Wednesday, May 12, 2010

The Toxic Twins keep on sucking taxpayer funds

Two of the main causes of the housing boom and bust, Fannie Mae and Freddie Mac, continue to weigh heavily on taxpayers. Here is an abstract from the Boston Globe:

Fannie Mae has again asked taxpayers for more money — this time $8.4 billion — after reporting another steep loss for the first quarter. The taxpayer bill for rescuing Fannie and its sibling Freddie Mac has grown to $145 billion — and the final tally could be much higher.

The rescue of Fannie and Freddie is turning out to be one of the most expensive aftereffects of the financial meltdown, and Fannie Mae’s first-quarter financial report yesterday made it clear there is no end in sight.

“The losses are not going to stop soon,’’ said Anthony Sanders, a finance professor at George Mason University, who warns the housing market is likely to drop sharply again this year.

Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Fannie and Freddie, lifting an earlier cap of $400 billion. And with the housing market still on shaky ground, Obama administration officials say it is still too early to draft any proposals to reform the two companies or the broader housing finance system.

Republicans, on the other hand, argue that the sweeping financial overhaul before Congress is incomplete without a plan for Fannie and Freddie. They propose amending the legislation to transform Fannie and Freddie into private companies with no government subsidies or shut them down completely.

The legislation “touches nearly every corner of the economy,’’ Alabama Senator Richard Shelby said in the GOP weekly radio and Internet address over the weekend. “But these major contributors to the crisis are left unscathed,’’ he said, singling out Fannie Mae and Freddie Mac.

Democrats call such arguments a diversion. They say Congress already gave the government far more power over Fannie and Freddie nearly two years ago when lawmakers passed a bill that set the stage for a government takeover over of the companies in September 2008.

Fannie and Freddie operate “in a manner entirely different than they had been during the crisis period, precisely because Democrats acted — in collaboration with the Bush administration,’’ Representative Barney Frank, Democrat from Newton, Mass., wrote last week in a memo to White House chief of staff Rahm Emanuel. Their losses “occurred before we took the first step towards reforming them . . . nothing we could do today will diminish those losses.’’

Comment: I find it extraordinary that Democrats still want to run interference for these two entities. When Fannie and Freddie were nationalized, I knew that they would continue to be used as a political tool for the current administration. BTW, all of their debt is "off the books." So, most Americans are not aware of the $5.5 trillion liability looming in the shadows. Can anybody say--Greece?

Here is another news link on Fannie Mae and it's massive debt.

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