This is the largest government intervention in the financial markets since the Great Depression.  It is phenomenal!  Just when you thought the financial crisis was over, bam!

What will become of Freddie and Fannie now?

I suggest everyone consider that this takeover was undoubtedly the right thing to do. And as far as I can tell, the government did not bail out Fannie and Freddie's equity holders, which is a good thing.

Yes, it will wind up costing taxpayers $200 billion to shore up their capital. That is money well spent, if you ask me, since the alternative would risk a further collapse in the housing market that would be devastating.

And yes, Lowell, had a democratic administration done this, we would be hearing cries of socialism from the usual quarters.

Of greater interest politically is what effect this will have on legislation to provide loan guarantees and direct loans to auto companies, which is currently pending.

While I think they are apples and oranges, I suspect this will become an issue Michigan. If the government bails out Wall Street big shots, why won't it help autoworkers?

My only point is that if a Democrat had done it, the right wingnuts would be screaming "SOCIALISM!!!"  On second thought, they scream "SOCIALISM!!!!" when Democrats do anything, or do nothing for that matter.  Still, I can just hear it now...

People she be in a towering rage about this.  Maybe not over the action itself, but over what led us to make this decision.

Oh and big deal that we haven't bailed out equity investors (yet).  You would figure that Republicans would be crying bloody murder over how the government has screwed equity investors and bailed out debt holders.  The big payoff here is to the debt holders of Freddie and Fannie bonds, which turns out to be our friends in Asia (read China) again.  The Secretary of the Treasury, the head of FHA, and the Chairman of the Fed get in a room and decide to take over two of the largest private financial institutions in America.  Milton Friedman must be spinning in his grave (though I'm sure he loathed Fannie and Freddie).

Equity is still on the table as far as a bailout.  A lot of banks hold preferred shares and with the cut in dividend payments, FDIC could have a whole lot of mess on its hands.

On the downsides, bailouts remove any consequence of risk taking.  Equity is only a small piece of the pie, the debt market is much larger.  We remove the consequences, then we can expect risky behavior to only continue unabated.  We have yet to come up with a new regulatory regime for our financial system.  

Was the need to reassure markets that the government would stand behind the Freddie and Fannie debt.

The guarantee of that debt will be unlikely to cost taxpayers anything if the housing market stabilizes.

Did we do this on behalf of foreign governments? Sure, I'm certain they have big holders in this debt. So do a ton of domestic investors.

The point was, however, to loosen up credit for new mortgages. That this needed to be done is elementary.

Yes, the Bush Admin and all those who extoll the magic of free markets, but think this is a good idea, are shameless hypocrites.

But this was the absolutely right decision made for the absolutely right reasons.

This is now the second time in recent history where we have shown to financial institutions that if they take a huge gamble, we'll cover their losses.  Whether it be S&Ls or fly-by-night mortgage originators, the message is: "Have consequence free fun on us, the US taxpayer."  People should be mad about that.  Because inevitably it will happen again.  And who will be left holding the bag once again?

Have we changed financial market regulation?  Not really.  Will we? Doubtful.  Will the people responsible for this mess be held responsible in a meaningful way?  Doubtful.  Some high-flying bank executives had to take early retirement, and that is about it.

Of course, we need to provide assurance to financial markets because they are built on faith.  And should they have deteriorated further, we would all be hurt more than just the cost of this bailout.  We had to, afterall, rescue Bear Sterns and IndyMac.  But the fact is we didn't need to be in this situation to begin with.  The pendulum has kept swinging towards less regulation since the 1980s.  And here we find ourselves in this mess.  We should be mad at our representatives for allowing this to happen.

And last, I doubt this will cost the taxpayers nothing.  Congress already passed legislation allowing Treasury to open up the spigot should Freddie and Fannie need it.  But now we have taken over both institutions.  If there was doubt when Congress passed the bill whether we would be on the hook, this takeover should have dispelled any of that.

Read this:

Over the years, Fannie Mae and Freddie Mac showered riches on many winners: their executives, Wall Street bankers and Washington lobbyists. Now the foundering mortgage giants are leaving some losers in their wake, notably their shareholders, rank-and-file employees and, in the worst case, American taxpayers.

But even after the government seized the mortgage finance companies on Sunday and dismissed their chief executives, the companies' outgoing leaders could see big paydays - a prospect that angers many investors, particularly because ordinary stockholders could be virtually wiped out.

Under the terms of his employment contract, Daniel H. Mudd, the departing head of Fannie Mae, stands to collect $9.3 million in severance pay, retirement benefits and deferred compensation, provided his dismissal is deemed to be "without cause," according to an analysis by the consulting firm James F. Reda & Associates. Mr. Mudd has already taken home $12.4 million in cash compensation and stock option gains since becoming chief executive in 2004, according to an analysis by Equilar, an executive pay research firm.

While I think that if there is a contract, it ought to be honored, it sucks that people are making this kind of money off of this.

...is one between Mr. Mudd and his insolvent employer.  Given the fact that Mr. Mudd has participated in helping to flush the global financial system down the toilet at the expense of U.S. taxpayers, we certainly have no moral obligation to give him a golden parachute.  Depending on the wording of the legal authorization for the government's takeover, we may or may not have a legal, as opposed to moral, obligation to pay him.

Also, I wonder if it occurred to anyone back in 2004 that when you hire a guy whose name is "Mudd" even before he takes the job, things are bound to head south pretty quickly.

I agree that this has to be done, but I think if things have gone this far it is because of Republican policies. What we may be seeing is the econmomy held together with duck tape and baling wire.  

It has not been so much Republican policies that led us to this point, IMHO, as it has been a lack of oversight by the Bush Administration over our financial markets.

The specific causes are complex, but at their core, what happened was under the Bush Administration, financial institutions were permitted to invest in risky instruments (basically, subprime and Alt-A mortgages) that, when they went south, destroyed these institutions' capital positions.

Although it may not seem it, none of this came as a surprise to Wall Street and the institutional investors who, for good or for ill, collectively drive the value of these investments by the thousands of individual decisions they make. It was common knowledge on the Street that lending standards had eroded badly and there would come a time to pay the piper. No one could accurately predict when and how that bill would come due, but all know that it would.

As for Fannie and Freddie, truth be told the situation would have been a lot worse if not for them. The first dominoes to fall were not GSE loans -- those tended to be good loans with low default rates -- but loans that were made and securitized in private transactions. Fannie and Freddie were one of the few places in the market where actual lending standards were defined and enforced.

Our friend Phil "Nation of Whiners" Gramm was the one who inserted loopholes in financial market regulation into an omnibus spending bill.  That's very specific to Republican policies being part of the problem.  And Gramm was also the lead on the bill that finally repealed all provisions of Glass-Stegall.  And generally, Republicans' platform is to deregulate markets.  And without regulation, you can't have very effective oversight or control.

And the cause of this mess is not just lack of oversight by the Bush Administration.  It was also the Federal Reserve (who was also the primary cause of the problem) and Congress.  And the Fed had been going at this before Bush was in office.  There is chain of "if only they did their jobs" in this mess.

As to Wall Street, they knew Enron was a house of cards too.  The problem is they know a lot and fail to do anything about it.  Because at the end of the day, when the coffers are filling up, no one cares.  The problem is they think scruples is a card game.

The failure of regulation occurred in many agencies: The Federal Reserve, the COTC, the SEC, the CFTC -- hell, choose your letters.

But when you get into a discussion of policy, I'm not sure whew Bush fits in. Repeal of the GSA was under Clinton, wasn't it?

That's not to defend economic policies or actions under Bush. They have done plenty wrong, beginning with ill-advised tax cuts for the rich and driving down the value of the dollar in an immoral and futile effort to keep recession at bay until Bush was out of office.

But I'm not sure whether the housing debacle, in general, and Fannie and Freddie's problem, in particular, can be laid at their door.  

Why is this action required? What actions led us to this position? How can the government regulate and provide over-sight, when the banker in chief believe in neither?

These are the questions we should be talking about. How is it that conservatives lead us to war and when it proves to be based on lies and a mistake, they frame the argument about winning and losing, instead of the reasons for going?

Here we are again. Bank failures in the 1920's, Savings and Loans in the 1980's. Is there a connection. All these periods were times of conservative presidents who opposed regulation and oversight. This is one of those times also. How does the fox guard the hen house?  

She has no clue:

Gov. Sarah Palin made her first potentially major gaffe during her time on the national scene while discussing the developments of the perilous housing market this past weekend.

Speaking before voters in Colorado Springs, the Republican vice presidential nominee claimed that lending giants Fannie Mae and Freddie Mac had "gotten too big and too expensive to the taxpayers." The companies, as McClatchy reported, "aren't taxpayer funded but operate as private companies. The takeover may result in a taxpayer bailout during reorganization."

Economists and analysts pounced on the misstatement, saying it demonstrated a lack of understanding about one of the key economic issues likely to face the next administration.

"You would like to think that someone who is going to be vice president and conceivable president would know what Fannie and Freddie do," said Dean Baker, co-director of the Center for Economic and Policy Research. "These are huge institutions and they are absolutely central to our country's mortgage debt. To not have a clue what they do doesn't speak well for her, I'd say."

and she gets it wrong.

I don't know whether this gaffe will get any traction -- even many relatively well-informed people tend not to fully understand the complex mortgage securitization market and Fannie and Freddie's role in it.

But it should give the McCain campaign pause about putting her out there with Gibson this week. There are just so many landmines, and what she says will be subjected to so much scrutiny.

Perhaps the campaign feels that her personality can simply overcome any real or perceived gaffes, or worse, there was some kind of deal struck with Gibson through a series of nods and winks that he will get the interview, but there will not be tough questioning.

It's not the questions that are asked -- they can appear tough -- but whether the interviewer shows a willingnenss to follow-up to ensure that answers are responive and a candidate is telling the truth.

McCain's appearance on FTN on Sunday is a perfect example. Scheiffer simply allowed McCain to tick off talking points. The questions didn't really matter.

McCain knows what Fannie and Freddie do either.  And his position is to eliminate them entirely.  If these these two were at the helm of government, I could only ask that God have mercy on us.

about a reporter asking McCain about the crisis with Fannie and Freddie, and McCain says, "Are those two of the Palin kids I haven't met yet?"

I'm not in a towering rage over the decision...I'd describe it as more of a simmering rage.  It's been adequately discussed here and elsewhere already, so I won't go into too much narrative, but it just makes me mad--especially because I am concerned that not enough is being done to address the underlying flaws in the fundamentals of our economy.  It's not about economic leadership, it's about rushing in to prop up an unsustainable status quo.

Charlie Rose had a good panel on the other night to discuss the takeover of Freddie Mac and Fannie Mae by the feds.  Highly recommended listening:
http://www.charlierose.com/sho...

One of the panelists likened the bursting housing market bubble to a financial hurricane, in which one levy after another is failing.  

Today, the Washington Post editorializes as follows:

The next step is to restructure the companies so that something like this does not happen again. Mr. Paulson's plan doesn't say how to do that, but it does give the next Congress and president time to take on the job and incentives to do so by the end of 2009. If they don't, the firms will have to start shrinking their portfolios and paying the Treasury a fee for their taxpayer guarantee. In other words, Mr. Paulson has tried to prevent an actual collapse of Fannie and Freddie from dominating the rest of the election campaign -- while putting both candidates on notice that permanent reform must be one of the next administration's first items of business.

Read the whole thing here.  
http://www.washingtonpost.com/...

What a load of crap.  Paulson took over Fannie and Freddie to prevent the entire collapse of the secondary mortgage market, which would have severely damaged the entire world economy, including our major creditors in Asia.

My view is that the candidates need to be thinking and talking about this issue -- a lot.