“Imagine if the Bush administration, having decided that gasoline prices are too high, decided to nationalize ExxonMobil. The federal energy secretary held a Sunday press conference to announce that the Bush administration had replaced the company’s management, that the company would henceforth be run with the goal of reducing gasoline prices for drivers, and that any profits the company made would be the property of the federal government, which would now control 80% of the company. As for the company’s existing shareholders, they are out of luck — they won’t get any more dividends; they won’t even get a chance to vote on the deal.

Substitute mortgage prices for gasoline prices and you get a pretty good sense of what the Bush administration and its secretary of the Treasury, Henry Paulson, did over the weekend in respect of Fannie Mae and Freddie Mac. The administration decided that its interest in low mortgage rates as an artificial boost to housing prices was more important than the property rights of the shareholders of Fannie Mae and Freddie Mac. So without even so much as a shareholder vote, the companies were nationalized.”

This does seems obviously unconstitutional, but since the formations of the GSE’s is also constitutionally questionable I didn’t bother bringing it up. Specifically the whole thing is questionable under the contracts clause:

“No State shall [...] pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts[...]”
and the Fifth amendment:

“No person shall [... ]be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”

I suppose we’re I a GSE’s stock holder I’d be feeling pretty darn deprived and uncompensated right about now. (I’m not. After having an entire bank robbed out from under me–INDYMAC, Thanks Mr. Schumer– I don’t want anything to do with a stock with even a whiff of Government on it. )

“Imagine if the Bush administration, having decided that gasoline prices are too high, decided to nationalize ExxonMobil. The federal energy secretary held a Sunday press conference to announce that the Bush administration had replaced the company’s management, that the company would henceforth be run with the goal of reducing gasoline prices for drivers, and that any profits the company made would be the property of the federal government, which would now control 80% of the company. As for the company’s existing shareholders, they are out of luck — they won’t get any more dividends; they won’t even get a chance to vote on the deal.

Substitute mortgage prices for gasoline prices and you get a pretty good sense of what the Bush administration and its secretary of the Treasury, Henry Paulson, did over the weekend in respect of Fannie Mae and Freddie Mac. The administration decided that its interest in low mortgage rates as an artificial boost to housing prices was more important than the property rights of the shareholders of Fannie Mae and Freddie Mac. So without even so much as a shareholder vote, the companies were nationalized.”

This does seems obviously unconstitutional, but since the formations of the GSE’s is also constitutionally questionable I didn’t bother bringing it up. Specifically the whole thing is questionable under the contracts clause:

“No State shall [...] pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts[...]”
and the Fifth amendment:

“No person shall [... ]be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”

I suppose we’re I a GSE’s stock holder I’d be feeling pretty darn deprived and uncompensated right about now. (I’m not. After having an entire bank robbed out from under me–INDYMAC, Thanks Mr. Schumer– I don’t want anything to do with a stock with even a whiff of Government on it. )

By the way you have a great blog here. I check in everyday.

By the way you have a great blog here. I check in everyday.

It’s going to be up to politicians now to make sure the entities are scaled back, and that’s the scary part. I think Barney Frank was balking at that.

It’s going to be up to politicians now to make sure the entities are scaled back, and that’s the scary part. I think Barney Frank was balking at that.

I couldn’t disagree more. This government take over was bound to happen when the government first created the GSE’s. If the GSE’s had never been created, this risk would be spread over many more companies, and our whole economy would not be ready to topple at the fall a a couple a mortgage lenders. I think this is an I told you so moment for Capitalists. Mixed economies don’t work, they only slide towards full government control and that’s what we are seeing. The government creates a mess by interfering with the market. They then, under the guise of saving the day, claim even more power. Which of course causes another mess, which allows them to claim more power, and on and on we go. Looking back over history its a dominant theme in the development of our country. Personally, on the scale of things, I consider this a win, since I understand they are being forced to drastically shrink their portfolios.

I couldn’t disagree more. This government take over was bound to happen when the government first created the GSE’s. If the GSE’s had never been created, this risk would be spread over many more companies, and our whole economy would not be ready to topple at the fall a a couple a mortgage lenders. I think this is an I told you so moment for Capitalists. Mixed economies don’t work, they only slide towards full government control and that’s what we are seeing. The government creates a mess by interfering with the market. They then, under the guise of saving the day, claim even more power. Which of course causes another mess, which allows them to claim more power, and on and on we go. Looking back over history its a dominant theme in the development of our country. Personally, on the scale of things, I consider this a win, since I understand they are being forced to drastically shrink their portfolios.