Ultimate Bagholder: You and I
Well, we knew the taxpayers would be on the hook for some of this. What is clear from Paulson's statement is this is intended to be a stop-gap measure until Congress can decide what to do. Not very confidence inspiring, I know. Here's a quick rundown of how we're all going to pay:
- Preferred Stock Purchase Agreements - Treasury will buy newly created stock that guarantees the GSEs have a positive net worth. Common shares and current preferred shares will be subordinate to the Treasury's position.
- Secured Lending Facility - Treasury will loan the GSEs money to fund normal business operations if the capital markets fail to do so.
- "Temporary" MBS Purchase Program - Treasury will buy new mortgage-backed securities directly from Fannie and Freddie. The program will continue until December 2009, but the MBSs will be held until maturity (30 years).
Clearly, GSE obligations are now explicitly backed by the U.S. taxpayer. What that means for new house loan issuance, remains to be seen.
1 comment :
I was sitting here in the UK watching the world markets rally on the news thinkging "wtf?"
The US markets are beginning to lose some strength, so maybe the market is somewhat rational afterall.
Thanks for the updates.
CPAone
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