Fannie Mae and Freddie Mac are the two largest mortgage companies in America with their roots stemming back to the Great Depression when FDR formed them as part of his New Deal to handle the majority of America’s mortgages and mortgage repackaging. Ever since, these two government-sponsored institutions have monopolized the mortgage market. This means easy money when people are buying homes.
And it means a colossal public failure when the economy spirals out of control.
In January, the combined companies were valued at approximately $60 billion. Yesterday, they stood at $10 billion. Today, little is left except some pocket change.
A government bailout is more humble and face-saving than a bankruptcy. It also implies that the government sees the business as too vital to fail. However, these events will force some $5 trillion in guaranteed mortgage securities held banks and funds (China’s central bank alone holds $340 billion in mortgage-backed securities) around the world to be the responsibility of the government. This “conservatorship” agreement could force taxpayers to support any losses related to collapsed mortgages from Freddie and Fannie.