In light of the news that the U.S. government has taken control of the assets of Fannie Mae and Freddie Mac, I have received a couple of questions along these lines:
What is a conservatorship?
This question is, no doubt, prompted by the fact that Fannie Mae and Freddie Mac have been placed under government conservatorship.
Basically, a conservatorship is when someone else takes care of your assets should you prove unable or incompetent. (This happened to Britney Spears earlier this year.) It is supposed to act as a protection. A conservator’s job is to make decisions that are in the best interest of the entity that is being protected.
Therefore, the government’s position is one that is seen as temporary (we’ll see how temporary things remain). The government plans to get things back on track, and then, supposedly, let Fannie and Freddie revert to their private status.
At any rate, the conservatorship of the government has not stopped stock trading — Fannie and Freddie are still trading common stock on the market. And, hopefully, as long as Really Bad Things don’t happen, the effect of this conservatorship on the economy should be to keep it from a complete meltdown. Taxpayers are on the hook, but hopefully things will be done to minimize what they actually have to pay, since the plan is to get Fannie and Freddie back to solvent companies, and not actually end any foreclosure proceedings.
What do you think of this move?