Responding to financial losses and market distortions caused by mortgage giants Fannie Mae and Freddie Mac, the Obama administration sent Congress a plan to "wind down" the two government-owned secondary lenders over several years, "shrink the government's footprint in housing finance, and help bring private capital back to the mortgage market," according to a joint news release from the Treasury Department and the Department of Housing and Urban Development.
The plan, titled "Reforming America's Housing Finance Market," said that as the wind down occurs, Fannie Mae and Freddie Mac should lose the "unfair capital advantages" they "previously enjoyed." Fannie Mae and Freddie Mac should be required to "price their guarantees as if they were held to the same capital standards as private banks or financial institutions," thus helping "the private market compete on a level playing field," the administration plan said.
The plan also calls for requiring larger down payments from borrowers, "so that any mortgage that Fannie Mae and Freddie Mac guarantee eventually has at least a 10 percent down payment." Bad loans guaranteed by Fannie Mae and Freddie Mac are expected to cost taxpayers at least $169 billion through 2012, according to the administration's latest budget calculations.
World's new No. 2
Year-end GDP tallies revealed that China has the world's second-largest economy, knocking Asian neighbor Japan from the second-in-size position it has held for four decades. At the end of 2010, China's economy was worth $5.88 trillion, while Japan registered an economic output of $5.47 trillion. Just four years ago, China surpassed Germany to become the third-largest economy.
According to a research report issued last month by PricewaterhouseCoopers, within a decade China could overtake the United States to become the world's biggest economy in terms of GDP. However, as noted by The Economist, "China remains a very poor country in per capita terms. It uses over four times as many citizens as America to produce less than half America's output."
Turning a page
Battered by competition from e-books and online retailers, financially strapped Borders Group, owner of the 600-store Borders bookstore chain, filed for bankruptcy protection. As part of the bankruptcy, the company will shut down more than 200 "underperforming" stores in 36 states, D.C., and Puerto Rico. The closures are expected to occur over the next 13 months. Borders president Mike Edwards said the bankruptcy would enable the Michigan-based company to reposition itself to be "a successful business for the long term." Forbes reported that Borders Group has suffered close to $700 million in losses over the past three years.