Uncle Sam Pulls More Money From The Hat

By now I’m sure you have heard about the latest unprecedented government move to take over Freddie Mac and Fannie Mae. Treasury Secretary Henry Paulson announced the news on Sunday. It is estimated that 50% of the 5.4 trillion in US mortgages are held by Freddie and Fannie. Many experts agree that they are too big and important to fail. So here we go again with another tax payer bail out.

What Our Government is Saying

  • On Sunday, Treasury Secretary Henry Paulson said “Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe.”
  • He went on to say “A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance.”
  • President Bush chimed in with “Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth.”

What This Means To You and Me

  • Interest Rates could drop by as much as 1%
  • Could make it more affordable to purchase a home for those with good credit
  • Could help some homeowners sell their homes
  • Tighter lending standards, will make it harder to borrow for those with less than pristine credit
  • Borrowers viewed as risky could pay more in fees
  • Dividends will be cut to shareholders

The Skeleton in the Closet Nobody is Talking About

This government bailout will ultimately cost tax payers billions. Many experts say if the housing market does not turn around soon, it could cost tens of billions. Being that a bailout of this magnitude has never been done before, no one knows the real implications to our long term financial stability or how much it will actually cost “We the People”. If you checked out the documentary I.O.U.S.A. you know that any money the government spends is money we don’t have. We are borrowing against our future. The real burden of all these government bailouts will be placed on future taxpayers, our children and grandchildren. However, perhaps in this case we really don’t have any other choice.

What do you think? Is it a good idea for the government to completely take over and bail out these giant home lenders?

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