Thursday, May 6, 2010

Housing giants also insolvent

but are also too big to fail.  See here for an explanation of what Fannie and Freddie do and how they are structured. 
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4 comments:

  1. BryanMay 6, 2010 at 9:23 AM

    That is interesting to see they invested so little into the subprime market but were still hit very hard. But with a business model that ignores the risk from which they buy these mortgages they are still going to pay the price even if their policies say they won't.Even though they were not a part of the subprime market we can still see where strong companies like fannie and freddie failed because they still relied on securities that entailed risk. I guess everyone will hurt when trillions of dollars were spent betting on the toxic securities like credit default swaps...

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  2. Chloe ReevesMay 6, 2010 at 11:01 AM

    I find it strange that we allow Fannie and Freddie to exist as private institutions that need to please shareholders as well as companies with government charters needed to regulate the housing market. Obviously the companies have mismatched interests; I'm just surprised there were not more problems with these companies in the past. While it may be unpopular, I believe the government should absorb these companies if it wants them to be more regulated and in line with government interests.

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  3. Ashlee SteudleMay 7, 2010 at 12:40 PM

    Fannie and Freddie have very clear conflicts of interest. I feel that if the government truly wants Fannie and Freddie to act the way they were established to, they will need to become government organizations subject to vigorous regulations. Otherwise, these problems are likely to occur again and again. Unfortunately, it looks like the banking sector, housing market, and the government are going to become increasingly intertwined.

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  4. tcmtMay 9, 2010 at 7:41 PM

    I'm not typically a "small government type" but it seems to me that Fannie Mae and Freddie Mac are simply unnecessary devices that make the whole mortgage industry overly complex and messy. I don't know what the perfect solution is but I don't like the current system much.

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