Fannie And Freddie Are Headed For Another Bailout

Taxpayers pumped over $200 billion in to Fannie Mae and Freddie Mac after the financial collapse of 2008.   While the Obama Government used taxpayer subsidized loans to move  a large quantities of foreclosed housing inventory from the FNM/FRE and in to big investment funds, FNM/FRE were busy ballooning their mortgage holdings – again.

Now the Inspector General’s Federal Housing Finance Agency has issued a warning that both FNM/FRE are headed for another bailout, which is no surprise to me:

“Future profitability is far from assured,” Federal Housing Finance Agency Office of Inspector General said in a report, pointing out that the firms could again chalk up losses on their derivatives portfolios, similar to those they reported in the fourth quarter. “This increases the likelihood of additional Treasury investment,” the report stated.  Reuters (LINK)

Similar to when Fannie was plugged full of derivatives under former CEO Franklin Raines – who by the way had no clue how catastrophic the situation was and should be in jail but instead received a $100 million “you’re fired” severance agreement – the Government has once again looked the other way while Wall Street unloaded another avalanche of derivatives onto FNM/FRE.   Once again the Taxpayers will pay for this.

This is not a ‘warning” – this is a “get ready here it comes” statement.   The fact is that most of FNM/FRE’s “profitablity” has been driven by the same fraudulent “mark to model” accounting that has generated most the big bank profits since 2009.

fragile-by-design

And the Government used this fraudulent accounting to suck money out of FNM/FRE.   The “improved” balance sheet has enabled both FNM/FRE to issue debt to investors.  The money raised has been used reload their mortgage holdings and for dividend “payback” payments to the Treasury.

FNM’s CEO warned of the possibility of another bailout in February, after announcing FNM’s smallest dividend payment to the Treasury in more than four years.  This is not a warning – it’s an inevitability.  The housing market is set to re-collapse, which will blow-up both Fannie and Freddie – once again.

6 thoughts on “Fannie And Freddie Are Headed For Another Bailout

  1. Fannie Mae and Freddie Mac have paid back 40 billion more dollars to the treasury than what was used for the bailout. The treasury continues to steal all profits and won’t let the GSE’s to recapitalize. Yes, taxpayers shouldn’t prop up the GSE’s, as they are private and shareholder owned. Release them from conservatorship and let them live or die on their own..

    1. Right. And my point is that the money isn’t based on real profits, but fake mark to market profits that were used to issue more debt – that’s how FNM/FRE generated “cash flow” over the past few years. If you study big bank accounting, they have done the same thing. All financial firms have done this based on the FASB rules put in place in 2009 which enabled the dynamic.

  2. It is a system of crony capitalism, socialization of losses, privatization of profits, outright theft and fraud. Yet because of this very system the rule of law has been suspended – for some. FASB Rule 157 suspended (still) many years after the (manufactured) crisis. All for the benefit of the banks, which are the clear and present danger to the Republic. Until the financial “system” is controlled nothing will change. Don’t look to Congress or WH since they’re effectively on the payroll of the banking cartel. Dodd-Frank is a joke. Derivative exposure just got bigger for the taxpayer as well. Maximum moral hazard continues. The next crisis will be worse than 2008-9 and coming soon to a theatre near you.

    1. This Article sais nothing and is Advertisement. “..which is ripe with investment opportunities, …” – might also mean: sell short.

  3. This is what you get when you sell and finance houses for people with no money or no jobs. Obama wants everyone to have a house but wants the rest of us to pay for it. This will never stop until you quit financing houses for people who cannot afford them.

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