And hardly anybody would have lent money to buy a house for a long, long time.
The rescue doesn't include shareholders. This is painful for people who own stock in Fannie Mae and Freddie Mac and for years enjoyed supersized returns.
The takeover is more terrible news in a miserable year for Baltimore mutual-fund house Legg Mason and Bill Miller, its well-known mutual fund manager. At the end of July, Legg Mason Capital Management Inc. and its affiliates reported owning 79.9 million Freddie Mac common shares. The 12.4 percent stake made Legg Mason the mortgage company's largest shareholder.
Fannie's and Freddie's shares had already fallen more than 80 percent from highs reached last year. Under yesterday's plan the government would eliminate the common-stock dividends, which in Fannie's case had already sunk to a measly nickel a share per fiscal quarter.
More ominously, Washington will begin to take over Fannie's and Freddie's ownership. Every time the companies need taxpayer cash to pay off a dubious loan that probably never should have been issued, the government will get new ownership stakes or options in return.
Thus Fannie's and Freddie's present shareholders will own smaller and smaller portions of companies with very iffy long-term prospects. Future profits will reimburse taxpayers for the bailout. Starting in 2010 the companies must steadily shrink their holdings, limiting the long-term upside.
Paulson was quite gracious yesterday as he fired both companies' CEOs and every single one of their board members. Maybe that's because previous managers bear much of the blame for the present disaster.
Institutionally, however, the companies have much to answer for. They cooked their books for years. As recently as last week, government accountants found that Freddie was overstating its capital cushion, several newspapers reported yesterday.
In an attempt to pump up profits, they loaded up on riskier loans even as the housing market cratered. A Fannie staffer once threatened "criminal proceedings" against Congress if it disclosed information about Fannie's executive pay.
Blessed with below-market borrowing costs thanks to implicit government backing, the companies were supposed to pass along the savings to middle-class homeowners.
Instead they spent most of the dough on executive salaries, shareholder profits and lavish lobbying and public relations campaigns, the Congressional Budget Office found a few years ago.
Yesterday Paulson silenced Fannie's and Freddie's lobbying operations.
The bailout probably dooms Fannie's "We're in the American dream business!" slogan forever. It should also prove crucial in ending what has become a dark American nightmare.
Takeover
Treasury could inject up to $200 billion total into mortgage giants. pg 13
