Skip to main content

Fannie and Freddie are yours now

Well, it looks like the "crybaby capitalists" will get their way. Fannie Mae and Freddie Mac have been taken over by the US Treasury Department, and the much-anticipated bailout of the "quasi-public" mortgage lending giants is now underway.

A quick overview of the government conservatorship:

"The U.S. government seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies making up almost half the U.S. home-loan market...

The FHFA will take over Fannie and Freddie under a so-called conservatorship, replacing their chief executives and eliminating their dividends. The Treasury will purchase up to $100 billion of senior-preferred stock in each company as needed to maintain a positive net worth. It will also provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and purchase mortgage-backed debt in the open market."

Unintentionally hilarious excerpt from that Bloomberg article:

"Fannie CEO Daniel Mudd, 50, and Freddie CEO Richard Syron, 64, will serve in a transition period as consultants."

Yes, please do consult us on how to better turn these companies around! Oh wait...

So why were Fannie and Freddie bailed out in the first place? Why not let these government sponsored lending agencies fail?

Well, besides the almost sacred nature of Fannie and Freddie's stated social mission (providing houses to all Americans), there was also the very big political and economic problem of their agency debt ownership (with which the Chinese are stuffed to the gills), as well as the frequently trumpeted spectre of worldwide financial collapse.

Take it Hank:

“Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe,” Mr. Paulson said.

“This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation.”

That is serious stuff. And quite a turnaround from a year ago when these subprime mortgage related problems were said to be - wait for it - "well contained".

In any case, Fannie and Freddie are the taxpayers' problem now. The cost to taxpayers for the government's backstop of Fannie and Freddie has been estimated at anywhere from "tens of billions" of dollars to $200 billion.

I could try and list all the reasons why this bailout, and others, should not happen, but I feel Peter Cohan has already done a great job of outlining all this in his Blogging Stocks article, "Five reasons the Fannie/Freddie bailout should not happen...and some reasons why it is anyway".

So what I'd like to do now is just offer up some of the articles and posts I've accumulated in my Fannie and Freddie folder. Maybe this will help us get a handle on the outcome of this bailout and how we arrived here in the first place. See the list below.

Related articles and posts:

1. "Winners, losers in the US takeover of Fannie/Freddie" - L.A. Times.

2. "Fannie and Freddie: an overview" - Finance Trends Matter.

3. "The Fannie Mae Gang" - Wall Street Journal.

4. "Fannie plan a 'disaster' says Jim Rogers" - Finance Trends Matter.

5. "Freddie, Fannie, and Curses on FDR" - Mises Institute.

Popular posts from this blog

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

Moneyball: How the Red Sox Win Championships

Welcome, readers . T o get the first look at brand new posts (like the following piece) and to receive our exclusive email list updates, please subscribe to the Finance Trends Newsletter .   The Boston Red Sox won their fourth World Series title of t he 21st century this we ek. Having won their first Se ries in 86 years back in 200 4, the last decade-plus has marked a very strong return to form for one of baseball's oldest big league clubs. So how did they do it? Quick background: in late 2002, team own er and hedge fund manager, John W. Henry (with his partners ) bought the Boston Red Sox and its historic Fenway Park for a reported sum of $ 695 million. Henry and Co. quickly set out to find their ideal General Manager (GM) to help turn around their newly acquired, ailing ship. This brings us to one of my fav orite scenes from the 2011 film , Moneyball , in which John W. Henry (played by Ar liss Howard) attempts to woo Oakland A's GM Billy Beane (Brad Pi

William O'Neil Interview: How to Buy Winning Stocks

Investor's B usiness Daily founder and veteran stock trader, William O'Neil share d his trading methods and insights on buying winning stocks in an in-depth IBD radio interview. Here are some highlights from William O'Neil's interview with IBD: William O'Neil's interest in the stock market began when he started working as a young adult.  "I say many times that I didn't get that much out of college. I didn't have much interest in the stock market until I graduated from college. When I got married, I had to look out into the future and get more serious. The investment world had some appeal and that's when I started studying it. I became a stock broker after I got out of the Air Force."    He moved to Los Angeles and started work in a stock broker's office with twenty other guys. When their phone leads from ads didn't pan out, O'Neil would take the leads and drive down to visit the prospective customers in person.