What Happens When The Government Oversees

By now you all have heard that Saturday the Treasury Department confirmed it would take over Fannie Mae and Freddie Mac. This move is supposed to stabilize the American mortgage industry and protect the global financial system. I don’t know the economics of the move, but I do have experience in what happens when the government steps in to oversee operations.

Failed Bank Bailouts by the FDIC

In the early 90s I worked in customer service of a retail bank that was not performing well and had some lending and ethics problems. I had been working there a month when, over one weekend, the FDIC announced they’d be seizing the bank assets and operations come Monday morning. That’s it, I thought, no more job. But I was wrong. I continued to work for the FDIC, and then the purchasing bank for eight more interesting months.

What happened?

There was a run on the bank. Everyone with cash on deposit wanted to take it out. Our vault was nearly emptied. How will the bailout of Fannie and Freddie affect the demand for mortgages, and does that play a role in the rates available?

All the senior employees left.  What is going to motivate the key players at Fannie and Freddie to stay with the institutions through recovery?

Documents disappeared. In a mad scramble to hide evidence of wrong-doing, ineptitude, or just plain poor document retention policies, tons of papers were shredded and hauled to the dump. What exactly does conservatorship entail?

Eventually the FDIC found a buyer for our bank. That’s the beauty of retail banking – there’s always a bigger fish to swallow you up. What is the plan for Fannie Mae and Freddie Mac? As a taxpayer and mortgage borrower, will I soon be lending money to myself and then paying it back?

I’m confused. Someone please enlighten us all.