US TREASURY secretary Hank Paulson is working on plans to inject up to $15 billion (£7.5 billion) of capital into Fannie Mae and Freddie Mac to stem the crisis at America’s biggest mortgage firms.
The two companies lost almost half their market value last week as rumours of a government bail-out swept the stock markets, hammering share prices around the world.
Together, the two stockholder-owned, government-sponsored companies own or guarantee almost half of America’s $12 trillion home-loan market and are vital to the functioning of the housing market.
The Treasury is expected later today to make a statement supportive of beleaguered mortgage giants Fannie Mae and Freddie Mac, according to people familiar with the matter.
The exact language couldn't be learned but is expected to be a statement of facts designed to reassure markets, people familiar with the matter said.
The two stockholder-owned, government-sponsored companies, whose operations are vital to the functioning of the U.S. housing market, face a severe crisis of confidence after a week in which their stocks each lost nearly half their value.
Monday's markets will bring a big test of the two companies' financial health when Freddie Mac is due to sell $3 billion of short-term debt. An unsuccessful sale could be a major blow to investor confidence. Treasury officials and other regulators have been calling potential buyers of the debt over the weekend to gauge their interest and urge them to participate, according to people familiar with the matter.
How can I put this (without sounding too obviously schadenfreudlich...)?
Fundamentally, there is no easy solution to today's crisis. It is not a crisis of regulation, or of subprime, or of securitisation, or of inflation.
No, it's much simpler than that.
It's a crisis of greed.
Too much debt was the natural result of too much greed, relentlessly encouraged by 30 years of rightwing policies (read: "I really believe that selfishness is good for others too"), and too much money, similarly made possible by 20 years of rightwing policies (read: "asset price inflation is lovely, only wage inflation is evil").
And it must be said that majorities have bought in, thinking they were part of the winners, and that losers had only what they deserved. Majorities voted for the guys, watched the TV programmes that brainwashed them, and generally behaved in accordance with the same dubiously low standards ("do onto others only what you can get away with")
But wealth capture is not wealth creation, and it cannot be sustained beyond physical limits (the main definition of an economist, these days, seems to be "someone who thinks human 'laws' trump physical ones"). Once all the reserves have been grabbed, there is no longer an easy route to 'growth.'
This is what we're living through today: an unsustainable model of monetary-only growth bumping against physical reality. Guess what: physics win. Every single time. Thus $150 oil, $4 gas, stagnant wages and Will-E-Coyote real estate markets.
Fannie Mae and Freddie Mac are just one of the paths monetary-only growth too, but it's one of the most obvious - and concentrated - ones. It's collapsing under its own weight of funny money backed by dubious assets, and it's bringing down with it the notion that this was not a political choice, as the only entity that might save it is the government.
Governments have a simple task in society: providing security, and its often-underestimated sibling: resiliency. In the pursuit if short term gains, we've been pushing "efficiency" (as a more respectable form of greed) at the expense, precisely, of resiliency, which requires redundancy, long term thinking, and, let's say the word, solidarity. Government is the body that manages the fact that we're in this together, and we're linked to other generations, before and after us.
The Anglo Disease is the label I have been using to describe the current situation, whereby too much debt has made the financial sector dominant, and starved the rest of the economy of oxygen - and not-so-coincidentally transfering massive wealth from the working classes to the very rich: debt, managed by the financial sector, and working under assumptions of ever increasing returns, is both the core tool of very obvious policies and the very instrument to hide these from view; feeding the ideology of selfishness, and hiding (temporarily, but for much longer than even its creators dared hope, I think) the empoverishment of the many, it is both self-sustaining and popular for the masses, is it has become a full scale addiction.
We now need to go cold turkey. It is massively painful, and it requires leaders with integrity and strength to help us get us through.