Feb

The Bleeding Continues at Fannie and Freddie

Politicians sure are good at spending other people’s money.

The Wall Street Journal: When Charles E. Haldeman Jr. became Freddie Mac’s chief executive officer in August, the ailing housing-finance giant had already consumed $51 billion of government money to stay afloat. It’s likely to need even more.

Freddie’s federal overseers nevertheless have instructed Mr. Haldeman to focus on something that isn’t likely to make the bleak balance sheet look any better: carrying out the Obama administration plan to allow defaulted borrowers to hang onto their homes.

On a recent afternoon, employees at Freddie’s headquarters here peppered Mr. Haldeman with concerns about the company’s future. He responded that they were “fortunate” to have such a clear mission—the government’s foreclosure-prevention drive. “We’re doing what’s best for the country,” he told them.

[...]

But Fannie and Freddie remain troubled wards of the state, with no blueprints for the future and no clear exit strategy for the government.

Nearly a year and a half after the outbreak of the global economic crisis, many of the problems that contributed to it haven’t yet been tamed. The U.S. has no system in place to tackle a failure of its largest financial institutions. Derivatives contracts of the kind that crippled American International Group Inc. still trade in the shadows. And investors remain heavily reliant on the same credit-ratings firms that gave AAA ratings to lousy mortgage securities.

Fannie and Freddie, for their part, remain at the core of a housing-finance system that inflated a dangerous housing bubble. After prices collapsed, sending shock waves around the world, the federal government put America’s housing-finance system on life support. It has yet to decide how that troubled system should be rebuilt.

On Dec. 24, Treasury said there would be no limit to the taxpayer money it was willing to deploy over the next three years to keep the two companies afloat, doing away with the previous limit of $200 billion per company. So far, the government has handed the two companies a total of about $111 billion. ….

So, why are they doing this?

1: To keep the housing bubble inflated.

2: For political reasons – use our money to buy votes.

3: It’s a convenient way to spend our money without having to ask Congress for the funds.

They’ve learned absolutely nothing from economic crisis, other than not to let a good crisis go to waste. But they already knew that.

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