SilverLeaf

Nationalization of the U.S. Mortgage Problem

Edward Harrison: Great work. While I don't agree with all your conclusions, I do applaud your research and tone. A few comments:

(1) Is there any other solution? That's a fair question. Like you, I choose to be critical, but respectfully so, of Hank Paulson and Congress. It is much easier to criticize them, than it is to propose a better plan, i.e. do a better job than they are.
(2) Contrary to what you indicated, shareholders were effectively wiped out. Theoretically, we were not. Ask any shareholder (me), and they would agree with me. I believe the 'moral hazard' problem would've been less imperfect if shareholders were diluted 50%, which is actually what Bill Ackman suggested. There was a precedent for something like this, in the Chrysler bailout, which ended up benefiting shareholders AND the government alike. Your comments on bondholders is dead on correct.
(3) Something that I've been itching to know (would appreciate it if you did know)...All articles about Fannie/Freddie conspicuously leave out their history in the 1980s and early 1990s...As I recall, Fannie was considered insolvent in the 1980s, and the stock price was well below $1.00..the government did not takeover, however. Fannie did recover, I'm not sure how, and you and I know where the stock price went (up).