Oh, those wacky anti-government, radical free-market Republicans. All emphasis mine:
Senior officials from the Bush administration and the Federal Reserve on Friday called in top executives of Fannie Mae and Freddie Mac, the mortgage finance giants, and told them that the government was preparing to place the two companies under federal control, officials and company executives briefed on the discussions said.
The plan, which would place the companies into a conservatorship, was outlined in separate meetings with the chief executives at the office of the companies’ new regulator. The executives were told that, under the plan, they and their boards would be replaced and shareholders would be virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.
It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation’s history.
The drastic effort follows the bailout this year of Bear Stearns, the investment bank, as government officials continue to grapple with how to stem the credit crisis and housing crisis that have hobbled the economy. With Bear Stearns, the government provided guarantees, and the bulk of its assets were transferred to JPMorgan Chase, leaving shareholders with a nominal amount.
Under a conservatorship, the common and preferred shares of Fannie and Freddie would be reduced to little or nothing, and any losses on mortgages they own or guarantee could be paid by taxpayers. Shareholders have already lost billions of dollars as the stocks have plunged more than 80 percent this year.
A conservatorship would operate much like a pre-packaged bankruptcy, similar to what smaller companies use to clean up their books and then emerge with stronger balance sheets. It would allow for uninterrupted operation of the companies, crucial players in the diminished mortgage market, where they are now responsible for nearly 70 percent of new loans.
So rather than continue the “they’re not us, really!” charade of their symbiotic relationship, the government is finally cutting out the middle man, reaching into our pockets yet again to clean up after millionaires. Only thing missing is a requirement to make out your future mortgage payments to “Dear Leader”.
The declines in the housing and financial markets apparently forced the administration’s hand. With foreign governments increasingly skittish about holding billions of dollars in securities issued by the companies, no sign that their losses will abate any time soon, and the inability of the companies to raise new capital, the administration apparently decided it would be better to act now rather than closer to the presidential election in two months.
In other words, “our” government is doing this out of fear of other governments no longer wanting part of the scam. I don’t recall seeing anything about a vote or public referendum asking if we’d like to pay for a greenback-stuffed cushion for them, did you?
(cross-posted to FreedomDemocrats)
Edit 090708, 4:56 PM EST: Would you believe that the person heading the new federal agency that absorbed F&F is the same guy that thought their books were no big deal just a few months ago? Seriously, click and read, it’s the part right after the text of Paulson’s remarks.