The news wire (pardon the anachronism) was buzzing today about the Treasury’s decision to remove the 200 billion dollar cap on aid to drowning mortgage giants Fannie Mae and Freddie Mac. The two companies have been in government conservatorship since the sub-prime housing bubble popped late last year. Word of the new blank check the government cut set stock of the two companies up for the first time in months, causing some to trumpet resurgence in the real estate market is just around the corner.
As a funny side note, none of top executives at either company have any stock options in their compensation arrangements. Evidently they’re the only ones getting all their cash up front. This measure is also been seen as the government’s way to spur on investment in the real estate market, including the encouragement of lending to riskier clientele.
Does no one remember what happened one year ago?
Yell and scream as much as you want that greedy companies destroyed the economy. Companies are by their very nature greedy enterprises. They are created to build wealth, and have often done so at the expense of regular people. The job of the government is to regulate these entities in order to protect citizens from unfair practices. However, in this latest round of boom and bust, the government actively encouraged (and even legislated) terrible excesses in the real estate market and brought the whole thing crashing down.
They took their GSEs (Government Sponsored Enterprises) and forced them to take on a mountain of risky mortgages. The CRA (Community Reinvestment Act) applied similar pressure to private banks and other lending firms.