We on the Economic Populist haven't talked much lately on those U.S. taxpayer funded money pits, Fannie Mae and Freddie Mac.

The government took Fannie and Freddie into conservatorship in September 2008.

At that time, each institution was pumped with $100 billion to $200 billion total. Then in February 2009, each received another $200 billion each to bring the bail out tally to $400 billion total.

Realize Freddie and Fannie are not part of TARP, this is a separate bail out.

The MBS (mortgage backed securities) between the two of them is estimated at $5 trillion dollars.

Now, the New York Times is reporting that Fannie and Freddie bail out may increase to $400 billion, each, for a total of $800 billion dollars.

That is larger than the TARP bail out by $100 billion dollars.

Onto the Federal Reserve. We know the Fed has purchased $1.25 trillion of MBSes from Fannie, Freddie, Ginnie.

Dean Baker does some back of the napkin arithmetic trying to figure out how in God's name Fannie and Freddie need that much money.

It would be difficult to imagine that these mortgage giants could have incurred losses in excess of their assets of more than $200 billion on their portfolios and guarantees at the time of their takeover (@ $3 trillion for Fannie and $2.5 trillion for Freddie). While both companies did get into Alt-A and subprime mortgages at the peak of the bubble, the bulk of the mortgages they held or guaranteed were prime mortgages. These mortgages required either a 20 percent down payment or mortgage insurance.

Just for some quick arithmetic, if 20 percent of Fannie's mortgages (owned or insured) went bad that would imply $600 billion in bad mortgages. If Fannie's losses on these mortgages averaged 25 percent of their value (very high considering a down payment requirement and/or mortgage insurance), this would imply loses of $150 billion. Freddie's loses would be proportionately less assuming the same ratios.

If Fannie and Freddie incurred large losses on mortgages purchased subsequent to their takeover, it would imply that they overpaid banks for these mortgages. Whether or not this was a deliberate policy, it means that Fannie and Freddie were subsidizing the banks in much the same way as TARP was supposed to do when the plan was initially proposed to Congress. Unlike any subsidy provided through TARP, a subsidy provided through Fannie and Freddie would not be known publicly and would impose no conditions on banks. This would be an issue worth investigating.

An issue worth investigating. I'd say so and we at The Economic Populist hope to dig much further in subsequent posts.