What were the key factors leading to the government bailout of Fannie Mae and Freddie Mac?
You need to put this in context of the credit crisis we’ve seen over the past year-and-a-half. The housing markets in the United States were under incredible pressure, prices were going down and people were not paying their mortgages. So securities that were backed by mortgage payments were starting to go down in value. These two agencies—Fannie Mae and Freddie Mac—didn’t have enough capital to stay afloat on their own, and they had to get some support from the government. Is there a worst-case scenario for how much this could cost taxpayers? A few weeks ago, the government estimated $25 billion. But we’re talking about these two institutions having debt obligations to the order of $5 trillion, which means that $25 billion is almost nothing. It’s just a small percent of their debt obligations. If a few percent more were lost, it could mean much more than $25 billion. How will the takeover affect mortgage rates and the availability of home loans? It is generally believed that this will
