U.S. plan to save Fannie and Freddie
These ideas are probably the least damaging in the short-term, although to me it seems pretty vague. Basically the companies' line of credit will be "temporarily" increased and the Treasury can buy stock of the two companies. A couple quotes from the article:
Sen. Charles Schumer, D-N.Y., praised Paulson's plan. "While Fannie and Freddie still have solid fundamentals, it will be reassuring to investors, bondholders and mortgage-holders that the federal government will be behind these agencies should it be needed," he said.
So wait, they have solid fundamentals? Yet they need assurance that they "temporarily" have more taxpayer funds and investment if they need it? Seems like a nice way of putting it. Give 'em some taxpayer dollars to soothe investor nerves.
What we have here is not just intervention, but preemptive intervention. The companies' might need taxpayer dollars, and now they have the guarantee that they have it if they need it. This seems like a pretty easy strategy to abuse. I'm not saying it will be abused, it may well go fine and dandy, but going down this path of opening federal funds to companies who might need it will only lead to more trouble over the long run. Plain, straight government intervention has not added to economic stability or security. If this isn't preemptive intervention I don't know what it is, and when does it stop? I'm sure there are a lot of companies that would love special federal treatment if their stocks dropped 50%+ and could make a case for why they need special treatment.
This move is a short-term fix, like all government interventionism is. Short-term, it looks like a problem solver. But what about the long-term? This will not create stability in the markets and will only lead to increased speculation over time. Many people claim speculators are the reason for high energy prices (oil in particular), and would not hesitate to lay down new regulations against speculation (LOL... that would work. *rolls eyes*). Yet these same people continue the same irresponsible policies that lead to a lot of this speculation.
I see this as a short-term, near sighted fix that will not lead to stability in this area over the long run. Congress created these two companies with the idea of creating stability, liquidity, and affordability in all economic environments. This clearly is not the case and this socialist, monopolistic idea has miserably failed. It needs to change! These bailout games avoid the problem and will only delay the inevitable collapse and failure of the idea.
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