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Bail Out Good or Bad?

To put the Fannie / Freddie bail out in perspective, 1.22% of Fannie loans and .81% Freddie loans are delinquent 90 days or more, as reported in April by The Wall Street Journal.

Why would that small of a default rate affect these huge corporations so drastically?

Because they are significantly under capitalized and have been living “high off the hog” for years and years. They’ve essentially done whatever they’ve wanted to, printing their own money with no oversight and no capitalization requirements. Now “we” have to pay for them to remain solvent. They say that there will be an independent regulator overseeing the business from now on, but forgive me if I don’t get too warm and fuzzy about that.

On the other hand, I’m glad that the bail out has occurred (assuming it needed to be done in the first place) because of the perception it creates on Wall Street and in the financial markets all over the world. Were they to go under, it would have been completely devastating to the country and would have been exponentially worse than having to pay for a bail out.

I believe in a capitalistic market without over regulation. However, I think the last 3 years have shown what can happen when there are essentially no rules at all in the mortgage market.