Paulson Keeps Advocating Fannie / Freddie Bailout: Potential Cost $25 Billion

By Jennifer Yousfi

A government-backed rescue of Fannie Mae (FNM) and Freddie Mac (FRE) could end up costing $25 billion in taxpayer money, according to a letter released Tuesday by the Congressional Budget Office [CBO].

The letter from the CBO, addressed to Congress, stated there is “a significant chance — probably better than 50% — that the proposed new Treasury authority" to lend Fannie Mae and Freddie Mac money or buy their stock would not be needed before the authority’s expiration date at the end of 2009. However, if the authority were exercised, the tab for the government’s aid could easily top the CBO’s $25 billion estimate.

“I am well aware that financial market and housing challenges continue to concern America’s families. Progress will not come in a straight line, and we need to remain patient as we work through these challenges,” Treasury Secretary Henry Paulson said in a speech yesterday during his visit to New York City to drum up Wall Street support for his plan to rescue Fannie Mae and Freddie Mac.

Paulson remains committed to government aid for the struggling lending giants, despite the potential $25 billion price tag for taxpayers. Together, Fannie Mae and Freddie Mac secure almost half of the $12 trillion U.S. home mortgage market.

“We need to act in the short-term because the [government-sponsored entities] are vital institutions in our capital markets today and are vital to emerging from the housing correction,” Paulson said in a speech in New York, Bloomberg News reported. Fannie Mae and Freddie Mac are among the “most interconnected of all global financial institutions,” he said, referring to the large number of Fannie Mae and Freddie Mac securities held by financial institutions worldwide.

Lawmakers are expected to vote this week on the Bush Administration’s plan to help Fannie Mae and Freddie Mac through their current liquidity crisis. Paulson has been one of the most vocal advocates for government intervention.

“This is about not only our housing markets, but it’s about our capital markets more broadly,” Paulson said yesterday in a Bloomberg Television interview. “This goes well beyond the two institutions — Fannie and Freddie — it has to do with investors in the United States and investors all over the world.”

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Comments

[GaryD:]

Give me a break. The $25B is just the leader to get the taxpayer on the hook for a bailout that's going to be 10x - 40x that big. Hank Paulson was one of the guys who set the whole asset-backed security scam up when he was at Goldman Sachs. His purpose in life is to piss on the little guy and this is just another opportunity for him to do just that. Screw him. Someone should tell him to go get a job that doesn't require taxpayer funding. He's never had one of those as far as I can tell.

2008 Jul 22 09:55 PM

[Jason Rines...:]

Of course. Socialism has been tried for 6,000 years and always failed. This blend of capatalist socialism where trllions of electric credits can be moved around and gambled with is dangererous to the extreme. Now, hard assets are deflating besides those that retain some form of value such as gold, food and oil. Houses retain some value and I am more apt to buy a dozen of them in 2010 and rent them for a decade then I am to invest in the financial market.

2008 Jul 23 10:51 AM

[alajac:]

Isn't that what they said Iraq would cost?

Nothing has intrinsic value. Not housing, not gold, not oil, not food. All anything is worth is what someone else is willing and able to pay. If enough people lack sufficient money and access to credit, "bids" will be overwhelmed by "asks", and prices will continue to tank.

2008 Jul 23 06:22 PM