http://www.realclearmarkets.com/articles/2015/11/16/why_fannie_mae_and_freddie_mac_survived_101886.html
Problems with your article:
1. Treasury Secretary Henry Paulson put the GSEs into “conservatorship.”
Treasury Secretary Henry Paulson didn’t have the authority to put Fannie and Freddie into conservatorship. That function rested exclusively with the FHFA. The way that HERA was written, the law that gave FHFA that right under certain conditions, FHFA was to act independently. If it can be shown that Henry Paulson “put Fannie and Freddie into conservatorship”, those conservatorships can be overturned because FHFA was supposed to act independently.
2. This meant that the government would cover their costs because they were bankrupt.
The GSE never had a cash flow problem. The GSE had cheap lines of credit available to them. The GSE had enough cash on hand to pay MBS holders for months even if everyone stopped paying their mortgage. The reason given for forcing funds on the GSE was the forced write down of their DTAs. The later reversal of the write down of the DTAs was what allowed the GSE to send ~$250B to UST.
3. During the financial crisis, the GSEs overestimated their losses, resulting in huge write-offs.
The FHFA overestimated the loses. This was the cause of the draws. If it weren’t for FHFA coercing the boards of the Fannie and Freddie to consent to conservatorship, there never would have been write downs. Fannie and Freddie didn’t need conservatorship. The government needed a backdoor bailout method for the big banks that congress and the US public wouldn’t allow.
4. But these profit bonanzas won’t likely be repeated, says Parrott.
Parrot is a bird brain. Yes, these profits won’t be repeated because the profits were just reversals the FHFA’s forced writedown of Fannie and Freddie’s assets. The profits are one time, because the writedowns were one time.
5. Nevertheless, taxpayers could face billions of losses in another crisis.
The government never explicitly guaranteed the MBS sold by Fannie and Freddie. The taxpayers never faced losses, don’t face losses, and will never face losses. The government has no legal exposure, but choose to get involved for policy reasons that had nothing to do with Fannie and Freddie’s solvency.
6. Two obstacles arose.
There is a third critical obstacle. Fannie and Freddie were chartered by the US government to provide a certain function. They were then sold to sharesholders. Fannie and Freddie are publically held by people like me, people with pensions, and people that just wanted to invest in extremely safe assets. If the government wanted to ‘dismantle’ Fannie and Freddie, they would have to buy them from the shareholders so they could be shut down. The government tried to knife the baby instead, but it isn’t working.
7. There’s a wild card in all this: suits by private investors, who still own about 20 percent of the GSEs.
The UST doesn’t own any of Fannie and Freddie. They hold warrants for 80%. If they execute these warrants, there will be further lawsuits for a 5th amendment taking.
8. So that’s what they did – and that’s how Fannie and Freddie survived.
Fannie and Freddie’s survival isn’t what the white house wanted. At the state of the union speech on housing in Phoenix, Obama again called for the wind down of Fannie and Freddie. Fannie and Freddie are strong companies, that survived and assault that tried to pin the blame for the 2008 crisis on them instead of Paulson’s former employer, the too big to fail banks.
While the right has a point that Fannie and Freddie mess up pricing signals and cause investments in housing that shouldn’t happen, illegally dismantling Fannie and Freddie is worse than masked pricing signals. As a conservative, I believe that Fannie and Freddie are actually harming our economy by directing resources to where they don’t belong. However, a bigger threat to our way of life is the failure to follow the rule of law.
UST and FHFA agreed to sweep all future profits from Fannie and Freddie, plus a little more, such that all operating capital would be siphoned out of these shareholder owned companies to “protect the taxpayer” by 2018. This agreement happened after it became apparent that Fannie and Freddie would be able to repay all of the money that was forced on them. This was the last attempt to knife the baby. Fortunately for hedge funds that actually have the resources to stand up to our government, the governments illegal actions are being challenged.
One of the government’s reasons for keeping 11,000 documents related to these actions, is that it would cause such a huge panic that keeping document secret is a matter of national security. If the world knew that the US government would steal all assets from shareholder owned companies to further policy goals, capital would flee America. This is the national security threat they are afraid of.
Robert Samuelson, if you want to write a real article on Fannie and Freddie, contact me. I’ll help you out.