Fannie Mae and Freddie Mac:
Bailing out Private Capital

Sep 8, 2008

The U.S. government is taking over the mortgage companies, Fannie Mae and Freddie Mac. It is potentially the biggest bailout of private capital in U.S. history.

Fannie and Freddie own or guarantee more than five TRILLION dollars in mortgages, nearly half the U.S. total. The U.S. government is now responsible for all of that. And you know what that means: all of us will be the ones to pay for any mortgages in default.

Fannie Mae was set up by the U.S. government in the Great Depression, to buy mortgages from banks. It was touted as a way to allow ordinary people to afford a home loan; but it mainly allowed the banks to lend without risk.

Fannie Mae was partially privatized in 1968, when it was making lots of money. Now that private ownership has run it into the ground, the government is taking it back again.

Back at the beginning of the mortgage crisis, one of the things the government did was to relax restrictions on Fannie and Freddie so they could buy up mortgage packages from financial companies in trouble, bailing them out. Now Fannie and Freddie are in trouble. Of course they are! The debt was bad to begin with!

The U.S. keeps trying to reassure the financial companies that everything is okay. “Don’t worry,” it said, “we’ve got it covered.” It infused over 160 billion dollars into the system last year; the market barely noticed. It bailed out big financial firms including Bear Stearns; the market paused a bit, but then continued its downward spiral.

Five weeks ago, Congress passed a law giving the government the ability to pump money into Fannie and Freddie. But investors sat on the sidelines, waiting for the government to actually start pumping money into those companies before they invested–so Fannie and Freddie’s problems got worse as their stocks continued to drop.

So now the government has taken the big plunge–taking responsibility to repay the whole five trillion owed to big investors.

Meanwhile, people are losing their homes because mortgage companies ran a scam for more profits. People are losing their jobs because companies lay them off due to machinations in the financial system–and then they lose their homes because they can’t pay.

People’s lives are being destroyed–because of the chaos of this capitalist system. This government, whose role is to defend and prop up big capital, barely noticed.