Fannie and Freddie FUBAR Foolishly Fluff It
Jan. 26 (Bloomberg) — Fannie Mae, the largest source of
home-loan money in the U.S., said it will need to tap as much as
$16 billion in emergency funds from the U.S. Treasury Department
to stay afloat as deterioration in the housing market persists.
Fannie’s planned request, announced today, follows Freddie
Mac, which said Jan. 23 that it will need as much as $35 billion
more in federal aid. Unprecedented mortgage losses drove the net
worth of both companies below zero last quarter, they said in
separate securities filings.
This will be Washington-based Fannie’s first draw on a $200
billion emergency fund set up by Treasury in September to keep
the government-sponsored enterprises solvent. Fannie said losses
on mortgage loans and a decline in the market value of its
assets accounted for the shortfall in the fourth quarter.
Fannie’s Treasury request was “much worse” than expected,
said Rajiv Setia, a fixed-income strategist at Barclays Capital
in New York. Setia estimates taxpayers will have to shell out at
least $50 billion for Fannie and $70 billion for Freddie this
year. One or both, especially Freddie, may exceed the Treasury’s
backstop this year, he said.
Oh, and by the way — don’t make the mistake of assuming that ‘$200
billion emergency fund’ is just sitting in a savings account, earning
interest. It’s only a commitment — the Treasury doesn’t actually, you
know, have the cash or anything. The $51 billion which Freddie and
Fannie Fubar just demanded will have to be borrowed, hand to mouth, in
the next Treasury auction. Or else Bensane Bernanke will have to print
The moral of this story? Freddie and Fannie Fubar are both Congressionally-chartered enterprises. As their monumental collapse demonstrates, Congress couldn’t run a freaking lemonade stand. Much less a health care system. Take my advice, friends — buy a ‘how to’ book and get your brain surgery done at home, on the kitchen table.