Everyone remembers the collapse of Lehman Brothers, but most people forgot the event that happened just one week earlier that caused Lehman Brothers to collapse - the failure of Fannie Mae and Freddie Mac.

Fannie and Freddie were actually much, much larger than Lehman, but because both of these government sponsored enterprises were placed under conservatorship it didn't cause an immediate system failure.

That government takeover required hundreds of billions of taxpayer dollars, and now the Trump Administration wants them privatized again.



The investors, including BlackRock Inc., Fidelity Investments and Pacific Investment Management Co., have told the Trump administration that any move to privatize Fannie and Freddie should include an explicit guarantee of the $5 trillion in mortgage-backed securities they issue, which only Congress can provide, according to people familiar with the matter. Eleven years later, the Trump administration has outlined plans to put the companies back into private hands—and the way in which taxpayers could be on the hook to bail out the institutions has emerged as a stumbling block.

...

The administration has said it could support a federal guarantee for Fannie and Freddie securities, but it warned that action to end the companies’ conservatorships couldn’t wait indefinitely.

As you might imagine, this is problematic because it puts us back into the exact same situation that we were in before 2008.

And when I say "the exact same situation", I mean the exact same situation.

This happened just yesterday.



Thirteen prominent banks and financial services companies agreed to pay $337 million to resolve claims by investors that they conspired to rig prices of bonds issued by mortgage companies Fannie Mae (FNMA.PK) and Freddie Mac (FMCC.PK) for a decade.

...Investors including Pennsylvania Treasurer Joe Torsella had accused the defendants of exploiting their market dominance to overcharge for Fannie Mae and Freddie Mac bonds from Jan. 1, 2009, to Jan. 1, 2019, and keep more profit for themselves. According to an amended complaint, the 16 defendants underwrote $3.97 trillion, or 77.2%, of Fannie Mae and Freddie Mac bonds from Jan. 1, 2009, to Jan. 1, 2016.

So virtually every Wall Street bank has been rigging Fannie and Freddie bonds since they were bailed out by the taxpayers, right up until today.

And they want a taxpayer backstop to Fannie and Freddie after privatization. Yeh, right.

Yet that still isn't the whole story.

Just the act of privatizing Fannie and Freddie requires a taxpayer bailout of sorts.



Now private shareholders eagerly anticipate an emergence from conservatorship.

But first, Fannie and Freddie must repay taxpayers for these bailouts and rebuild their reserves against future losses, a task requiring $400 billion in capital. The mortgage giants understandably want to get out from under those obligations, so now they are seeking two more gifts from Uncle Sam. First, debt forgiveness or the “liquidation preference” and second, a rollback of dividend requirements. These stealth bailout proposals are potentially larger than those of the past decade. That is saying a lot.

Funny how working class people never seem to get debt forgiveness.

This newest taxpayer bailout won't be the $400 Billion number above, but it will be in the billions, and that brings up the question of "why?"

Why exactly should the taxpayers send another dime to Wall Street? And why shouldn't we hang every member of Congress and the Trump Administration that supports this bailout from the nearest lamppost?

Before we go any further, some on the right want to muddy the waters by mixing up the numbers.



Proponents of the bailout this year push note that Fannie and Freddie have borrowed $192 billion since 2008, yet have paid $305 billion in dividends. It is fair, they say, to forgive some of the debt and lower the dividend requirements. This argument, however, does not distinguish between the return on an investment and the investment itself. Those dividends paid on cash infusions and the open $445 billion credit line are far from extraordinary. If you account for all the economic risks associated with the bailouts, the true costs of intervention are more than double the value of cash infusions. The dividends merely compensate taxpayers for the risks incurred. The outstanding balance remains until Fannie and Freddie repay the principal.