Backslapping Mortgage Bailout, Fannie and Freddie Get a $200B Blank Check
March 20th, 2008 Categories: Mortgage News
Great Op/Ed article in the Wall Street Journal today…
Fannie Mae and Freddie Mac were allowed to ‘leverage up’ their portfolio from 30-1 to 33-1 (for every $1 in freed up capital they can spend $33 instead of $30) ‘creating’ an additional $200B(illion) worth of liquidity they may now use to buy more mortgage backed securities.
The recently carved up and eaten Bear Stearns had a 34-1 ratio; take that for whatever it’s worth…
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Yesterday’s capital expansion merely lets the companies continue their double lives as profit-making companies backed by taxpayer guarantees.
Of course, the last thing Congress wants is all of this to be transparent. The Members benefit from the current private-public confidence game because the two companies ladle them with campaign contributions to protect their privileged status.
At the end of the day if this strategy works the private investors get all of the upside. And if it fails? It becomes the taxpayers loss…
As the article states, with this type of mitigated risk policy it’s no wonder Fannie Mae’s stock has risen over 30% in the past week. This is what happens when Washington plays with Wall Street…
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