Debate Info

Taxpayer $'s should be used The markets should decide
Debate Score:108
Total Votes:118
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 Taxpayer $'s should be used (8)
 The markets should decide (14)

Debate Creator

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Should the US Government bail out Fannie Mae and Freddie Mac?

"Alarmed by the sharply eroding confidence in the nation’s two largest mortgage finance companies, the Bush administration on Sunday asked Congress to approve a sweeping rescue package that would give officials the power to inject billions of federal dollars into the beleaguered companies through investments and loans." - NY Times.

Should the government be putting up taxpayers dollars to bail out these GSE's, or should they let natural market forces determine the future of the companies?

Taxpayer $'s should be used

Side Score: 25

The markets should decide

Side Score: 83
4 points

With the current turmoil in the markets and the real prospect of either of these companies not having adequate capital to continue operations, I think the government has to step in to bail out these companies.

Fannie and Freddie combined own or guarantee almost half of the entire mortgage portfolio in the US. If either company were to collapse it would have cataclysmic repercussions throughout the US economy. And as fragile as it is right now, the US economy can hardly afford such a major event.

Side: Taxpayer money should be used
Cdelvalle(196) Disputed
8 points

If the government bails out these entities it brings about something called "moral hazard".

What that means is that investors are free to take on risk without worrying about any repurcusions because the government will take care of them.

This is very bad. The fact is risk is inherent in the market. trying to eliminate it is not very smart. These two institutions ae too large already. Bailing them out doesn't solve the inherent problem. It just patches it up for a little bit.

The fact is this - letting them fail would push interest rates up high. And that's exactly what we need right now! Inflation is out of conrol. the only way to fight it is through higher interest rates.

Plus, the very essence of this problem is that there are two mortgage players out there that control over 50% of the market. That's way too much. Thes big institutions should be split up and privitized so we can have a little compeititon. Plus, it spreads ot risk. So if anyone of them fail, the others are still around.

Side: The markets should decide
DoubleUp(14) Disputed
1 point

So you think that an economy that is on the verge of a severe recession should raise interest rates rather than keep them low to help stimulate the economy? Do you think the bigger job of the Fed is to encourage economic growth or control inflation? From your comment it seems the latter.

Side: Taxpayer money should be used
4 points

Yes, they have to act now to prevent a meltdown in the financial system. Great. Nothing I'd rather do than have to shell out more of my tax money on this sham of a Administration's bumbling. If I can support the greed and power lust of a bunch of bankers with my tax money, why not.

I just sincerely hope the Obama administration will go after these greedy pigs with a vengeance next year.

Side: Taxpayer $'s should be used
Cdelvalle(196) Disputed
5 points

The governments job isn't to prevent a meltdown in the financial system. It's the governments fault that the financial system is even melting down in the first place.

Let the free markets do their thing and kill these two weak companies that never should've been given so much power in the first place. Also, take a look at how markets work or look over my previous arguments on this to see why they should fail.

Let's just say that we are on the same pathway that Japan was on in the 80's which led to over a decade of deflation and economic stagnancy.

And do you think Obama is going to go after the 'crooks'? Yeah, just like he said no to 'FISA'.

It's in the governments interest to cover this up and perpetrate the fraud. Yes, a few people will go to jail as the public thirsts for revenge (kinda like Frankenstein!), but that's already happening.

Obama will have nothing to do with it. He'll just have to deal with the problem all of this has created.

Side: The markets should decide
Cdelvalle(196) Disputed
4 points

One other thing I recently found out...

You can thank a law passed in 1999 ?(for Citigroups benefit, no less) that allowed banks to dabble in investment banking and other forms of lending.

This rule was made specifically so that Citibank could get into Subprime mortgages, which is one of the biggest reasons why the housing market is crashing today.

And even Bill Clinton was the first to promote an 'ownershp society' and his aministration was the first to really hammer banks to lend to everybody.

So really, this problem has its roots in the Clinton administration. The Bush administration simply continued it.

Side: The markets should decide
3 points

America is a wonderful country. Why should any of its citizens face the pain and anguish of loss when we have so much? Think of all the employees of Fannie Mae and Freddie Mac. Think of the humiliation the executives will have to suffer. Think of the shareholders losing their retirement.

In fact, the pain these individuals would have to face just isn't America. In America, no one should have to feel the force of reality if it hurts them. We have the resources and should provide a safety net for all companies and individuals that are hurt by cruel capitalism and reality.

In fact, let's extend this financial safety net to all Americans. Have you ever lost a business? Painful, yes? Have you ever lost a job? Have you suffered humiliation of debt?

America is greater then pain. Let's bail out everyone who feels reality hasn't treated them well.

The US Government is bigger than reality and can soften its blow for everyone.


Side: Taxpayer money should be used
Cdelvalle(196) Disputed
6 points

Is this sarcasm?

"No one in America should feel pain"

So everyone should pay for the mistakes of the greedy and uninformed? People research buying a new car more than they research the type of mortgage they'll get into. And the reason that is is because they think, wrongfully, that Uncle Same will protect them.

Uncle Sam has no business protecting people from their own mistakes. People need to smarten up and actually pay attention to the contract they are signing.

The banks that did the sleaziest mortgages should be brought to justice. But those people who signed on the dotted line and never once read through their contract should alo pay for their own mistakes. I shouldn't have to pay for their mistake.

And the fact is that by avoiding this pain now, we risk a far larger pain later. You can't have a business cycle that doesn't 'cycle'. Yet that's exactly what the Fed and US government are trying to do.

Let me add one last comment... The U.S. isn't nearly as rich as you think they are. We live on borrowed money thanks to China.

We have a budget deficit of over one trillion a year when you take into account things like social security and medicare future promises. And our trade deficit is running at over 700 billion a year.

Let's not forget that we have a negative savings rate, our manufacturing sector makes up less than ten percent of the economy,and our financial sector (which is what kept the market humming along from 2002-2007) has just gone down the toilet.

Oh, and then there's the dollar, which has lost over 40% of its value since the year 2000.

So what does America 'have' exactly? a bunch of IOU's.

Side: The markets should decide
3 points

Is this sarcasm? What is funny is that you can't tell because there are people who believe that the government is able to and should shield us from reality. This whole mess was created by the government on many levels.

Side: Taxpayer money should be used
11 points

Listen, the fact that people are shocked that the government is going to bail out these two is just silly. They are called GSE (government sponsored enterprises) for a reason.

Now, should the government bail them out? No, they shouldn't and here's why...

First, both are far too large and present a systematic risk to the market. No two entities should control over 50% of the mortgage market.

Second, Japan went through this in the 80's. And they also bailed out banks that had bad loans. What happened? A decade of economic stagnancy.

Listen, right now theres a huge problem in our market because risk is being socialized, yet the profits are privitized. That means the rich elite make money at the expense of the taxpayers. That's completely unfair and not what it should be.

We need to let these institutions fail. Will it be painful? Extremely. But it's the only way to show the market that when you take on risk and bad things happen, you're the one who has to pay for that risk (not the taxpayer).

As of now, you can take on risk and not worry about it because politicians are using tax payer dollars to bail out those that took on risk.

In the end, bailouts (by Greenspan hen he fixed interest rates too low after ht dot com bubble) are the very reason why we are in the situation we are in today. We just need to let the bad things unwind and take the hit. If we delay it, the pain will be even greater.

Side: The markets should decide
7 points

Very sound argument, indeed. The US financial system is stuck in a negative feedback loop whereby the US government is being forced to borrow increasing amounts of money from the Federal Reserve and the Federal Reserve is printing more paper to meet the demand. The result is the huge problem outline by above:

Risk is being socialized, yet profits are privatized.

To fix this problem, we need to let insolvent banks fail. All banks, including Fannie & Freddie. If we just let small banks fail, it doesn't really solve the problem because the profits will still be privatized, among a smaller group of elites. The only problem is that the correction will be very painful.

Side: Painful Correction Needed
5 points

risk is being socialized, yet the profits are privatized.

I don't think I've ever seen a single sentence settle an issue so resoundingly. This is all there is to it.

Side: The markets should decide

As painful as it may be not to bail them out, we can't! Otherwise every greedy Tom, Dick and Harry working for a a corporation too large to fail will count on a bail out. And not only should we not bail them out, we should put some of them in jail!

Side: put Mac and Mae on the cross

I'll take Mr. Alford's text in its entirety to explain why I believe the markets should decide. If either of these two collapse, taxpayers may have the responsibility of bailing them out! I'll defer to Mr. Alford's view!

What Are the Origins of Freddie Mac and Fannie Mae?

By Rob Alford

Mr. Alford is a student at the University of Washington and an HNN intern.

"In recent months, the nation's two largest mortgage finance lenders have come under increasing scrutiny at the hands of Congress, the Justice Department and the Securities and Exchange Commission (SEC). The Federal National Mortgage Association, nicknamed Fannie Mae, and the Federal Home Mortgage Corporation, nicknamed Freddie Mac, have operated since 1968 as government sponsored enterprises (GSEs). This means that, although the two companies are privately owned and operated by shareholders, they are protected financially by the support of the Federal Government. These government protections include access to a line of credit through the U.S. Treasury, exemption from state and local income taxes and exemption from SEC oversight. A recent accounting scandal at Freddie Mac that resulted in the replacement of three of the company's top executives has led to mounting concerns over the privileged status these GSEs enjoy in the marketplace.

Fannie Mae was created in 1938 as part of Franklin Delano Roosevelt's New Deal. The collapse of the national housing market in the wake of the Great Depression discouraged private lenders from investing in home loans. Fannie Mae was established in order to provide local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing.

Initially, Fannie Mae operated like a national savings and loan, allowing local banks to charge low interest rates on mortgages for the benefit of the home buyer. This lead to the development of what is now known as the secondary mortgage market. Within the secondary mortgage market, companies such as Fannie Mae are able to borrow money from foreign investors at low interest rates because of the financial support that they receive from the U.S. Government. It is this ability to borrow at low rates that allows Fannie Mae to provide fixed interest rate mortgages with low down payments to home buyers. Fannie Mae makes a profit from the difference between the interest rates homeowners pay and foreign lenders charge.

For the first thirty years following its inception, Fannie Mae held a veritable monopoly over the secondary mortgage market. In 1968, due to fiscal pressures created by the Vietnam War, Lyndon B. Johnson privatized Fannie Mae in order to remove it from the national budget. At this point, Fannie Mae began operating as a GSE, generating profits for stock holders while enjoying the benefits of exemption from taxation and oversight as well as implied government backing. In order to prevent any further monopolization of the market, a second GSE known as Freddie Mac was created in 1970. Currently, Fannie Mae and Freddie Mac control about 90 percent of the nation's secondary mortgage market.

GSEs such as Fannie Mae and Freddie Mae, with their combination of private enterprise and public backing have experienced a period of unprecedented financial growth over the past few decades. The current assets of these two companies combine for a total that is 45 percent greater than that of the nation's largest bank.

On the other hand, their combined debt is equal to 46 percent of the current national debt. It is this combination of rapid growth and over leveraging that has lead to the current concerns of Congress, the Justice Department and the SEC with regards to the financial practices of these GSEs.

Fannie Mae and Freddie Mac are the only two Fortune 500 companies that are not required to inform the public about any financial difficulties that they may be having. In the event that there was some sort of financial collapse within either of these companies, U.S. taxpayers could be held responsible for hundreds of billions of dollars in outstanding debts. A recent investigation by the Justice Department and the SEC into the accounting practices at Freddie Mac revealed accounting errors in the amount of 4.5 to 4.7 billion dollars and resulted in the termination of three of the company's top executives. Ongoing investigations by Congress, particular the House Finance Services subcommittee that oversees the activity of GSEs, will determine the future role of Fannie Mae and Freddie Mac and the secondary mortgage market that they dominate."

Side: put Mac and Mae on the cross
kenezen(1) Clarified
1 point

The implication of benefit to past property markets in your presentation is unmistakable. You Argument is good and factual. Perhaps some clarification and end direction could be added.

As long as low interest rates and reasonably easy interest costs prevailed, with related increase of values in property price, the world applauded the ingenious initiation and continuing operation of Fannie & Freddie. When President Johnson made the Agencies "Independent", as a GSE's, it wasn't quite true! Political appointees were inserted, operational adjustments were created to fit each ongoing administration's philosophies and this began the debt and over-leveraging that continued through 2007. There was a lagging and deadly misunderstanding of debt containment. Operating efficiencies suffered because of the political insertion of employment and philosophies. Fiefdoms were created internally until finally the market correction of 2008 occurred that exceeded poorly constructed hedging attempts. The losses magnified and the need for hundreds of billions to a probable trillion dollars of taxpayer money will be required. There now remains a still conflicted entity that may survive because of the reduction of property values that reduce future risk. Unfortunately, unless one believes that a government that changes management and philosophy every period of years and, that has the worst record of running Quasi private companies, it will once again recycle in similar fashion. My advice is to give Fannie to a competent Fund such as PIMCO or Blackrock, have the Treasury fund it initially, and allow it to be better managed.

Side: Taxpayer $'s should be used
6 points

I am not financially savvy like those of you, who have written...BUT...I am a tax payer.AND I SAY HELL NO...notice that was a HELL NO...not just a NO!

These companies have been milking "the people" out of money for a long time. Making big bucks.

Why isn't the government offering to help people from losing their homes...why isn't the government taking care of seniors...why isn't the government providing health care?

Instead they are wanting to help Mae and MAC...HA!

As you know one hand washes the's all so cozy with Bush...the oil companies, the mortgage companies, the drug companies, the war...

If Mac and Mae aren't solvent, big deal...small, medium and large companies close every day and new ones open.

The same thing happened here in Florida when the storms came thru. And when 911 happened. We all lost. We all tightened our belts and kept going.

Who were the biggest cry babies...the utility companies...who makes the most profits...that is right, the utility companies..who got increases and assistance...the utility companies.

Suck it up Mac and Mae...welcome to the real world where you just might have to dip into funds you are paying your corporate heads, who sit on their big pompous butts or your stocks might not pay such big dividends.

Well hear this, I did not invest in your future. So, it will not effect me! I do not believe in you then and I do not believe in your now!

The rest of us out here are eating peanut butter and jelly sandwiches, with out the jelly!

I have no empathy or sympathy for them!

Put them on the cross and light it up!

Southern smiles and world peace,


Author of

Side: put Mac and Mae on the cross
4 points

While I agree with you, just realize if they were allowed to fail (Sadly, that won't happen) it would certainly affect you. The mortgage market is huge and these two control 50% of it.

Credit will be more expesive. Interest rates will rise. And that means it'll be tougher for anyone to buy a home.

Let's notforget to mention what happens when China and all these foeign economies realize that the government isn't backing the hundreds f billions in loans that they purchased from those two. Then you'll have a flight away from the U.S., which wold push interest rates even higher (just to fight the liquidity that would rush into this market).

If these two fail, we'll see mortgage rates move up one percent. If it causes confidence to be lost in the US system and foreign economies jump ship, then say hello to 10% interest rates.

If you have a credit card (like me) that means you'll see your payments go up about 8% (if they don't cancel your credit outright because it's not a stellar credit score).

You see, the Fed and government are bailing these two out to prevent this. But what they don't realize is tht the medicine doesn't always taste good.

Oh, and you can thank Alan Greenspan for helping to create this mess in the first place.

Side: The markets should decide
BabyBoomerQu(60) Disputed
1 point

It will not effect me. If it isn't cash I do not buy it!

I do not believe in truth and lending...LOL What an oxymoron that is!

The economy should not be run by the mortgage companies or the banks.

The American dollar has lost its backing already.

The only people who can afford a loan anymore are the ones who don't need it.

There are many issues wrong with this country and this is one of them.

You will not see me throwing my self out a window over a crash in the stock market.

And Alan Greenspan we are not good buddies. He doesn't even know my first name!

No bank holds my mortgage.

There are no credit cards in my purse.

Only a debit card so I can book a flight or a hotel room.

I do have a boat but it is paid for...paid cash for it! SO, I will not be jumping that ship either.

I remember when credit cards started...are you old enough to remember that??? I thought then, that it was evil and I still do.

America and more than half of it's citizens are in has been the American way for more than half of a century.

But not for me.


~The Baby Boomer Queen~

Side: America in debt-a way of life
4 points

The government has no place dealing with this, or even the economy at all. If we wanted that we should have just let the USSR take us over. This is how capitalism works; some businesses thrive, some fail, and some thrive then fail. It is not and never should be up to the government to regulate the economy.

Side: put Mac and Mae on the cross
Cdelvalle(196) Disputed
2 points

"The government has no place dealing with the economy at all"

Now this is someting I completely disagree with.

But that's a debate for another day...

Side: Taxpayer $'s should be used
2 points

They refuse to socialize something as basic as healthcare, but then force us to pay for a corporation going through a lull?

Side: The markets should decide