The Sneaky Path We Took To A Socialist Mortgage Market

By Jeffrey Dorfman

Back in September 2008, two government sponsored entities commonly known as Fannie Mae and Freddie Mac were placed under government conservatorship. These two quasi-governmental agencies provided much of the liquidity in the U.S. mortgage market by borrowing money at low rates thanks to their implicit government guarantee, and then using those funds to purchase and securitize mortgages. But with the real estate bubble deflating rapidly, they were broke and needed government help. Or did they?

A strong case can be made that Fannie and Freddie should never have existed in the first place. If the government was taking much of the risk by guaranteeing their bonds, why were Fannie’s and Freddie’s executives and shareholders allowed to share the profits? However, the answer to this question should have been to revoke their implicit government backing, not to make them a full-fledged arm of the government.

A new report by some investors who would like to see some return on their shares in Fannie Mae shows that the government used some highly questionable accounting tactics in order to make it appear that Fannie Mae needed a bailout Their analysis shows that Fannie actually had enough cash reserves to have made it through the recession; in fact, they show that Fannie actually generated positive net cash income every quarter throughout the mortgage market meltdown.

Read the full article here: The Sneaky Path We Took To A Socialist Mortgage Market