Wikinvest Wire

The future of Fannie and Freddie

Friday, January 22, 2010

Wow. Elected officials are really getting carried away in their response to the loss of Ted Kennedy's seat in Massachusetts. There's reform in the air all over the nation's capital, Bloomberg now reporting that Rep. Barney Frank (D-MA) is recommending that wards of the state Fannie Mae and Freddie Mac should be abolished

“The committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance,” Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said at a hearing in Washington today. “That’s the approach, rather than a piecemeal one.”

The companies, the largest sources of money for U.S. home loans, were seized by regulators almost 17 months ago because of their risk of failing and have since survived on $110.6 billion in taxpayer-funded aid.
Wasn't it Barney Frank who said a couple years back that the GSEs needed to do more to help the housing market recover (on a temporary basis).

Earlier today, a story in the Wall Street Journal indicated that the Government Accounting Office wants to combine Fannie and Freddie's books with the government's books, a move that would cause U.S. deficits and the national debt to rise - maybe a lot.
The U.S. government's move to deepen its ties to mortgage-finance giants Fannie Mae and Freddie Mac by agreeing to absorb unlimited losses for the next three years is igniting a debate over whether it should bring the business operations of the companies onto its books.

A decision on how the government treats Fannie and Freddie could have broader political implications. So far, the White House has resisted calls by Republicans to bring Fannie's and Freddie's obligations onto the government's books, a move that could boost the federal deficit by tens of billions of dollars.
Recent estimates have put overall losses at Fannie and Freddie at almost a half a trillion dollars. Can the U.S. government absorb all those losses?

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Anonymous said...

Sure, why not. It's just a bookkeeping entry. Change all the GSE bond holders into US Treasury Bond holders with the swipe of a pen.

Must have been a sweet deal to get the awesome income from those bonds without the risk. Wonder who is getting that deal?

BTW the GSE debt I think is $6 Trillion or so. About 1/2 the entire national debt! So it's a 50% increase in outstanding debt, but the US government gets to bring the mortgages onto it's books. Yee haw! Can you say fubar?

Anonymous said...

Pimco was one of the major funds big into FNM paper. Lots of foreign governments too.

Anonymous said...

Zimbabwe has a really great economy, so obviously they think the thing to do is to emulate them. Robert Mugabe for President.

Anonymous said...

What do the US and Zimbabwe have in common? A lot.

getyourselfconnected said...

I posted this friday night:
"As you may know, because of my special Force powers I am able to Flow-Walk at times and see the future. On October 29th, 2009 I shared my vision of the future with the readers and offered this:

The future distortion that I see is folding FNM/FRE/FHA and the MBS assets of the FED into a "bad bank". New purchases will be funded by the newly created Federal Office of Mortgage Issuance with a 4% rate for all. This will be funded on the bond market with shortfalls made up with taxpayer money. Do not worry, this program will be short term with an exit strategy planned for 5 years before our Sun goes Red Giant.
The FOMI. That is what I saw."

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