It is hard to know what to think about the US Treasury takeover of mortgage lending giants Fannie Mae and Freddie Mac. Other than the imminent demise of such charming company nicknames, what will this mean to workers, investors, creditors, mortgage holders and taxpayers? 

If you are trying to obtain a new mortgage, the bail-out (if that’s the right word) should result in modestly lower borrowing costs. 

If you are an investor (and that mostly means larger banks and a few remaining retirement accounts held in mutual funds), well – you have lost big time. Notice the use of past tense. The value of these investor stocks were already in the “Chuck e Cheese” ticket value range. Now they will not rebound. 

If you have lent either company money (and that is primarily the People’s Bank of China, their version of our Federal Reserve Bank) you should recoup most of your loan. As tempting as it might be for some to skewer the Chinese, the US Treasury and Congress carefully and wisely applied existing bankruptcy law to the takeover legislation, largely insulating these lenders. So who loses? 

Workers at both firms are mostly still employed. I doubt that will last long. Sometime, probably early in 2009 it is likely that both companies will be split and sold to other financial services firms. Some workers will be taken along, others will be redundant and any prediction on who and when these jobs will change is premature. If you are top management of either firm, you obviously enjoy a golden parachute . . . but you better hope the books are perfect. Squadrons of forensic accountants are beginning their work at putting you in jail and many in Congress will be all too happy to air their findings. 

Taxpayers may or may not lose. Congress has authorized perhaps $200 billion in support.  This may be nothing more than a short term loan which will be recouped when the companies are later sold, or it may be a complete loss. I suspect the actual outcome lies somewhere between the two extremes, but it is far too early to tell. Some taxpayers will benefit as mortgage loan costs drop (or at least do not rise). Also, the very positive reaction from financial markets worldwide at least adds some value to suffering retirement accounts and stock portfolios. In the end, the negatives will make little difference to the Federal budget. 

The sad truth is that it has long been known that the US taxpayer would protect these companies from failure. After all, they were created by the US government, not investors. There is much speculation that this step marks the end of a lengthy worldwide march toward free markets. I strongly doubt this marks a turning point. I imagine we will get it right this time.