Dear Mr. Davis:
Thank you for contacting me about the potential relief being debated for Fannie Mae and Freddie Mac.
I understand your concerns that responsible borrowers should not be forced to foot the bill caused by widespread foreclosures. Throughout this debate, I have remained firm in my belief that we must develop smart policies that do not reward the many bad actors who contributed to the problem.
However, thousands and thousands of people who were essentially bystanders in the housing bubble have felt its effects. It has been estimated that a foreclosure on average costs almost $80,000 in total. The brunt is not only absorbed by the banks and foreclosed homeowners, but also by their neighbors and local government.
The current wave of foreclosures are close to 8,000 a day and is a growing economic epidemic that threatens more than just housing speculators and families late on their payments. This contagion has spread to whole communities and is threatening the greater stability of our economy.
Fannie Mae and Freddie Mac hold or guarantee nearly half of the $12 trillion mortgage market in the United States. Their failures could set in motion a serious economic disaster. In a worst case scenario, shareholder losses would be the least concern, far behind an overall credit collapse and widespread bank runs.
While I share your hesitation about government intervening to take on a large amount of risk, I think the risk may be greater if we do not have the tools necessary to avert a greater financial collapse. I am not entirely comfortable with this course of action, and am pleased that the housing legislation we are considering would reform the regulation of Fannie Mae and Freddie Mac so as to lessen the likelihood we will ever face this situation again.
As this policy continues to be debated, I will certainly keep your thoughts in mind. Thank you again for contacting me.
Sincerely,
Sherrod Brown
Commentary
I voted for Sherrod Brown back in November of 2007. It's not that I necessarily agree with all of his party's positions...like many Americans, I feel as though there are some radical elements inside the party which has surfaced the last two Presidential elections. (It appears that Barrack Obama will be more moderate! He will need to be a centerist if he has any hope of winning the White House.) The fact was, I voted against the former Senator from Ohio by the name of Mike DeWine. I think it is the narrow tunnel vision of people like Dewine that just don't get it...think outside the box. Conservative values I like, not getting things done in D.C. though just can't be tolerated.
While I'm certain Dewine would have voted against the Housing Bill...in the end, it didn't make much of a difference. The response I received from Senator Brown has a bit of an eerie tone to it. It is almost as if the Senator was disclosing that problems are much worse than the Wall Street spin doctors will disclose. Senator Brown obviously sees a tremendous threat to the U.S. financial system. That being said, I think we will see the financials come under pressure once again. Cramer be darned! A few stories last week said the bailout may cost taxpayers $1,000,000,000,000.00 be fore it is all said and done! No why wonder National Australian Bank is bailing out of the U.S. mortgage exposure. Evidently, the Aussies are belated realists!
I wrote to LaTourette, Voinovich, Brown, and President Bush. I look forward to sharing their responses with my readers.
Analysis
F.I.R.E. (finance, insurance, real estate) was credited as the main driving force of the U.S. Economy. ALL BANKS...ALL OF THEM are downsizing! Even an extremely stable bank like AmTrust, formerly known as Ohio Savings is laying of workers (175) as of last week. They were not exposed to the sub-prime markets like the others! Cramer and his Wall Street friends can crow as much as they want about the financials bottoms being in, the guy on Main Street has a different story.
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