Fannie and Freddie Debt Fuels Anxiety

Home Mortgage Giant Fannie Mae

You don’t hear much about Fannie Mae and Freddie Mac from U.S. news outlets these days, but they still make headlines in Europe and Asia.

Fannie and Freddie are who REALLY caused the Great Recession of 2008 by approving all the toxic mortgages that brought down the economy.

They were never held accountable for that. In fact, we taxpayers bailed them out.

Who are Fannie and Freddie?

Fannie and Freddie are GSEs – Government Sponsored Enterprises. GSEs are entities run as private corporations set up to combine both public and private financing to support public policy initiatives. Freddie and Fannie were set up to provide home mortgage loans to lower income Americans.

They grew into the largest home mortgage lenders the world has ever seen.

The Infrastructure Bank proposed in President Obama’s “American Jobs Act of 2011” is a GSE to make loans to pay for infrastructure projects.

Because Fannie and Freddie were backed by our government as GSEs, the federal government legally had to take them into receivership when they both failed back in September 2008, leaving the U.S. taxpayer stuck holding the bag for all their bad mortgage debt.

The World Is Still Paying Attention

Though the U.S. media has long since forgot them, Europe and Asia are still paying attention. Here is a story about them today in the Financial Times of London:
Fannie and Freddie Debt Fuels Anxiety
– Henny Sender in Hong Kong and Michael MacKenzie in New York, FT, 10/10/2011

The Financial Times(FT) is sorta like the Wall Street Journal, only it covers the whole world.

The gist of the FT story is that Asian backers are getting rid of their holdings of Freddie and Fannie debt held in the form of U.S. Treasury securities.

Here is a statement to pay attention to from that story:

During the first round of quantitative easing in 2009, for example, the Fed bought more than $175bn of GSE debt in the secondary market

Quantitative easing(QE) is the intellectual term for “print money out of thin air”. That $175 billion was NOT part of the much hated TARP loan program that both the Tea Party Movement and the “Occupy Wall Street” movement specifically protested against.

What the above quote means is the first thing that happened in the Great Recession is that you and me and U.S. taxpayers bailed out Freddie and Fannie to the tune of $175 billion. There has been more taxpayer money poured into them since then.

Freddie and Fannie Costs Even More

According to June 2, 2011 testimony before the House Committee on Budget in Congress, the CBO reports that as of March 2011 Freddie and Fannie have cost taxpayers $317 billion and will cost an additional $42 billion over the next 10 years. 

Fannie and Freddie will cost ordinary Americans a whooping $359 billion!!

The Fannie and Freddie bailout was separate from TARP. All told, the Freddie and Fannie bailout will cost American taxpayers more than all the TARP loans combined!

Here is the kicker… most of the TARP loan money has been paid back and it looks like taxpayers are actually going to make a profit from it.

The Freddie and Fannie bailouts are true bailouts. Taxpayers will never see that money paid back.

Conclusions

Though folks don’t like Wall Street, at least they paid back their TARP loans and the taxpayers might even make a tidy profit off of them.

Freddie and Fannie, on the other hand, will ultimately cost taxpayers more than all the TARP loans combined and that will NEVER be paid back. We can’t even interest Asia in holding their bad debt any more through interest bearing Treasury securities!

The “Occupy Wall Street” folks should actually be occupying the comfy offices of Fannie Mae and Freddie Mac in suburban Washington DC instead of Liberty Park in New York.

But then most of them aren’t work-a-day taxpayers and “Liberty Park” is a really cool sounding name.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Oct 10, 2011, in Debt, Economy, Government Sponsored Enterprise, GSE, Politics. Bookmark the permalink. 2 Comments.

  1. What is bothersome is the $317 billion is off the books and, therefore, not part of our national debt. the idea is that theoretically Frannie and Freddie could some day pay off this debt.

  2. You are right, of course, theoretically Fannie and Freddie could some day pay off that debt, but that is more than a decade in the future.

    As it is now, according to the CBO, they will cost taxpayers and additional $43 billion over the next 10 years… and that is after accounting for any profit they may generate.

    And given that the CBO always seems to present the most optimistic forecasts it is a fair bet that the two GSEs will never pay off their debt.

    Governemnt will have to depend on its old standby, inflation. to inflate the value of their debt away to insignificance.

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