http://www.nytimes.com/...
The New York Times is reporting that the government is thinking about temporarily taking over two companies which are vital to our economy.
Alarmed by the growing financial stress at the nation’s two largest mortgage finance companies, senior Bush administration officials are considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, people briefed about the plan said on Thursday.
The companies are by far the biggest providers of financing for domestic home loans. If they are unable to borrow, they will not be able to buy mortgages from commercial lenders. In turn, that would make it more expensive and difficult, if not impossible, for home buyers to obtain credit, freezing the United States housing market. Even healthy banks are reluctant to tie up scarce capital by offering mortgages to low-risk home buyers without Fannie and Freddie taking the loans off their books.
Together the two companies touch more than half of the nation’s $12 trillion in mortgages by either owning them or backing them. They hold more than $1.5 trillion of the mortgages as securities. Others are sold to investors in the form of mortgage-backed bonds.
In recent weeks, the companies have spiraled downward, undermined by declining confidence in their future and shaken by sharp declines in their assets as the housing markets have continued to slide and foreclosures have risen.
In the last week alone, Freddie has lost 45 percent of its value, and Fannie is off 30 percent. Expectations of default at the companies have also risen; it costs three times as much today to buy insurance on a two-year Fannie bond as it did three years ago.
Analysts expect the companies to announce a new round of write-downs and possibly be forced to raise capital by issuing additional shares, which would dilute their value for current shareholders.
Despite repeated assurances from regulators about the financial soundness of the two institutions, financial markets have concluded that by some measures they are deeply troubled.
In the end a conservatorship would be an effective bailout for these two corporations, as they would eventually be given back.
This could be a moment where we push for nationalization.
The progressive movement must be able to change the culture in D.C. so that nationalization is on the table when it comes to vital industries that are in crisis, or when certain industries would better serve the people when they are in the hands of the government.
Let me say this again, we need to be able to put nationalization, at the very least, on the table if we want to ever implement any progressive economic policies.
In the end, if hypothetically, we did nationalize these two companies, and we thought they would work better in the private market then we could either sell it off to new people, or make them joint private-public companies.
But we must end the conservative logic on the economy. We can't treat economic crises with bailout, or temporary take overs. We need to explore other options, including nationalization or setting up competing corporations which operate as public sector not-for-profit entities.