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Freddie and Fannie were the epitome of privatize the profits and socialize the losses. Since inception they've benefitted from lower capital and mortgage insur
by jhulla 10y ago
Freddie and Fannie were the epitome of privatize the profits and socialize the losses.
Since inception they've benefitted from lower capital and mortgage insurance costs due to their implicit government backing. In return, they've accepted substantial oversight from the government in regards to their loan acceptance standards.
The 2008 rescue and then QE where the Fed bought Agency debt by the billions made the implicit government guarantee very, very real.
When Fannie and Feddie went insolvent, Congress and the Obama administration as the rescuers had the opportunity to completely wipe out the public shareholders and take over the companies. This is what should have been done.
Instead, we now have zombie public companies whose profits are siphoned off through political agreements instead of explicit contracts open to public scrutiny.
- harryh 10y agoIn 2007/08 shareholders of Freddie & Fannie lost over 99% of their investment. How is that not a privatized loss?
- pcarolan 10y agoThe article is making the case that they've become socialize the losses and socialize the profits... and goes on to say that this is somehow bad because shareholders. It seems to me that the status quo is a good compromise if you believe in the original intent of subsidizing American home purchases.
- jhulla 10y agoPublic companies socialize their profits through tax, legal, labor and regulatory compliance. According to the article, Fannie and Freddie are being hit above and beyond those. This is quite unfair to the public shareholders. If Congress wants the public benefit, then Congress and the White House should have wiped out the public shareholders in 2008 and taken over the companies.
- tosseraccount 10y agoShare holders essentially were wiped out and the government did take over Fannie and Freddie. The remnant equities have very little value. Only people interested in the last 8 years are lawyers hoping to get paid off. What they should do is auction off the assets, pay off their creditors and let the banks, credit unions and other organizations manage the risk. There's plenty of competition in the lending business.
- pcarolan 10y agoWhy? We got into this mess because the banks couldn't manage the risk and we had to bail them out.
- tosseraccount 10y agoBanks got into it because the government was guaranteeing it. Make a loan, collect the fee, dump the junk on the tax payer. Government enabled and subsidized this. And still does. Home loan deductions, anybody? We didn't have to "bail them out". We should have let them go chapter 11. Plenty of folks with responsible finances could have bought up the assets.
- collyw 10y agoIt happened to banks outside the US, where they weren't guaranteed (but did get bailed out).
- ddeck 10y ago>This is quite unfair to the public shareholders. Admittedly they may not be the same shareholders, but let's not forget that Fannie/Freddie shareholders have benefited untold billions pre-crisis by being able to fund for years with an implicit government guarantee that was never paid for. http://www.federalreserve.gov/pubs/feds/2005/200505/200505pap.pdf http://www.federalreserve.gov/pubs/feds/2005/200505/200505pa...
- pcarolan 10y ago
- rayiner 10y ago> Freddie and Fannie were/are the epitome of privatize the profits and socialize the losses. The article says precisely the opposite: > But now, with the unsealing of documents this week that were produced as part of a lawsuit filed against the government, new evidence is coming to light on how intimately the White House was involved in the Treasury’s decision in August 2012 to keep all the companies’ profits for the government. That move effectively maintained Fannie’s and Freddie’s status as wards of the state.
- jhulla 10y agoYou are correct. I removed the "are".