For all the focus on the historic federal rescue of the banking industry, it is the government’s decision to seize Fannie Mae and Freddie Mac in September 2008 that reportedly is likely to cost taxpayers the most money.
So far the tab stands at $145.9 billion and rising, the New York Times reports.
The Congressional Budget Office has predicted that the final bill could reach $389 billion.
Some analysts even estimate the total may reach $1 trillion, which Sean Egan, president of Egan-Jones Ratings, recently told Bloomberg is “a reasonable worst-case scenario."
Fannie/Freddie currently holds about $5 trillion worth of loans. The biggest struggle is figuring out the worth of those loans and just how many will default. That's why it's difficult to estimate just how much the tax payers will be on the hook.
Beyond that, Fannie/Freddie are now effectively most of the residential housing market along with FHA loans. So, their long term viability is tied to how quickly the housing market turns around. That's yet another major variable.
One thing that isn't a variable is that both are in desperate need of reform. It's clear that reform of Fannie/Freddie is something that isn't on the table any time soon. Without reforming these two, we are in constant danger since both pervert the market at all times.
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