The Federal Reserve and the Treasury announced steps on Sunday to shore up mortgage giants Fannie Mae and Freddie Mac, whose shares have plunged as losses from their mortgage holdings threatened their financial survival. Congress has been asked to approve a sweeping rescue package that would inject billions of federal dollars into the the faltering companies. Separately, the Federal Reserve said that it would promote up to $300 billion dollars of short-term low interest loans to Fannie and Freddie.
AFL-CIO chief economist, Ron Blackwell, emphasized both the need to bail out Fannie and Freddie and the urgency of addressing the systemic problems that produced their collapse. He says that the current system amounts to Socialism for the rich and Capitalism for the poor.
Story Transcript
HENRY PAULSON, US TREASURY SECRETARY: As you know, Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction.
MATTHEW PALEVSKY, JOURNALIST, TRNN: The Federal Reserve and the Treasury announced steps on Sunday to shore up mortgage giants Fannie Mae and Freddie Mac, whose shares have plunged as losses from their mortgage holdings threaten their financial survival. Congress has been asked to approve a sweeping rescue package that would inject billions of federal dollars into the faltering companies. The Federal Reserve has also said that it would promote up to $300 billion in short-term, low-interest loans for Fannie and Freddie, expedited authority from Congress to expand its current line of credit to the two companies and to make an equity investment in the companies if necessary. Adding to the financial turmoil over the weekend, the FDIC took over operations of IndyMac, a failing bank with over 265,000 customers.
JOHN BOVENZI, COO, INDYMAC FEDERAL BANK: As you know, on Friday, IndyMac Bank was closed and the FDIC was appointed its receiver. What that means is that, over the weekend, we have been working to reopen the bank first thing Monday morning.
PALEVSKY: Chief economist at the AFL-CIO Ron Blackwell believes that while bailing out Fannie and Freddie is important, politicians shouldn’t lose sight of the broader economic crisis.
RON BLACKWELL, CHIEF ECONOMIST, AFL-CIO: This is like $5 trillion in obligations, and they’re at risk here. This could sink the United States if we don’t do something about it. So it’s not simply to bail out those companies. In fact, they may end up—and I hope they do—nationalizing those industries. But the question is: what are they going to do beyond that to put a floor underneath the housing crisis to do something about the two million people that are going to lose their homes over the next 18 months if we don’t do something, to do something about the millions of workers that are losing their jobs every year. I think nationalization, which our government is loathe even now to do, I think they eventually will come to, because why would American taxpayers take on the obligations that are exposed right now in this institution without claiming the upside potential of those obligations? This is like socialism for the rich and capitalism for the poor. We need to establish some balance here so that the public can claim this. If you’re calling in taxpayer support for this, then you’ve got to give the taxpayer some part of the benefit when this institution recovers.
PALEVSKY: Blackwell believes that the falling economy is hitting working families much harder than many politicians are willing to acknowledge.
BLACKWELL: The authorities haven’t called this a recession yet. In fact, as you may have heard some Republican commentators—in fact, McCain’s leading economic adviser considers this a mental recession. But I will assure you this is a recession. No deterioration of labor market conditions has happened of this magnitude in which the authorities ultimately didn’t consider this a recession, and it’s the most serious thing that has happened since the early 1980s in the United States. You’ve got to understand that this is an especially bitter recession, because the recovery since, for working people, because the recovery since 2001 recession has been very slow. It’s the slowest recovery since the Second World War. And even at the end of it, even as we enter a recession, median family incomes are below what they were before the last recession. It’s the first time in American history that has happened. Americans are suffering a generation-long stagnation of living standards and rising economic insecurity. And now they’re faced with millions of people losing their homes and millions of people losing their jobs, and this at a time when everybody is working longer hours than they’ve ever worked before. Each family is sending more workers into the workforce than ever before, and they’re struggling to maintain their living. Meanwhile, gas prices are exploding, the cost of food is rising, and the cost of college education is rising. And so it’s really a very acute crisis, but it’s against the backdrop of a generation-long stagnation of wages, and it has its roots in the fundamental economic policies of this country over the past 30 years.
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