Sunday, September 07, 2008

Fannie and Freddie Flameout

For years the Government-sponsored Enterprises (GSE) known as Fannie Mae and Freddie Mac enjoyed the best of both worlds: They were publically-funded private companies with the implied blessing and endorsement of the U.S. Government.

If you wanted a loan for a home, Fannie Mae promised a way to finance your American Dream. Freddie Mac would buy up home mortgages on the secondary market and repackage them for sale to investors, glowing in the patina of US government sponsorship.

If it was with Fannie Mae or Freddie Mac, you could take it to the bank.
Many did.

In recent weeks the U.S. Treasury Dept. has discovered irregularities in the accounting at both entities, leading the regulators to believe that at Freddie Mac the books were cooked: the institution's capital position was not as rosy as company officials had protrayed them to be.

As I write this, the Federal Government is in the process of taking over both companies, and putting them into a "conservatorship" to protect a total meltdown of the US mortgage markets--which have been on "simmer" for the past 18-months.

Ironic...that both mega-companies enjoyed a near monopoly in the way they operated, thanks to the implied, or sometimes-imagined connection with the US government...which now will very much directly oversee their operations, and possibly, their liquidation.

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