Fannie & Freddie: The most expensive bailout

CNN.com ^ | 23 July 2009 | Chris Isidore

[Fractal Trader]

The first big government bailout of the financial crisis -- the takeover of mortgage finance giants Fannie Mae and Freddie Mac -- is poised to be the most expensive and complicated to complete.

Since Congress essentially wrote a blank check to the Treasury Department in July 2008 to do what needed to be done to inject capital into the two firms, Fannie (FNM, Fortune 500) has received $34.2 billion of direct government support while Freddie (FRE, Fortune 500) has received $51.7 billion.

While that's lower than the $117.5 billion poured into insurer AIG (AIG, Fortune 500) by the Federal Reserve and the $200 billion given to the nation's largest banks through the Troubled Asset Relief Program, or TARP, the current cost of the Fannie and Freddie bailouts dwarfs original estimates from a year ago

When Congress was debating the bailout of Fannie and Freddie last July, the official estimate from the Congressional Budget Office was that a bailout would most likely cost taxpayers $25 billion, with only a 5% chance of the price tag reaching $100 billion between them.

In addition, both Fannie and Freddie are likely to need billions of dollars more after they report second quarter results in the coming weeks. Experts believe the cost will only continue to rise in the next year.

"We're assuming they each will cross the $100 billion mark fairly soon. They could be hitting the $200 billion barrier by the end of next year," said Bose George, mortgage analyst at Keefe, Bruyette & Woods, an investment bank specializing in financial services firms.

[SNIP]

The money allocated for Fannie and Freddie is being used not to simply return the firms to profitability, but to try and fix the broader housing market's problems.

[Fractal Trader]

So these agencies have served as a back door mechanism to pump up the markets without having to allocate funds from Congress.

[EagleUSA]

Frank and Dodd should be in jail.