NCPA - National Center for Policy Analysis


September 18, 2008

Mortgage giants Fannie Mae and Freddie Mac are by far the biggest financial institutions ever taken over by the U.S. government.  Their bailout amounts to a stunning return to government control over the U.S. financial system.  It is also another episode of a now year-old financial crisis that shows no signs of abating, says Time Magazine.

So, what will this end up costing taxpayers?

  • U.S. taxpayers are formally on the hook for up to $200 billion in guarantees to Fannie and Freddie.
  • That figure doesn't actually mean a whole lot -- if housing prices begin to stabilize, the Treasury could turn a profit on the deal; if the meltdown accelerates, it might not stop at $200 billion.
  • There are also $29 billion in government loans to be paid off, but since they were made by the Federal Reserve which prints its own money, they are not a direct cost to taxpayers.
  • But there are the $4.5 trillion in bank deposits insured by the Federal Deposit Insurance Corporation; the first big bank bust of the current crisis cost $8.9 billion, leaving the FDIC with just $45 billion on hand to cover a likely rash of failures.

And while the agency may hit up taxpayers for a loan, this would eventually be paid back with interest by surviving banks, says Time.

Source: Justin Fox, "Bailout Nation," Time Magazine, September 22, 2008.

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