mae and Mac bailouts. My favorite is the desire to expand the ability of the GSEs to absorb principle reductions for housing modifications. But the simplest explanation is likely the correct one – the financial damage to the GSEs continues virtually unabated, and the Treasury simply needs to make explicit what was implicit: Mae and Mac are backed by the US government’s full faith and credit, regardless of the level of losses in those institutions.
Technorati Tags: Fannie Mae, Freddie Mac
