Financial Reform, without Freddie Mac and Fannie Mae. Worth re-election votes?
Reform the financial markets. Stop the greed of Wall Street. Punish the fat cats. That’s what Congress and the White House are pushig to say as they move to control more private business than ever before in the history of the nation.
Of course this is for the good of the public. More regulation and reform in Wall Street will prevent another mortgage crisis. Give no heed to the fact that many financial reforms have been enacted over the past 30 years, each one right after a massive economic problem, each with the goal of preventing any more problems in the future.
But the really interesting thing, the elephant in the room that no one speaks about, is the biggest problem. At least for right now. Fannie Mae and Freddie Mac.
Before Fannie Mae and Freddie Mac collapsed, things were bad. There is no question of that. But 2 weeks after Representative Barney Frank stated to the nation that there was absolutely no cause for alarm, they collapsed and then the floodwalls broke open. Once Fannie Mae and Freddie Mac fell apart, there was a crisis the likes of which no one (in Government) had ever imagined possible.
Since that time the TARP has been passed. Hundreds of billions of dollars were loaned, often forced, upon banks across the nation. With that funding came the partnership with the Government, even if that was unwanted.
Today, some 65% of all TARP funds have been repaid, much of it with interest. Financial institutions have turned around in a year and posted profits. The repayment of funds has happened so fast that the Government has started to charge the largest 50 banks a fee just for existing.
Taking all of that into account, the net result is that nothing has been done to fix the real problem. Because in all those solutions, in all the media hype on financial institutions and the finger pointing at Wall Street, no one has fixed Fannie Mae or Freddie Mac.
Since 2008, Fannie Mae and Freddie Mac have taken $145 billion in funds to keep afloat. In just the past week Fannie Mae reported losing $13 billion in the quarter with a need for $8.4 billion to keep its doors open. Freddie Mac lost $8 billion and needs $10 billion to be above water. And this is the recovery phase of the economy as the White House keeps stating.
Estimates state that Fannie Mae will need more than $40 billion just to keep operating, though the company itself states its outlook as
“significant uncertainty as to our long-term financial sustainability”
Which matches accurately with the book value of the company which is -86.78/share. The diluted earnings per share (EPS) is currently -13.11 just for Fannie Mae. Freddie Mac has a diluted EPS of -7.89 and a book value of -94.90/share.
Yet legislation to fix this mess, to regulate it and reform it, are not expected to gain enough votes for passage. Does there sound like a disconnect here?
Congress is willing to stand up in front of cameras and state they know what is going on, when they don’t. Congress is willing to blame Wall Street as the loans forced on it are being repaid with interest. Congress is willing to get on the news and implore how they are working on getting things fixed, yet the arguably most critical part of the equation is being left alone, as it slowly continues to sink.
Yet it is the same officials in Congress that are using the Wall Street reform as vindication for their re-election campaigns. Because stating the very obvious, that the problem is still bad and without a fix, probably wouldn’t win many votes. But should anyone vote to re-elect any member of Congress that is unwilling to fix the problem? Should anyone in Government that isn’t trying to resolve this, thus placing the burden on the next generations to be hit with the next crisis, be re-elected?
In November, as the nation prepares to go and vote, check back and see what the book value of Fannie Mae and Freddie Mac are. Check how much more money they will have lost, how much more money America will need to create to pay their bad debts. Then consider the members of Congress up for re-election and their boasts on how the Wall Street reform “fixed” the economy. Then go vote.
May 11th, 2010 at 6:46 pm
[...] Mae and Freddie Mac have been funded with $145 billion in taxpayer dollars. According to statements reported on this blog yesterday, there is no end in the foreseeable future of the need for more taxpayer money. Estimates range [...]
May 11th, 2010 at 7:01 pm
[...] Mae and Freddie Mac have been funded with $145 billion in taxpayer dollars. According to statements reported on this blog yesterday, there is no end in the foreseeable future of the need for more taxpayer money. Estimates range [...]