Goldman Sachs is not sure General Motors will survive. Think about that. The icon of American business might burn through all of its cash in the next few months while it tries to unload cars that no one wants. This recession has got the Bush Administration freaked out. Politicians all over Washington are trying to push through housing rescue bills to try to keep the economy from a depression. My friend Vince Farrell has some words about the latest housing bailout.
The thing that troubles me the most is that Fed agencies like the Federal Housing Administration, and quasi-government agencies Freddie and Fannie are to be involved. The FHA just reported a $4.6 billion loss. That’s $4.6 billion. It came about by a “down payment assistance” program where a homeowner got a third party to make a down payment so the loan could qualify for FHA insurance. No money in, no skin in the game, walk away if tough times come. To potentially take over supervision of troubled loans to the projected tune of $300 billion might be a tad risky for the taxpayer. The FHA’s record is not confidence inspiring.
Fannie and Freddie are being looked upon as saviors of the troubled housing market as well. They will be allowed to buy bigger loans and otherwise extend their reach into the housing market further. What bothers me here is Fannie has a debt-to-equity ratio (a measure of how leveraged they are) of 27 to 1, and Freddie 20 to 1 (thanks to David Wessel of the WSJ for those stats.) Bank of America and JP Morgan are both about a 4 to1 debt to equity ratio. So let me be sure I have this right. Two quasi-government agencies, with scandalous accounting issues in their recent past, leveraged to the gills far beyond what the private banking system would allow (and haven’t those banks suffered as well?) are going to lead us to the promised land and away from the housing debacle. Right !
I know there is generalized panic in Washington, being fed by big Bankers who want the Government to bail them out of all the bad loans they made over the last 7 years. But why should all American taxpayers suffer for their stupidity and greed?