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A minor story

This story only merits being on A6 of today's Washington Post:

The federal government yesterday doubled its commitment to Fannie Mae and Freddie Mac, promising to reimburse the companies for up to $400 billion in losses on their investments in mortgage loans.

One paragraph later:

The companies, both based in the Washington area, were seized by the
government in September to stabilize their role as the main funding
source for mortgage lending. Fannie and Freddie buy loans from
originators such as banks, allowing new loans to be made before
existing ones are repaid.

At the time, the government promised to cover the companies' losses,
injecting money in any quarter when the companies' liabilities exceed
their assets, up to $100 billion each. Fannie and Freddie raise money
from private investors to fund their loan purchases, and the government
wanted to reassure those investors that the companies would be able to
repay their debts.

Officials said in September that $200 billion was much more money
than the companies would need. Officials now acknowledge that won't be
enough to calm investors. Yesterday, they said that $400 billion would
be much more money than the companies would need.

I cannot tell if the last sentence is supposed to be ironic. I think yes.

I'm glad Fannie and Freddie didn't have anything to do with subprime. I wonder what their portfolios and balance sheets would look like if they had been active in the risky loan market.

The first sentence of the previous paragraph is supposed to be ironic. Just how involved Freddie and Fannie were in the subprime market is something I continue to explore.

I am also fascinated by the unending amount of money Washington continues to commit. Tens of billions for the auto makers. Hundreds of billions for homeowners and lenders. Hundreds of billions for spending to stimulate the economy. There does not appear to be any budget constraint at all. The states are next. What will the price be for all of this spending and how will it be paid?


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