You remember Fannie Mae and Freddie Mac don’t you?
They are the two infamous Government-Sponsored Enterprises (that’s mumbo-jumbo for private corporations that have the backing of taxpayers to bail them out when their greedy managers leverage them up like balloons to generate mega bonuses for themselves) that guarantee mortgages.
They guarantee mortgages so those debt obligations can be easily packaged into mortgage-backed securities and sold to investors who want the highest yield possible with the guarantee (wink, wink) that the U.S. government won’t let them default.
Well, those investors were right.
Back in September 2008, before the credit crisis hit a crescendo, when people were defaulting left and right on their mortgage payment, and the guarantees that Freddie and Fannie issued started kicking in, the twin towers of government-sponsored greed imploded, spectacularly.
They deserved everything that hit them – after all, Freddie and Fannie had leveraged themselves up by buying over a trillion dollars of the same crap they were guaranteeing – for the yield and safety, of course.
And yet, Uncle Sam (that’s us, the taxpayers) came to the rescue.
The government put the two into a “conservatorship.” That’s a legal status (make that concept) that lets someone (or an entity) take over control of the corporations, the way a guardian might be appointed by a judge to take over the affairs of a mental person.
For all intents and purposes, this conservatorship was a de facto “nationalization.” But of course we’re a democracy and couldn’t possibly call it that.
Over time, the government – as in the Treasury Department, as in you and I – lent the dynamic duo $190 billion to not sink into the sinkhole they created.
Okay, fast forward to today. Here’s where the story gets twice as ugly.
The Towering Infernos Burn Again
Yes, the towering infernos cooled off thanks to the bailout. But as soon as the housing market stabilized, they got really hot again.
Meaning they are making money. A lot of money.
In just the third quarter of 2013, the latest data available, Fannie Mae had net income (otherwise considered profit) of $8.7 billion and Freddie Mac had net income of $30.5 billion.
Over the past two years, the dashing duo bounced back enough to pay the Treasury Department about $190 billion in “dividends.”
That’s right, F&F have paid back what was needed to bail them out. They have to pay dividends because they are slaves of the Treasury. They still owe the $190 billion in principal, by the way.
And here’s where it all gets interesting…
Where’s that money going, going, gone? I did say to the Treasury, didn’t I?
To the Treasury it goes – to reduce the deficit, of course.
So, the snakes in Congress are hiding their profligate ways and the Obamarama administration is saying, “Look how we’ve reduced the deficit!”
Don’t you just love nationalization!
They should have nationalized, I mean put into conservatorship, all the Too Big To Fail (TBTF) banks that were insolvent and got bailed out.
As profitable as they all are now, the deficit would be a couple hundred billion dollars less.
But they didn’t because we’re a capitalist democracy, don’t you know.
Oh well, at least this socialist government and our Congress of mostly (but not all) liars, pimps, and panderers is having their regulators and the Justice Department (love you, Eric Holder… NOT!) extract mega settlements and fines from the TBTF banks for not being criminals (heavens, no) but being miscreants. And now we know that most of that money goes to the Treasury… to offset the deficit.
Of course this brings up a lot of issues.
Like what will happen to the reforms Congress is contemplating, as in reforming the two monsters into real private companies?
And what will happen if the two cash ATMs are protected for their deficit-reducing prowess and get into trouble again?
Think about this: Of all the money the two government-slave-entities made in 2013, $75 billion resulted from tax-deferred assets, or one-time tax reversals. $11 billion came from canceling out loan loss reserves. $10 billion came from one-time settlements with the TBTF banks they strong armed. And 60% of the remaining income in 2013 came from their retained investment portfolios, portfolios they are supposed to be reducing by 15% every year.
The bottom-line: Fannie and Freddie are pawns in our government’s “Hide- The-Deficit” game.
The money they made isn’t going to keep rolling off their profit presses. But as long as it keeps coming, they will be protected as productive slaves.
And when all the juice has been squeezed from them and they are emaciated, which will be right about the time the housing market falters and the country slips into the next recession, it will be too late to release them from bondage.
And we the taxpayers will have to come in again.
Same as it ever was…