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Fannie And Freddie Money Pit May Suck Down $1 Trillion Of Taxpayer Cash

Posted Jun 14, 2010 12:06pm EDT by Henry Blodget in Investing, Recession, Banking
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Bloomberg checked in on the state of Fannie Mae and Freddie Mac, the two once-quasi-private mortgage subsidy companies that are now almost wholly owned by taxpayers.  Bloomberg found that Fannie and Freddie have already drawn down $145 billion in their unlimited line of taxpayer credit, and that their losses could ultimately be as high as $1 trillion.

To put that in context, Fannie and Freddie alone may consume more than the entire TARP Wall Street bailout, which was in the neighborhood of $800 billion.  Fannie and Freddie's taxpayer-money-vaporization will likely dwarf even that of AIG, which most people still consider the most appalling bailout beneficiary of all.

Just as bad, Congress isn't even pretending that it has a plan to stop the losses at Fannie and Freddie. Reducing the Fannie and Freddie losses would mean reducing a huge housing-market subsidy--and that's the last thing Congress wants in an election year. 

Also, the Fannie and Freddie losses are functioning as a back-door Wall Street bailout: Fannie and Freddie are using the taxpayer cash to buy mortgages from Wall Street, and they are paying prices so high that they're taking a loss.

It's certainly tough to decide what SHOULD be done about Fannie and Freddie, because just disbanding them immediately would likely have a negative effect on the housing market and economy.

But it doesn't seem to much to ask to demand that Congress at least come up with a plan.

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