It seems that global investors are just figuring out that banking on the debt of what is known as Government Sponsored Enterprises is a bad idea. As Claude Reigns said in the movie Casablanca; "I'm shocked!"
Fannie Mae and Freddie Mac are GSEs which means that the full weight of the United States Treasury is standing behind them, guaranteeing the loans they purchase from banks. Or rather the US taxpayer will cover any losses they may tend to incur because, you know, every banking entity, despite their best efforts, can make a bad loan here or there, right?
But it is being reported that the purchase of Fannie & Freddie’s mortgage debt by Russia, China, Brazil and India have declined and their faith in the US government’s ability to back up that debt has been shaken. These countries are divesting themselves of this debt as a government holding fearing a lack of return.
Perhaps not knowing how much in debt these two GBEs are in may play a roll.
Picture rooms full of brokers, hundreds no, thousands of brokers all over the nation and their job is to get one loan every hour. And picture this happening every weekend for 12 years and know that every one of those loans, no matter how good they may be or bad, was sent to Fannie & Freddie and they BOUGHT them.
So how much in debt are these two “companies”?
I’ll bet that as of right now, three years after the beginning of the housing market collapse, that nobody knows. The Feds don’t know, the people at Fannie & Freddie don’t know and most important, the idiots buying their debt sure as hell don’t know. How can they know if they bought them?
The Federal government has no business being in the mortgage business. There is no Constitutional mandate nor business need to be involved in who gets a mortgage. And a "Government Business Enterprise" has no reason to even exist. Fannie & Freddie became instruments of a government agenda, an agenda that everybody should be able to achieve the “American Dream” of owning their own home. And if Fannie & Freddie were going to buy the loan, the banks writing these loans didn’t need to carry the paper and were absolved of responsibility.
With Fannie & Freddie driving the bus, it was full speed ahead for the wanton purchasing of mortgages that fueled unbridled speculation and runaway lending practices that drove housing prices through the roof. And just when we thought it couldn't get any worse, the “No Income Verification” loans, otherwise known as “Liar Loans’ and “Interest Only” loans (which cannot be refinanced) were the last products of a dying enterprise.
Then, in a final effort to keep the money spigot on, Federal Reserve Chairman Allen Greenspan lowered the interest banks pay to borrow money to zero. Nowhere to go from zero is there?
And here we are. The music stopped and the Fed was all out of chairs. Allen Greenspan’s apology was sincere and dramatic: “Sorry” he said before collecting his pension and flying off to Hawaii.
It is now classic comedy to view the youtube recordings of US Congressman Barney Frank, the guy in charge of the House Financial Committe, saying in 2004, having been warned by the Republicans of mismanagement at the agencies and of a possible failure, stating that he had seen nothing to indicate that the safety and soundness of Fannie & Freddie was an issue and there was nothing to worry about, just three years before the colapse.
Fannie & Freddie, although still buying loans, have had to tighten up the rules considerably. All those people who were looking for the American Dream found it was fool’s gold and for all the “Good Intentions”, the government once again finds that it cannot defy gravity.
And for Fannie & Freddie, well it will be years before we find out just how much in debt they really are. The final number will have a “T” in it.
Government Business Enterprises should be constitutionally banned. All they do is run a deficit. They don’t make money and only serve to drive out legitimate business from a given industry. They don’t solve any problems and suck funds from the economy. Having been established in 1992, it only took a little over 13 years for Fannie Mae to drive our economy into the ground. Quite a feat.
Now just think about what would be in store for us if Barack Obama had gotten his Public Option piece included in our overwhelmingly foolhardy National Health Plan? The Public Option called for esentially a GBE to compete with private insurance businesses in the marketplace for healthcare coverage.