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04.30.2010 0

Too Hot Not to Note: What About Fan and Fred Reform?

  • On: 05/05/2010 09:45:52
  • In: Economy
  • ALG Editor’s Note: In the following featured op-ed from the Wall Street Journal, Robert Wilmers makes the case for reining in Fannie Mae and Freddie — before it is too late and the nation’s bond rating downgraded:


    What About Fan and Fred Reform?


    Congress may be making progress crafting new regulations for the financial-services industry, but it has yet to begin reforming two institutions that played a key role in the 2008 credit crisis—Fannie Mae and Freddie Mac.

    We cannot reform these government-sponsored enterprises unless we fully confront the extent to which their outrageous behavior and reckless business practices have affected the entire commercial banking sector and the U.S. economy as a whole.

    At the end of 2009, their total debt outstanding—either held directly on their balance sheets or as guarantees on mortgage securities they’d sold to investors—was $8.1 trillion. That compares to $7.8 trillion in total marketable debt outstanding for the entire U.S. government. The debt has the implicit guarantee of the federal government but is not reflected on the national balance sheet.

    The public has focused more on taxpayer bailouts of banks, auto makers and insurance companies. But the scale of the rescue required in September 2008 when Fannie and Freddie were forced into conservatorship—their version of bankruptcy—was staggering. To date, the federal government has been forced to pump $126 billion into Fannie and Freddie. That’s far more than AIG, which absorbed $70 billion of government largess, and General Motors and Chrysler, which shared $77 billion. Banks received $205 billion, of which $136 billion has been repaid.

    Fannie and Freddie continue to operate deeply in the red, with no end in sight. The Congressional Budget Office estimated that if their operating costs and subsidies were included in our accounting of the overall federal deficit—as properly they should be—the 2009 deficit would be greater by $291 billion.

    Get full story here.

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