Is that a bazooka in your pocket, or are you just happy to see me?
In July, Treasury Secretary Hank Paulson told the Senate Banking Committee: "If you have a bazooka in your pocket and people know it, you probably won't have to use it." Alas, it now appears that Paulson was shooting blanks at the time; all the same, no one seems happy to see him, either.
The Treasury Department is readying a "rescue" of Fannie Mae
This is the year that government is expanding its powers and control over vast swaths of the economy. It began in March, when Paulson teamed up with Fed Chairman Ben Bernanke to engineer the bailout of Bear Stearns to JPMorgan Chase
The sweeping nature of the powers Paulson is aggregating to the government would be awe-inspiring, if it wasn't so frightening.
Fannie and Freddie own or guarantee some $5 trillion in mortgages, not all of which -- or even most of which -- will fail. Of course that's little salve for those of us who are responsible with our finances and didn't take on mortgages we couldn't afford. Moreover, we are now explicitly backing the mortgage for that neighbor with the McMansion on the hill. Hey, just because you're financially prudent doesn't mean Hank, Ben, and your local congressman think you shouldn't have to open your wallet.
What would happen if Wells Fargo
That means no more "liar loans," no nothing-down financing schemes, and a moratorium on submarket interest rate mortgages with gigunda balloon payments a few years down the road.
That's starting to happen in the marketplace, and the years of excess are correcting, bringing housing prices back down from the stratosphere. But instead of cheering the return to normalcy, Hank, Ben, and their ilk seem to be panicking.
It calls into question just why Paulson sees the need to expand the government's purview over Fannie and Freddie now. Their stocks had been rebounding of late as they came close to instilling investor confidence in their ability to forestall an intervention.
Yet like horseshoes and hand grenades, close is good enough when firing a bazooka. And Henry Paulson will be blasting investors to smithereens.
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