This may then be the rough settled value – in which case the Treasury is looking at (wild guess time) about 32 billion USD total cost for Fannie Mae. Maybe another 15 or so for Freddie Mac, call it 50 billion in total.

“When you say we need to look at the culture of home ownership,” what are you implying?

I may be wrong, but I suspect this is not true.

Fannie earns about 10 billion a year – at 30bps spread. At 130bps that 10 billion drops to about zero. Expected losses over trend on their book – well, that’s the big unknown. Something approaching 100 billion maybe. Fannie needs all of it’s earnings for the next couple of years to manage its losses. If spreads remain at 130, they have *no earning power* which leads them to be profoundly insolvent.

The longer Fannie has to issue debt at 130bps, the more the Fed will have to pay off in debt repayment. So the Treasury has a choice; wait with fingers crossed and hope spreads drop back to 30bps (which hadn’t happened and wasn’t going to happen) or get in there ASAP to minimize losses. Debt is issued at a high rate – a couple of billion dollars a quarter – so this is a lot of money.

As it is, spreads have only tightened to about 90bps. The Treasury may be going to lose a *lot* more money than it bargained for – presumably is they were assuming spreads would drop back to 30bps or so and mean they could use earning power to neutralise losses.

The problem may be that it’s all very well providing a bailout, but people *still do not know the scale of losses to be expected at Frannie*. The quality of the loan book is still unquantifiable. So having a bailout – you still don’t know where you stand if you buy their debt – you still *don’t know* how much risk you’re taking – and how can you assume the Treasury will really back up their full bailout when you know *they* don’t know how much it’s going to cost.

What is wrong with the aspiration to own a home.
In any case not everyone does, many people rent, especially migrants.

Overreaction to events is a hallmark of the hysterical left, in my experience.

But this is because the two institutions were already seen as having a government guarantee. When Northern Rock got its the run on the bank stopped almost immediately.

Perhaps we need to look at the culture of home ownership and ask whether it is simply beyond those on a modest income? We would all love to own a home, it is something fundamental to the human sense of security, but is it unrealistic to believe that everyone can be a homeowner? Especially the way the economy is structured with so many people in part-time low-paid work.

It is so simple Mr Redwood, politicians invaribly make matters worse. Let the market digest this move and then let us see what this does for the US$ and then US$ government bonds.

JR: “Collapsing house prices brings down much else with the fall. Many families pay the price with lost jobs, shattered dreams, repossessed properties. No sensible person wants that.”

A victim of the last manufactured Tory housing boom, I know what it is like to experience negitive equity.

The problem is, all your (collective term ) fiddling with the financial levers will make no difference, the politicians manufactured the boom and now the people will suffer the bust. Again.

While many MPs will be trying to decide which of their multitude of publically financed houses to sell or rent out, many ordinary people will find themselves evicted from their only house.

It is worthy of note that the US move came in the middle of an exceptionally bitter and closely fought election campaign. At first sight, bearing in mind the way the Congressional system works, both sides will be able to claim credit for saving the “hard working bluecollar family” from disaster. The sting will be that as the Democrats have controlled Congress for the last 2 years, by claiming credit for this measure, the Republicans can campaign on getting the Democrats to acknowledge some responsibility for the deficit in the last 2 years.
It is precisely because all these this bail-outs are political deals, like Northern Rock, rather than financial deals, I feel that the free world is going to suffer a longer period of Recession that would otherwise be necessary. I would suggest that what is happening is that the greatly inflated housing sector is being denied the necessary sharp correction. (I am a house owner) What is being touted as a bright way to manufacture a soft landing may well prove to be a small dyke which merely increases the effect of the tsunami of debt.