Many have inquired about my take on the government’s takeover of Fannie Mae and Freddie Mac, even some in the media. I had been sitting be the wayside, actually taking care of business, and had set the issue on the back burner, until now.
Just why in the heck did the government take over Freddie Mac and Fannie Mae? And is it all for the better,or worse?
The obvious reason the government wanted to take over these two mortgage behemoths was to calm the markets, even to indirectly send mortgage rates lower in another feeble attempt to spur the housing market. After all, all other attempts failed, why not calm the mortgage backed securities market’s fears by backing the money by the government?
So, congratulations, if you are a taxpayer, you know own a piece of crap that will cost you dearly. What do I mean? This so-called “conservatorship” is the US Treasury’s move to take on $5 trillion of “junk” that nobody in the marketplace would even touch with a ten-foot pole. Its price tag so far for assuming this debt is $1 billion for Treasury picking up some preferred stock (worthless at today’s prices), and an additional $200 billion to keep Fannie Mae and Freddie Mac solvent. Already, estimates are adding to that figure another $100 billion or more.
Wait a minute? Didn’t both FNMA and FHLMC recently claim they were adequately capitalized? Oh yeah, that’s right, I mentioned that announcement and how it guaranteed the government would take them over. In recent history, if a financial company announced it had enough capital, it meant they were doomed, Fannie and Freddie included.
Probably one of the best moves by the Treasury was to make their preferred stock a priority when it comes to dividends. In other words, they squashed not just common stockholders through the destruction of value, but even kicked out the current preferred stock shareholders. Nice move by our government, huh?
The good news is that both Daniel Mudd and Richard Syron, the respective CEOs of Fannie Mae and Freddie Mac will get $15 million each in pension and deferred compensation, so at least they won’t have to pay for their mistakes since the taxpayers will.
Related posts:
- "Would you like a side of hyper-inflation with your job loss and reduced fat retirement?" That is the question our government would be asking...
Related posts brought to you by Yet Another Related Posts Plugin.
{ 2 comments… read them below or add one }
You really should run for president, wish the candidates would take your straight talk as an example and follow.
I was just wondering, was this whole boasting of being adequately capitalized a way to get the stocks up so that the company execs could sell their shares (sort of like what eBay CEO Meg Whitman did to sell her shares before eBay started going downhill)?
So, I have a question about this … a friend stated she had seen a documentary (not sure when, where, or what) stating the reason the government took over Fannie and Freddie was to protect the money that China has been loaning us to pay for the war …
Do you know if any of that is true and what the real story is?