Will Rogers once remarked that as far as investments went, he was far more interested in the return of his money than the return on his money.

I’m sure America’s most famous humorist/social commentator would not have lacked for material on the current mess that is Freddie Mac and Fannie Mae.

Nor would he naively believe that for all the talk of the government bailout of the mortgage securities giants, it won’t be the taxpayer who ultimately gets the invoice.

The two companies, which were set up by the government, but are actually owned by shareholders, own or back about $5 trillion worth of home debt. I’m told, that’s about half of the mortgage debt in the U.S.
But under that unconventional structure as critics have charged, if things go well, the stakeholders get the rewards. But should the situation quickly head south as it clearly has, Uncle Sam, err, I mean the taxpayers, get the bill.

Since the implosion of the credit markets, Fannie and Freddie have been one of the few funding sources for banks and similar lenders for making home loans. Therefore in a climate such as this, it would probably not be a bad thing if each remained solvent.

Over the past year they’ve suffered an aggregate loss of about $12 billion and they share combined debts of roughly $1.5 trillion.

One may ask, how they both got ensnared in this mess. The answer is simple actually. While the companies themselves didn’t directly buy risky subprime mortgages from lenders, they did invest in subprime mortgage securities. In a bull market, that strategy is terrific, not to mention profitable. But in a bear market, concerns about capital levels have prompted their stocks onto a downward spiral and the ripple effect has scared lenders.

Enter Treasury Secretary Henry Paulson.

Last week, Paulson revealed that the White House would petition Congress to pass legislation extending the lines of credit from Treasury to the mortgage providers — albeit temporarily. Currently, both companies are able to borrow up to $2.25 billion each from the Treasury. As of this writing, a new credit limit has not as yet been determined.

The secretary also proposed that his department be allowed to purchase an equity stake in the companies on an “as-needed” basis.

Meanwhile the Fed announced that the Federal Reserve Bank of New York could now lend to both  — again, on an as-needed basis.

The Fed, which historically had lent money only to commercial banks, has, since its bailout of Bear Stearns several months ago, allowed Wall Street to tap into what it calls its “discount window” funds.
But back to my cynicism about a taxpayer bailout.

I mean, after all, it’s not like it isn’t without precedent.

In the 1980s and 1990s we saw 747 savings and loan associations go belly up at a cost of more than $160 billion.  Of that, $125 billion was funded by the taxpayers.

At this point I don’t know if the Freddie Mac-Fannie Mae debacle can be called S&L: The Sequel. I’ll leave that for brighter minds than mine.

It was said that Rogers could toss three lariats at once with frightening accuracy.

Washington may need to throw a lot more to rescue this mess.

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