Brace Yourselves, America: The Next Huge Housing Bailout Could Be Coming
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The failures of government intervention in the economy have made headlines yet again. Recent stress tests by the Federal Housing Finance Agency found something sinister brewing under the surface at notorious mortgage giants Fannie Mae and Freddie Mac. The results show that these puppet companies could need up to a $126 billion bailout if the economy continues to deteriorate.
That’s right — the two companies that were taken over by the government and that sucked $187 billion from the treasury could be entitled to more taxpayer money. The toxic home loans bought during the last crisis coupled with a lack of liquidity have suddenly become serious risk factors. The so-called “recovery” that has been trumpeted for years by countless politicians and economists is falling apart in plain view. The media will do just about anything to assure the public that this is all isolated and overblown, but the canary in the coal mine has just dropped dead.
The tests ran a scenario eerily similar to warnings we’ve heard about what the economic future might hold:
The global market shock involves large and immediate changes in asset prices, interest rates, and spreads caused by general market dislocation and uncertainty in the global economy.
In the throes of the 2008 crisis, the government took many unprecedented actions, but one of the most notable was seizing control of the two largest mortgage loan holders in the country. Since then, Fannie Mae and Freddie Mac have been converted from subsidized private organizations into some of the biggest government-sponsored enterprises ever created. These institutions have been used to prop up the entire real estate market by purchasing trillions of dollars in home loans from other banks to keep prices elevated.
Without Fannie and Freddie, the supply of houses on the market would have far exceeded the number of buyers. This glut in supply and low demand would have forced sellers to lower prices until a deal was made. Instead, these wards of the state were able to buy up properties at artificially high prices using government-issued blank checks, allowing for the manipulation of home values back up to desired levels.
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