Why Are Fannie and Freddie Still Publicly Traded Companies?

Yesterday, we "invested" another $46 billion in Fannie Mae and Freddie Mac. I should not be so pissed-off at this point but I am.

The Treasury payout yesterday included a $15.2 billion investment in Fannie’s preferred stock and a $30.8 billion purchase of Freddie’s preferred shares, the companies said in separate filings to the Securities and Exchange Commission today. The companies must pay a minimum dividend of 10 percent.

It doesn't seem like we are dealing with this crisis "head-on". Why are we not winding down their operations? I am sorry I forgot we are using them to re-leverage the housing sector.

Do we have effective control over their board and CEO? This quasi-nationalized state does nothing to restore confidence and trust. Are Fannie and Freddie bondholders going to take a "haircut"? Or will that upset China?

I will try to find answers to these questions.

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diversion! Nice catch!

Another huge thing going on is the ramming through the house giving Geithner even more expanded powers.

I have no idea why these companies are publicly traded or why they just pumped in that alarming sum into Fannie/Freddie.

It seems they are simply out to save the investor class and the zombie banks and the national economy be damned.

That would have been the headlines if it were not for the firing of GM's Wagoner.

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I just saw Barney Frank on Lou Dobbs

and frankly he is an embarrassment. I'm sorry. He just started on his usual "let me finish, you don't let me finish" almost on "autoplay" by the first question. He mumbled a bunch of crap intermixed seemingly attacking Lou Dobbs, who was really asking some fairly benign questions about the latest bill giving Geithner more power (it's now supposedly divided up between the FDIC, Comptroller of the Currency, etc. which is good!)

I mean he just should never get on television, seriously. I've seen him do that same thing, just immediately attack the interviewer on the Liberal media outlet MSNBC and of course the Bill O'Reilly scream match was a youtube hit.

Chris Dodd? To me he should be impeached. It's well known he's controlled by financial lobbyists.

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Just more of the same.

The more this game of bailouts and capital infusions goes on, the more you have to look for simple answers. The biggest banks suddenly reported to be "profitable" in February. Then it was discovered that AIG paid off cds's at full value to them, even though the cds's hadn't yet defaulted and there were no clear indications that they would. This backdoor capitalization of the favored banks is currently being investigated but is being stonewalled at every turn.

On several occasions in the past, I have commented here by referring to the insight of a blogger Ilargi who is brutally honest but prescient in an Orwellian way, IMO. He had something to say about the GSEs today:

Ilargi: We are now in the longest recession since the 1930's, and the US alone has pledged $12.8 trillion in rescues, bail-outs and stimulus plans. And that's by no means the worst of the news. That is that there is no end in sight, no recovery, no solution, nothing at all. Job losses in March were 742.000. I would make the bet that the US will lose over 10 million jobs in 2009.

Sure, there are murkily opaque stats popping up every now and then of "unexpected" rises in mortgage applications or home sales. But those are inevitable the result of one sort of market manipulation or another. In fact, they can be traced back to what is the best hidden, and probably the largest by far, bank bail-out. It goes by the moniker GSE's, behind which we find Fannie Mae and Freddie Mac. If the major banks couldn't sell their mortgage loans to these companies, which are fully funded with your money, no mortgages would be available at all in America. Fannie and Freddie will use at least $340 billion more in taxpayer money before the year is over. After which, they’ll come back for more. ANd they'll bet it, there is no plan B, and that suits the banks just fine.

There is no end in sight to this scheme. Late last year, they were ordered to buy up some $500 billion on mortgage loans per year. The banks close the loans, pocket a hefty fee, and then turn around and dump them on the people. The total combined portfolio's of Fannie and Freddie is now $5 trillion, and they're bleeding cash -your cash- like you wouldn't believe (well, maybe by now you would). Yes, AIG is a disaster, but not nearly as big. And the pattern that emerges should alarm you.

Where does the AIG bail-out cash go? To the major banks. Where do Fannie and Freddie's hundreds of billions end up? At the major banks. The world will tell the US this week that it's had enough of this circus. How much longer will the present bunch of clowns be allowed to remain on stage? The countries found siding with each other on the side of the G20 debate that calls for trillions more in "aid", the US, UK and Japan, are those with the deepest levels of debt and the highest levels of corruption and thievery. The other side is serving them notice that they are not completely lacking in functioning neurons. Obama and Gordon Brown will try to lay the blame with Russia, China, Germany and France, and the American media will feed that line to the public in staccato soundbites interspersed between American Idol and Dancing with the Stars. And it will serve to let the theft continue, all the way till you have nothing left at all. After that, watch out.

(emphasis mine)

Reb, you ask:

It doesn't seem like we are dealing with this crisis "head-on". Why are we not winding down their operations?

The simple, even obvious, answer then is that we (taxpayers) are being, and have been, played for suckers in this endless wealth transfer. I think Congress is only too happy to give Geithner, or anyone else, more regulatory power. They don't want to touch this con-job with a 10 foot pole.

At this point, I don't know what can be done about it. Most people in this country have long ago bought into the "American Exceptionalism" that Andrew Bacevich wrote about. The vast majority of the citizenry is ignorant to economics and monetary/fiscal policies. Add in a MSM that is really a propaganda machine, it is a formula for corporate fascism, a la Simon Johnson's "The Quiet Coup".

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The Oligarchs

Simon Johnson with his analogy to a feudal kingdom is dead on and how one must be clever to get the nation back....

but that is not at all what is happening.

commongood, consider writing up a blog post. I have on my plate going over the latest House financial services committee hearing and legislation giving "vast powers" to seize any corporations as "systemic risk" but the issue is those would would have this power, as far as I can see, are part of the Oligarchy. (despite their backgrounds).

I have carpo tunnel syndrome and am having to try to buy a car too and blogging is killing me but someone needs to write up a post on this before it passes and is enacted into law!

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You're dedicated Robert.

And I, for one, appreciate your efforts. You should take care of your health.

I am as angry as anyone about what is going on, probably angrier than most. I would have respect for some of these bureaucrats if I thought they were honest, but I constantly feel like they think that we, the public, "can't handle the truth". I would rather be the judge of that.

Obama has sold his supporters (me included formerly) on his "pragmatism". I now know it's just more Orwellian double speak. I think there is an "agenda" at play and we have left the realm of "normal" economic behavior. My intellectual interest is to flesh out that theory. But then again, I have been counter-culture since I was a teenager, way back in the day.

Let's see what tomorrow brings and I'll try to develop a rhythm. I hesitate to take the front because I don't want to be seen as a proselytizer, just an opinionated citizen. I'm just one voice of many, but its comforting to feel that your ideas resonate.

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commongood

Thank you but I've read your comments and they are detailed, formatted, cited. You are more than capable of writing insightful blog posts. I'm convinced.

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You are absolutely right.

Also, I believe that the level of financial illiteracy in this country is intentionally kept high. If people were more financially literate the predatory class would have a much smaller population to prey upon and not enough to make billions of dollars.

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I agree with Ilargi

And personally, I fear what will happen when the G20 does finally get tired of this mess- and starts *requiring* payback in some other currency with threat of invasion.

Our military is in a shambles thanks to the Iraqi adventure, we've sent our home defense (National Guard and equipment) overseas to shore up the standing military. What happens if China decides the best way to get a payback off of their T-Bill investment is to invade San Francisco and just take it?
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Moral hazards would not exist in a system designed to eliminate fraud.

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Maximum jobs, not maximum profits.

How are they going to do that

And personally, I fear what will happen when the G20 does finally get tired of this mess- and starts *requiring* payback in some other currency with threat of invasion.

How are they going to renegotiate that debt? They bought it with dollars, and that's how they will be paid back.

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Ungrateful Federal Agencies

If you want to see a lot of Guest Workers (H1b and mostly L1) you should visit Fannie Mae and Freddie Mac. It seems that employed Americans are a rare species in their buildings.

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I think China & Pimco is why Fannie/Freddie are still public

I don't have the numbers off hand but I recall China was a major holder in both Freddie and Fannie at some point and I also believe he massive bond trader, Pimco is also heavily involved.

Now how that all works to "save their investments" (at our expense) would be a very good story to tell! (hint, hint if you are interested in doing some deep research).

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As of 12/31/08 - PIMCO

had 62% of its Bond Fund portfolio in mortgage backed securities. That is $82 billion.

China i am still digging. I saw an NPR story that said the investment in Fannie and Freddie was 10% of its GDP. That is awfully high.

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