Sunday, October 24, 2010

The latest on Fannie and Freddie

Last week the Federal Housing Finance Agency issued its latest estimates of how much the bailout of Fannie Mae and Freddie Mac will cost taxpayers.  NYT reports that the U.S. Treasury already has pumped $148 billion into these two operations.  This is what we call in economics a sunk cost.  There is a wide range of uncertainty concerning how much more of a tab the two housing finance agencies are going to run up.  WSJ reports that under a best case scenario, it will be a mere $6 billion.  Worst case scenario?  If home prices drop another 20-25 percent, we could be in for another $124 billion. 

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