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Wednesday, February 2, 2011

The "Perfect Bailout"

Sometimes one finds a news item or a commentary piece that makes a point so succinctly that it wouldn't do justice to simply quote a sentence or paragraph.  Thus, the following commentary is from Yahoo Tech Ticker, reprinted in its entirety with full credit to the author.  Any underlines/bold font is mine & my thoughts will be expressed at the end of this posting in blue font...

THE PERFECT BAILOUT: Fannie And Freddie Now Send Taxpayer Cash Directly To Wall Street

by Henry Blodget    Feb. 2, 2011

As the terror of the financial crisis recedes, many folks have forgotten about the two huge taxpayer-owned mortgage companies, Fannie Mae and Freddie Mac.

But they're still there, money-manager Barry Ritholtz reminds us.

And they're still sending billions of dollars of taxpayer cash directly to Wall Street, in what might be described as the "perfect bailout."

How does this bailout work?

Fannie and Freddie got a "blank check" from Treasury Secretary Tim Geithner at the end of the financial crisis. This blank check allows the housing giants to lose as much money as they want, with the taxpayer footing the bill.

Fannie and Freddie use much of this money to buy mortgages from Wall Street at what may be grossly inflated prices.  This is a super arrangement for the banks, because they get to unload all their terrible mortgages at prices that won't produce losses. And it's fine for Fannie and Freddie because, well, because they have the blank check.

But of course there's no free lunch. And in this scheme, the US taxpayer is, as usual, footing the bill.

In other words, Fannie and Freddie are now doing what the Treasury wanted the original "TARP" bailout to do--use taxpayer money to help banks clean toxic assets off their balance sheets.  Unlike the original TARP, however--which justifiably outraged taxpayers--no one knows or cares about what Fannie or Freddie are doing.

So, it's the perfect bailout.

I addressed this the other day in my posting on "Securitization"

Since September 2008, the government has been spinning quite a lot of 'plates'- TARP, bailing out banks domestically and globally, giving bank status to non-banks so they can receive bailouts, using taxpayer money to prop up the auto industry, Freddie/Fannie Mae and its recent charter to intentionally lose money, etc.. etc...   

And its hard for most people to follow all the shell games being played with their money.  People are busy working, or seeking employment..  trying to make ends meet and so forth. 

And the news has the attention span of a 3yr old.  It changes focus from topic to topic in a mere 24 hr. news cycle, while providing no analysis, depth or clarity to their coverage.  Meanwhile the everyday man and woman is getting fleeced and F'd over at every turn, and unless you're a banker or serious investor, it doesn't look like things are getting any better for quite a while

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