What Are We Going To Do When Fannie Mae And Freddie Mac Finally Crash?
As our federal government continues to flail and waste time disputing who caused the housing market collapse, I just sit here wondering what we're going to do when Fannie Mae And Freddie Mac finally crash.
A long time buddy of mine send me a link to an article that really summarizes this concern for me. Christopher Whalen wrote a commentary on HousingWire titled On GSE reform: Be Careful What You Wish For that should make all tax-paying US citizens scratch their collective heads. I want to share a few quotes from Mr. Whalen about Fannie Mae And Freddie Mac.
Who Really Controls Fannie Mae And Freddie Mac?
Think about it. These are organizations that are funded by the government, so their accountability for profitability (think survivability if they are private businesses) is very loose. Who needs to profit when the government is backing you. So what motivates the GSEs (Government Sponsored Enterprises) if not sound financial decision making? Mr. Whalen points out:
... the close operational integration of the top four banks and the GSEs, including Fannie Mae And Freddie Mac and the Federal Home Loan Banks, which are the largest GSEs of all. You cannot separate the GSEs from JPMorgan Chase, Citigroup, Wells Fargo and Bank of America — the four horsemen of the financial apocalypse that exercise illegal cartel control over the secondary market for residential mortgages. The big four zombie banks run the GSEs in the same way that they exercise control over special purposes entities and the private mortgage insurers.
Fannie Mae And Freddie Mac Only Exist On Public Funding
The road to hell is said to be paved with good intentions, and Fannie Mae And Freddie Mac were established with good intentions in mind. But they have evolved to a cancer that is killing housing, and I believe is holding back the economy. Mark Calabria of the CATO Institute notes:
“By focusing on ‘the role of government’ in housing, [Nocera] moves the debate away from the reckless immoral behavior of Fannie Mae And Freddie Mac. He can claim this is about social policy and paint himself as a caring progressive, despite the massive regressive theft that Fannie Mae And Freddie Mac have actually been.”
Fannie Mae And Freddie Mac Performance: Far Worse Than The Catastrophe Reported
Everybody knows that Fannie Mae and Freddie Mac have been hammered. Nobody argues that they are a viable, economic entity. But did you know that the reality of their financial situations is far worse than what most are reporting? On this, Mr. Whalen observes:
In the case of the GSEs, the loss on a bad loan is not recognized until the underlying collateral is sold — meaning that there are tens if not hundreds of billions of losses embedded on the balance sheets of Fannie Mae and Freddie Mac in the form of bad loans
Fannie Mae And Freddie Mac Reality Awaits
What is going to happen when the proverbial s#*t hits the fan? If hundreds of billions of loans go bad, will our banking system survive? Or will the next administration (we know Obama is going to continue to ignore this through elections) decide to bail out the banks by printing another trillion dollars?
I know there are "way smarter" people out there who pay attention to this, I'll be looking for their thoughts and ideas. I can promise you this, the lack of leadership in Washington today might be causing a problem that could collapse our economy. It has happened elsewhere. Are we just a "Super-sized" Greece?
If we do not put some bright, non-politically charged minds, on the task of reforming and dissolving Fannie Mae And Freddie Mac, then what we know of the housing market collapse will pale in comparison to what is ahead.
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