Peaches and Screams

About six months ago federal regulators felt compelled to seize mortgage giants Freddie Mac and Fannie Mae so that they could be run in a more proper fashion.  Since then the Feds have been encouraging, apparently successfully, lower costs for refinancing.  They are also attempting to get banks to lower their loan standards to stem off foreclosures.  This too has seemed to work, aided by a moratorium on such action by many of the biggest players left in the business, a decision which may soon be lifted.  The terms of this hostile takeover are now becoming increasingly familiar as similar actions involving other industries are also mooted.  The failing companies give taxpayers preferred stock which carries a high dividend, thus ensuring we get the money back and everything ends up peachy.  So how is the government doing in their new job as CEO of U.S. housing?  Freddie has just asked for another $31 billion to squeak by for a bit and said more may be needed.  In fact they implied a total of $200 billion in loans may not cut it.  The new loan will add substantially to the dividend payment on the preferred stock.  Freddie recently said “this dividend obligation exceeds our annual historical earnings in most periods, and will contribute to increasingly negative cash flow in future periods.”  In other words, the government is engineering an obviously unworkable deal.  So what do we do now?  Luckily, the Treasury Department owns a printing press.  Turn that baby up so high it screams.  It seems likely that we’ll need a lot more of their funny money before this is all over.