Another Fannie Mae Bailout – $5 Trillion And Counting

This story was interesting.  Fannie Mae received another direct bailout from the government.  They got another $7.8 billion.

If you count just the Fannie Mae and Freddie Mac bailout, the total bill comes out to $5 trillion.  Yes, that’s right, 5 TRILLION DOLLARS.

To put that into perspective, $5T divided by 300M Americans is $16,000 each.  In other words, the Federal government could have bailed out Fannie Mae and Freddie Mac *OR* given each American a check for $16,000.

At this point, a pro-State troll objects.  “FSK, you’re counting it wrong.  The total bailout was only $220 billion and not $5T.”

Taxpayers have spent about $169 billion to rescue Fannie and Freddie, the most expensive bailout of the 2008 financial crisis. The government estimates that figure could reach up $220 billion to support the companies through 2014 after subtracting dividend payments.

No.  I’m counting it right.  $220 billion is just the bailout required so that Fannie Mae and Freddie Mac can make interest payments on their debt.  $220 billion is the amount of bailout required to prevent a technical default by Fannie Mae and Freddie Mac.

The fallacy is that the Federal government is guaranteeing *ALL* of Fannie Mae’s and Freddie Mac’s debt.  If you account honestly, the bailout amount is the *ENTIRE* balance sheet, and not just the bailout required to make current payments.

If you account honestly, *ALL* of Fannie Mae’s and Freddie Mac’s debt should be counted as part of the national debt.

With the $220 billion cashflow injection, Fannie Mae and Freddie Mac can stay in business, wait for inflation, and eventually profit.  If there is sufficient inflation, then those underwater mortgages have collateral that’s worth more.  Eventually, if the State inflates enough, housing prices will start rising again.  Then, Fannie Mae and Freddie Mac will start making riskless profits again.

Fannie Mae and Freddie Mac borrow at the Treasury rate and buy higher-yielding mortgages.  It’s pure illicit interest arbitrage.

This Yahoo finance page has Fannie Mae’s debt.  This page has Freddie Mac’s debt.

Fannie Mae has more than $3T in debt.  Freddie Mac has more than $2T in debt.  The total bailout is more than $5T.

Fannie Mae and Freddie Mac are a direct creation of the State.  They are pure corruption capitalism.

Fannie Mae and Freddie Mac get one perk that no other business gets.  Their debt is backed by the Federal government, provided they use that money to buy mortgages or mortgage bonds.

Instead of shutting down Fannie Mae and Freddie Mac, they are bailed out and they continue operating.  Once housing prices start rising again due to inflation, Fannie Mae and Freddie Mac will start making huge profits again.  Then, the CEO and executives will pay themselves a huge bonus for their “brilliant leadership”.

A pro-State troll says “Fannie Mae and Freddie Mac help people buy houses by providing cheap loans.”  That is false.  People get a cheaper loan, but due to cheap credit, the price of a home is greater.  It’s a net loss, because Fannie Mae and Freddie Mac make profits and their workers earn a salary, even though they do nothing useful.

Look at it this way.  If you have “economy right now” vs. “economy without Fannie and Freddie”, the latter is preferable.  The profits and salary for Fannie and Freddie would be better used elsewhere.  Fannie Mae and Freddie Mac are a drain on the rest of economy.  Even if I don’t have a home or mortgage, I’m indirectly subsidizing Fannie and Freddie via inflation.  They get a bailout.  They earn salaries and bonuses, even though they produce nothing useful. They get risk-free profits.  I get higher inflation.

Fannie Mae and Freddie Mac spend money lobbying.  It is pure corruption, when you receive a direct or indirect State subsidy, and then spend some of that money lobbying.

Fannie Mae and Freddie Mac are an abomination.  They are an example of corruption capitalism.  They only exist because of an explicit State-backed perk, that their debts are backed by the State.  The bailout is not just the $220B that they were given.  The value of the bailout is their entire balance sheet, $5 trillion.  All their debt should count as part of their bailout.  All their debt should be counted as part of the national debt.

Fannie Mae and Freddie Mac can’t be shut down, because their executives will always lobby against it.  Fannie and Freddie spend the money stolen via the State to keep the corruption flowing.  That’s the reason the economy is collapsing.

One Response to Another Fannie Mae Bailout – $5 Trillion And Counting

  1. Houses should just be treated as a utility where people need to live.

    Instead banks, estate agents, government, landlords, buy-to-let schemes and local government all want to cash in.

    Property prices and rents are far too high.

    People in the UK look at property as a way to make money without working. Witness the various media reports and house prices increasing more in one year than a whole year’s salary.

    If someone is your family dies in the UK, you are saddled with a ridiculous 40% tax on your property. The government should have fixed this.

    If two sisters live together and one sister dies, the UK government will kick the surviving sister out onto the street and take her house.

    David Cameron, wake up now and fix this!

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