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.
To 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.
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.