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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