Talk about easy.
Today they are grinning in the Obama administration about the success of the Fannie Mae and Freddie Mac bailout.
Combined, the allegedly private mortgage companies have returned over $200 billion to the United States Department of the Treasury, after the government spent $180 billion in bailing them out.
Oh, and the news gets better.
“U.S. government-owned mortgage financiers Fannie Mae and Freddie Mac could send about $179.2 billion in profits to taxpayers over the next 10 years,” reports Reuters, “if the terms of their bailout remain intact, the White House budget office said on Monday.”
Like most things with this administration, it seems like such a good deal, until you realize where the profits came from: the government.
No?
I know you’re shocked: The government is sending money to Fannie Mae and Freddie Mac so that the government can get the money back that they sent them originally.
Click here to listen to Ransom Notes Radio live or for archives of previous shows.
But, yeah. This is Obama. Kind of like Enron-- the smartest guy in the room-- only immune from prosecution.
And why should it surprise us? Isn't this the premise of Obamacare? Isn’t this what happened in the GM bailout?
Here’s how taxpayers got the GM treatment from Fannie and Freddie—are still getting it in fact:
The Federal Reserve Bank has a balance sheet of about $4 trillion in U.S. government securities right now. $1.8 trillion of that is in mortgage securities, most of which came from Fannie and Freddie portfolios that were sold to the Fed—and continue to be sold to the Fed—under quantitative easing (QE).
Oh, but it gets better.
If you were Fannie and Freddie and had a chance in a rising bond market to sell securities to the government, no questions asked and above face value, would you give them 1) your high performing bonds, or 2) the ones that are, well, a bit questionable?
You don’t have to be a banker or a government economist or a green energy venture crony capitalist to know the right answer.
Our friend Charles Payne from Fox Business calls the Fed’s bond portfolio the “Yucca Mountain” of bad mortgage loans.
“So Fannie Mae sells off all it’s junk [to the Fed] and keeps all the good stuff,” Payne told me on Ransom Notes Radio. “The good stuff starts coming back, housing prices come back and just like that they raised over $120 billion, eight straight quarterly profits.”
The federal government pushed out private mortgage lenders, he says, and took in a whole lot bad loans via Fannie and Freddie and now it has successfully offloaded those loans to the Yucca Mountain of bad loans, the Federal Reserve.
The question becomes: What does the Federal Reserve Bank do with them?
They likely can’t sell the stuff on the open market.
Who would buy it?
Already the mortgage portfolio has likely seen paper losses because of rising interest rates. If the Federal Reserve was required to mark their portfolio to market, like every other asset manager, I’m guessing you’d see losses higher than the money returned to the federal government.
If the Federal Reserve was required to mark those securities to reality, the losses might be catastrophic, with investors losing confidence in the reserve bank’s ability to act as a “reserve” bank in case of a crisis. That's because they’ve already acted as a “reserve” on poor fiscal policy habits by the government.
“This mix could induce a bias toward slower exit or easier policy, and be seen as the first step toward fiscal dominance,” said economist Frederic Mishkin, a former Fed governor. “It could thereby be the cause of longer-term inflation expectations and raise the risk of inflation overall.”
There is, in fact, no easy route for the Fed to take to get out of the mortgage mess. And that means that YOU will one day feel the effects of it.
Why?
Here's why:
“They want to get us in," said one Union Army veteran about the ease with which the army occupied Fredericksburg, VA during that disastrous campaign in the Civil War. “Getting out won't be quite so smart and easy You'll see.”
Join the conversation as a VIP Member