So let’s say the Hanky and Bernanky nationalize Freddie and Fannie. Aside from how they fund it, what does this mean for all the bad loans they own or guarantee?
We’re talking 5 TRILLION dollars here, and even if 5% goes bad (feasible, right? considering housing lost +10% nationally so far) that’s $250 BILLION dollars that what…? Goes to investors holding MBS? Or do they give it to the homeowner to keep paying their loans?
At what point does the bad debt outweigh the source of guaranteeing that debt, and more importantly, then what?