Federal government nationalizes troubled mortgage giants Fannie Mae and Freddie Mac becoming one of the biggest players in the US Mortgage Market. Many private analysts worry that it may not be enough to stabilize the slumping housing market, given the glut of vacant homes for sale, rising foreclosures, rising unemployment and weak consumer confidence. Ron Blackwell, Chief Economist at the AFL-CIO says “Housing prices are falling faster presently than during the Great Depression. This is very serious.”


Story Transcript

US mortgage giants nationalized
Carlo Basilone

CARLO BASILONE, TRNN: The Bush administration announced on Sunday that the federal government was seizing troubled mortgage giants Fannie Mae and Freddie Mac.

HENRY PAULSON, US TREASURY SECRETARY: 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 here at home and around the globe.

BASILONE: Officials said that both Fannie Mae and Freddie Mac were being placed in a government conservatorship, but declined to use the word “nationalizaton.”

RON BLACKWELL, CHIEF ECONOMIST, AFL-CIO: Of course we don’t believe in nationalizing big pieces of the economy, at least this current administration particularly. They refer to it as a conservatorship, but they are effectively taking government control over this agency or these agencies by this action, which they would prefer not to have taken but was necessary, and it’s a good thing that they saw the necessity of it. They’re looking to stabilize this very, very serious asset deflation we have underway in the United States because of the bursting of the housing bubble last year.

BASILONE: Officials also announced that the executives and board of directors of both institutions have been replaced. Treasury Secretary Paulson refused to estimate how much the takeover of the two companies will cost the government, but the price tag will be in the billions of dollars.

MARK ZANDI, CHIEF ECONOMIST, MOODY’S ECONOMY.COM: It is going to cost taxpayers. It looks like somewhere between $25 billion and $50 billion, which is a lot of money, but it’s certainly not as much as it would have been if these institutions were allowed to fail.

BLACKWELL: These two institutions currently either hold or guarantee half of all the mortgages in the United States. Their portfolio of over five trillion dollars of mortgage assets would be an enormous burden, probably unsupportable burden, for our financial system.

BASILONE: Many private analysts worry that it may not be enough to stabilize the slumping housing market, given the glut of vacant homes for sale, rising foreclosures, rising unemployment, and weak consumer confidence.

NEIL WEINBERG, SENIOR EDITOR, FORBES MAGAZINE: The fact of the matter is that the US economy and the world economy is facing a huge headwind right now, and this may prove to be a fairly transitory thing.

BLACKWELL: Housing prices are falling faster presently than they were during the Great Depression. This is very serious. Paul Krugman noted in the editorial page in The New York Times quite accurately that this is shaping up like the crisis in Japan in the early 1990s. That cost them a decade of economic growth. We’ve lost over 600,000 jobs here in the United States since the beginning of the year, as the economy has clearly entered a recession, in my view. And unless we can intervene more actively than anything that’s been done to this point—and that’s why a retooled Fannie and Freddie under government control need to play such an important part in helping to restructure the mortgages of these people that are really struggling to stay in their homes.

BASILONE: The takeover of Fannie and Freddie was a hot topic on the campaign trail.

GOV. SARAH PALIN, VICE PRESIDENTIAL CANDIDATE (R): The fact is that Fannie Mae and Freddie Mac, they’ve gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help.

BLACKWELL: I think I know where McCain’s coming from. Most of the Republicans have all feared, have always resented these institutions and their quasi-government connections, and regard them as being [in the] very unfortunate circumstance that they’re now regarded as too big to fail. They’d like to break them into smaller pieces and then sell them off and get the government out of the business of providing support for the mortgage industry.

SEN. BARACK OBAMA, PRESIDENTIAL CANDIDATE (D): We have to protect taxpayers, not bail out the shareholders and management of Fannie Mae and Freddie Mac. This is a challenging situation that’s been festering for a long time. There are some community and regional banks with potential exposure, including those serving low-income communities.

BLACKWELL: He’s not making a commitment, but what they’re going to ultimately do with these agencies, he does recognize, as I believe the treasury secretary does, that they had to intervene just to try to stabilize the situation. These two agencies, now that they’re under federal government control, we hope would be used the way the Home Owners’ Loan Corporation was used in the Great Depression in order to try to restructure these mortgages to allow the people who are living in these homes to stay in their homes and to refinance their mortgages on a more sustainable basis. And that would help stabilize the fall in housing prices that’s at the heart of the current financial and economic problems in the United States.

DISCLAIMER:

Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee their complete accuracy.


Ron Blackwell

Ron Blackwell is Chief Economist for the AFL-CIO, where he has also worked as Director of Corporate Affairs. Before coming to the AFL-CIO, Blackwell was assistant to the president of the Amalgamated Clothing and Textile Workers Union, and chief economist of UNITE (Union of Needletrades, Textiles and Industrial Employees). Prior to joining the labor movement, Blackwell was an academic dean at the New School for Social Research in New York (now the New School University), where he taught economics, politics and philosophy.