On February 25th, 2008 I wrote my first OPED about Fannie Mae and Freddie Mac. (click here from FB)The piece was called Quickfixonomics, and appeared on the Huffington Post. At that time I criticized the government for increasing their loan limits as their balance sheets were already a complete mess. I cannot imagine how much THAT MOVE contributed to the $259 BILLION in total expected losses that were reported yesterday. $259 BILLION. Can you all please think about that number. This is not TARP, this is not WALL STREET, these losses are the result of government creating agencies to make homes more affordable for Americans. I have written dozens of blog entries about these two and it is truly just heartbreaking. Now what? is really the question. The truly sad thing is these losses will likely continue and go higher. They have no way to hedge their portfolio that I can think of against decreasing home prices and defaults. Given they own and guarantee trillions of mortgages, and home prices have decreased on average around 30%, it likely means this number is going to be much, much higher.
Now I really hate playing the blame game but this makes be angry. Years and years ago when Fannie and Freddie were printing money for their shareholders and bringing down mortgage rates it was all good, and so they kept expanding their portfolios because as a publicly traded company, that was what they were suppose to do. By buying trillions of mortgages they ‘crowded out’ other natural purchasers of bonds, perhaps forcing them in to investment strategies and products that were not optimal. ( think Alt A, subprime mortgages, and the like) I have done this rant before in one of my other dozens of entries on these mortgage giants but every time I see another headline about how much money they have lost I lose it. $259 billion. THIS WAS AVOIDABLE. The responsibility for oversight of these organizations was by people that are still in power today, like Barney Frank. I would argue that if Fannie and Freddie did not exist in the form they did, we would not have had this financial crisis. Were they the only players? No of course not. But go down the path of imagining the financial world, and especially the securitized world, without the likes of them, and I don’t think you would end up where we are. Note that no other country has the likes of Fannie and Freddie, and they did not experience a financial crisis like the US did.
$259 billion and rising. It is all just so sad. Regarding this foreclosure mess. My gosh.. I don’t even know where to start. I am really worried this will all lead to the next inning of financial market chaos.
For all the blogs I have written on Fannie and Freddie go to my web-site and search Fannie.