Eye on the Economy with Adam Perrotta
- Sep 09, 2008
While the economy has continued to show signs of weakness as of late, the federal government’s bailout of beleaguered mortgage agencies Fannie Mae and Freddie Mac came as a welcome relief to many, although it is unclear at this point just how much of an effect the plan will have on the housing market and the economy overall.
After weeks of speculation, the government took over the struggling agencies on Sunday. The rescue plan will extend as much as $200 billon in support to Fannie and Freddie and places the agencies under a conservatorship to be overseen by the Federal Housing Finance Agency. The government will run the firms until they get back on solid ground economically, replacing both companies’ CEOs with federal appointees: Herb Allison, former CEO of TIAA-CREF, will head Fannie Mae, while David Moffett, former vice chairman of US Bancorp, will take over Freddie Mac.
The agencies—which together back some 5 trillion in single-family home loans—have been stung by the subprime mortgage crisis, with shares of both Fannie and Freddie dropping more than 80 percent thus far this year. Congress passed legislation in July to allow the government to step in with a capital infusion should it be deemed necessary.
Stock markets jumped across the globe in the wake of the news, but the housing market is by no means out of the woods yet, with a large glut of unsold homes still on the market, as well as continued foreclosures driving down prices.
The nation’s unemployment rate, meanwhile, spiked to a nearly five year high in August, rising to 6.1 percent for the month. That’s up from 5.7 percent in July and 4.7 percent from August of last year. The losses were widespread across industries, in an indication that the economy is in a recession. Overall, the U.S. labor market has lost 605,000 jobs so far this year.
On Friday, federal regulators shut down Nevada’s Silver State Bank, which failed due to losses on loan defaults, mainly in commercial real estate. The bank—which has some $2 billion in assets—was the 11th federally insured institution to fail this year.
Gas prices, meanwhile, continued to ease, even as several tropical storms threatened the Southeast. Crude oil ended last week at $106.23 a barrel, down more than $9 for the week, as demand continued to decline. The cost relief has extended to the pump, where the average price of retail gas has fallen 44 cents from it record high in mid July.