Friday, March 5, 2010

Fannie, Freddie Guarantees

For Fannie Mae and Freddie Mac, there has always been the belief that the federal government would bail out bond holders if they went south, even though it was explicit there were no guarantees that would happen. In 2008, they went south, and indeed all bond holders were made whole as the GSEs went into federal receivership. Now that they are run by the federal government, I imagine a lot of people figure they are about as safe as a higher-interest treasury bond, and I wouldn't be surprised if these people are right. But today, Rep. Barney Frank (D-Mass.) is saying otherwise.[1]

I recall politicians warning us there were no guarantees right before they went into receivership, yet the bond-holders remained as safe as can be. So if it were any other person saying that, other than Obama, it would hardly be post-worthy, but Frank has always been a cheerleader of the GSEs and has about as much oversight over their operation as any congressman.

So today's news may be a small thing, but at least it is a step in the right direction—at least from Obama's pledge of unlimited bailouts. Time will tell if Frank's statements are a red herring to distract and assuage public resentment over a never-ending stream of bailout efforts that protect nothing but greed and fraud. An interesting figure from the article is the amount of debt the GSEs hold, on the order of half the federal debt.

In other news, some banks scrambled today as Fannie Mae withdrew much of its cash holdings to cover delinquent debt.[2] No doubt, they will be needing the rest of it pretty soon.

1. Fannie, Freddie Holders shouldn't assume guarantees.
2. Banks scramble to raise cash after FNM cuts.

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