Treasury To Sell Remaining GM Shares - Whither Fannie Mae and Freddie Mac??

Anthony B. Sanders ^ | 11/21/2013 | Anthony B. Sanders

[whitedog57]

The U.S. Treasury Department said it expected to sell its remaining shares of General Motors by the end of the year, a plan that may leave taxpayers with a shortfall of about $10 billion on the automaker’s 2009 bailout.

It must be nice to be bailed out by Uncle Sam. Most companies go through the bankruptcy process without the Federal government interfering with the proceedings.

But what about Fannie Mae and Freddie Mac, the beleaguered mortgage giants held in conservatorship by the Federal Housing Finance Agency (FHFA)? More to the point, why didn’t the failed giants go into bankruptcy instead?

The answer is that Fannie Mae and Freddie Mac should have been allowed to go through bankruptcy (just as GM should have been allowed to go through bankruptcy without Federal government interference). But why didn’t they?

The stock, off-the-shelf answer is that a Fannie Mae, Freddie Mac bankruptcy would have been disruptive to the housing market and banking industry (as if Federal government housing policies haven’t been disruptive enough). In other words, Fannie Mae and Freddie Mac are SYSTEMICALLY IMPORTANT.

But wait a minute. The Enterprises at the time of their demise owned or guaranteed 56% of the single family mortgages, or $5.4 trillion of the total $11.9 trillion in outstanding mortgage debt. So, if the Federal government assumed responsibility of the failed giants, it would have added an additional $5.4 trillion to the already staggering Federal debt. This would have resulted in blowing past the statutory debt limits instantly.

Not only that, it would reveal that the liabilities of the GSEs (of which Fannie Mae and Freddie Mac are only a part) stood at $7.69 trillion as of Q1 2013. That left the USA will total debt (excluding interagency debt) of $21.48 trillion. In fact, during most of the housing bubble years (2001-2009), GSE liabilities EXCEEDED Federal debt!

gseliabdebt

Talk about a runaway liability train! But at least now you know what conservatorship was the seizure of choice by politicians. And why President Lyndon B. Johnson took Fannie Mae’s debt portfolio off the government balance sheet in the first place — to hide the runaway train of Federal housing liabilities.

trainoops

But since Congress and the Administration is so squeamish about putting the GSEs on the Federal balance sheet, perhaps this is a more suitable graphic.

19thomas-600

[whitedog57]

The real reason the cowards in Washington won't put Fannie Mae and Freddie Mac through bankruptcy.

[teeman8r]

$10,000,000,000 is a lot of dough... strapped states should sue the feds for their share... 57 states, is that about $170,000,000 ?