Let's Make the Mortgage Due for Fannie Mae and Freddie Mac

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You can call it a bailout, a rakeover – I mean, takeover – or socialism for cash. It's all that and more.

But, whatever you call it, it's not going to last.

The $187.5 billion bailout of Fannie Mae and Freddie Mac back in 2008 was absolutely necessary.

Before you tell me I'm crazy, let me tell you why…

There are no ifs, ands, or buts about it. Forget that Fannie Mae and Freddie Mac caused their own demise – that's another discussion. Once they imploded, they had to be saved for the sake of every American bank, more than a few giant global banks, the U.S. economy, and probably the global economy.

Fannie Mae and Freddie MacTo live and die another day, Fannie and Freddie had to issue senior preferred securities to the U.S. Treasury for bailing them out. The preferreds paid a 10% dividend to the Treasury.

(Remember that Fannie and Freddie don't make mortgages. They buy mortgages from lenders, package them to sell to investors, and guarantee the securities they issue. This all makes them a pretty good investment, so they buy their own stuff by the fistful.)

Of course, there was a problem. Neither could make the payments. So, our government being the generous sort it is, lent Fannie Mae and Freddie Mac money to pay the government. How's that for good business sense?

Well, wouldn't you know it, by 2012, this pair of government-sponsored enterprises were again enterprising and making tons of money.

That's when the Obama administration, never one to miss an opportunity to extract or extort cold hard cash from any wounded-warrior veterans of the economic drain game, changed the rules for being paid back. In August 2012, the Treasury made the dynamic duopolies deliver all their profits to the saviors who bailed them out.

There would be no more piddling 10% dividends – Uncle Sam wanted all their profits. And he got them. To date, Fannie and Freddie have paid the Treasury more than $200 billion. By June, that amount will have risen to an estimated $213 billion.

OK, so they got paid back. We, the taxpayers, got paid back. That's good, that's very good.

So here's what's not very good. We might even call it…. oh, I don't know, bad.

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About the Author

Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

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  1. ASHLEY GOODMAN | May 19, 2014

    I agree with your observations to a large extent but there are some facts missing her. The building and auto industries have always been the backbone of our economy. We went into a recession whenever the President stopped the banks, the insurance companies and the Mays from lending to the automotive industry, and the housing industry as applicable to their respective practices. It was called the Presidential Cycle, two years up, two year down more or less. I was the victim of this cycle many years ago and the pains still lingers. The feds got into the game, the prime architect of the 2008 collapse was in my humble opinion Alan the Greenspan who couldn't smell or see the housing bubble which he had helped orchestrate to get Georgie Porgie re elected. The chairman for the feds was always selcte4d with the understanding that he would try and get the economy percolating merrily at election time. Fannie May and Freddie Mac were important instruments to be used for this assurance. That is why it is still important to see to it that our automotive and housing industry survive. But I ask you where are the jobs going to come from when we are fully robotized and 3D. Will capitalism survive? Will we have to become a socialized world economy. I say with due respect to Karl Marx, "Robots of the World Unite You have Nothing to lose but Nuts…… and ball joints."

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