Vote totals:
Yes:
0%
No:
0%
Neutral:
0%
DEBATE: SHOULD THE U.S GOVERNMENT HAVE BAILED OUT FANNIE MAE AND FREDDIE MAC?
SHOULD THE U.S GOVERNMENT HAVE BAILED OUT FANNIE MAE AND FREDDIE MAC?
• Fannie Mae and Freddie Mac are interwoven in America’s system
Between them, Fannie and Freddie guarantee one in every two home loans in the US. The two FM’s started when Roosevelt wanted to kickstart America out of the Great Depression by allowing Americans to own their own homes and in sparking off the mortgage market. Fannie Mae are able to borrow money from foreign and domestic investors at low interest rates because of the financial support that they receive from the US Government. Freddie Mac was established in order to provide Fannie Mae with some competition. Since 1970, both have dominated the mortgage market and have grown significantly. The government should have backed Fannie and Freddie because it appears that both are valuable to the American people and those who want mortgages.
• Fannie and Freddie have had a chequered history
The history of Fannie and Freddie has not been without scandal and the American investors were fed up of backing both when recently it appears to be a recipe for disaster. There were huge errors found in accounts since 2003, and this year has been the worst with shareholders losing 74% of their investment. Over time there has been mounting debts, bad debts and corporate collapses. The American people started to lose trust and there would have been no point in the U.S government backing Fannie and Freddie.
SHOULD THE U.S GOVERNMENT HAVE BAILED OUT FANNIE MAE AND FREDDIE MAC?
• If Fannie and Freddie cannot borrow, the housing market still could come crumbling down
If Fannie and Freddie are unable to borrow money in order to buy mortgages from commercial lenders then home buyers will find it much more expensive and difficult to get credit and the entire housing market may collapse.
• Bailing out of Fannie and Freddie should have been a last resort
There were a lot of steps that the American Government could have taken before taking full control of the pair. The housing market would not have crumbled just because the American Government have not bailed the two FM’s out. The two companies did not require use of any facilities or help from anyone to stop the government from taking control. There were much more secure options that avoided direct and aggressive government action, such as buying the debt of Fannie and Freddie in mortgage-backed securities, and thus easing the pair’s capital requirements. The pair could even withstand loss until the end of the year and a decision would not need to be made now.
SHOULD THE U.S GOVERNMENT HAVE BAILED OUT FANNIE MAE AND FREDDIE MAC?
• America should look after their customers, and not the individuals in power
Fannie Mae and Freddie Mac are quasi-private and could afford other ways before the government has to take over and bail them out immediately. Daniel Mudd (who plans to leave Fannie Mae shortly), and Richard Syron (leaver of Freddie Mac) have been involved in a large pay-off for leaving, which combined to £13 million pounds. The American taxpayer’s money should not be spent on helping secure the luxury lifestyles of the employers of the two large organisations. Fannie Mae and Freddie Mac should not take anymore of the taxpayer’s money.
• The US government states that it is not acceptable to allow the downfall of the two FMs
George Bush and the American government both indicate that they are not going to let Freddie Mac and Fannie Mae fall to the ground. They state that they recognise that America’s market would be in ruins and that this would be a very bad decision that could potentially lead to disaster. The American government seem more concerned with the potential downfall in buying a mortgage than with the fact that Fannie and Freddie are too expensive and too big to taxpayers to let the firms continue on as they were.
SHOULD THE U.S GOVERNMENT HAVE BAILED OUT FANNIE MAE AND FREDDIE MAC?
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SHOULD THE U.S GOVERNMENT HAVE BAILED OUT FANNIE MAE AND FREDDIE MAC?
• Stocks have increased
• People will not start buying houses just because of a drop in rates
The stocks may have increased but the real problem would be that if the American government does not seize these semi-private corporations then despite it being expensive and despite the taxpayers feeling more relieved for the short-term if they were not seized, letting the companies fail may have a more devastating event on the economy than helping them survive.
London’s stocks increased by close to 190 points the morning after there was a connectivity glitch in the stock market which announced that Fannie and Freddie were in jeopardy. There were also strong overnight gains in Asia and Hang Seng. It has already been discussed that Fannie Mae and Freddie Mac are too expensive and too big to continue on as they were and this seems to be a popular conception amongst the American taxpayers which comes to light, and with improvements in the economy since their downfall then it could be argued that the American government is making the right decision in not backing Fannie and Freddie.
SHOULD THE U.S GOVERNMENT HAVE BAILED OUT FANNIE MAE AND FREDDIE MAC?
• Fannie and Freddie were just weeks away from collapse
• American taxpayers should thank the American Government for paying out
With the American government paying for the failure of Fannie and Freddie, it shows that they cannot be trusted. This payout as well signals that there is a catch and this is that there will be a lot more payouts towards Fannie and Freddie. Thanks to the two FM’s implicit guarantee, the American taxpayer has always been on the hook and this could potentially spell freedom.
Fannie and Freddie have been threatened since 2003 and now in 2008, they suffer more threats, but this time maybe it is time for the American Government to let the economy take its course without intervening and seizing control. Fannie and Freddie have been semi-private corporations since 1970 and perhaps this is a sign that the taxpayers need an improvement and something to look forward to.
