Fannie Mae-No Politics (FNMA)

[obiterdictum]

This is the first time I have seen anyone else even think about this. It has been one of my thoughts from the getgo. Was the so caled bailout just turned around and sent right back to the treasury? I believe it was. To bad this isn't part of any lawsuit.

When there is an analytical focus on one or both of the GSEs, the larger financial context of the recession becomes blurred. Such a focus obviates the process by which the GSEs became the US Government's central mechanism outside of TARP and Quantative Easing that was used to manage the public emergence of the 2008 economic crisis that threatened the US economic system.

When it became apparent that cash reserves in the financial markets were severely depleting through 1) the devaluation of assets and 2) linked defaults (default risk) on various types of financial instruments (sub-prime mortgages, MBSs, CDOs, CDO-Squareds, CMOs, CDSs, etc.) that were 3) variously held by a large swath of interconnected US financial institutions (investment banks, commercial banks, insurance companies, mutual funds, pension funds, private banking organizations, etc.) and these were 4) tied to multitudinous individuals and groups with their accounts and assets, it was readily seen that there was a mounting financial disaster that was affecting everyone holding these as well as those holding equities, mutual funds, pension funds, houses, etc. - a systemic collapse was on its way...

Stupidity and greed among financiers, ratings companies, investors, homeowners, etc. led the way to idiotic and unregulated financial risk taking in all the forms mentioned and more. When the negative, ramifying consequences of these behaviors appeared, fear became rampant. Investors pulled their money out of the financial markets, asset values fell, defaults mounted. Liquidity and credit increasingly dried up. Insolvencies and bankruptcies loomed and increased. It was all falling apart.

The immediate solution was taken up by the US Treasury led by Henry Paulson and The Federal Reserve chaired by Ben Bernanke 1) to pour billions of taxpayer cash into illiquid financial institutions and 2) buy up the "bad" MBSs to increase liquidity, reduce the credit crunch, and suck up the all bad debts in the financial markets with strings attached. The means to these ends were TARP, Quantitative Easing and the Conservatorships.

The explicit goal embedded in these financial tactics was for the US Treasury to profit (See Section 2 (2)(C) and Section 103 (1) of the Emergency Economic Stabilization Act of 2008 - https://www.congress.gov/110/plaws/publ343/PLAW-110publ343.pdf) from supplying cash to financial institutions by buying up toxic and other assets and handing out monies and in return receive senior preferred stock and warrants, dividend payments, interest and principal payments, and cash from the institutions' refunds, repurchases of stock and warrants and the sale of stock and sale and auction of warrants through the stock exchanges. (For example, see Section 113).

The conservatorships are under HERA 2008. The original US Treasury's/FHFA SPSPAs with the GSEs were highly onerous and there are many objective and subjective reasons that can be given for this high handed treatment when compared to other institutions in TARP. The third amendment to the SPSPAs is a violation of HERA 2008 and the Administrative Procedure Act (APA) 1946. It appears that the Executive Branch and US Treasury in collusion with the FHFA and indirectly with the US Congress, has made since 2011, a transparent effort to take all of the GSEs profits in violation of HERA, the APA and 5th Amendment of the US Constitution and to later transform the GSE into a quasi-nationalized or fully federal agency of the US Government.

The original $400 billion commitment to back up the GSEs (2nd amendment to the SPSPAs) when there is a net worth deficit, the payment of $187+ billion dollars to the GSE based on the SPSPAs 10% dividend, the net worth sweep, gradual de-capitalization to zero by 2018, and the Treasury provisions in SPSPAs giving Treasury deciding power over repayment of the senior preferred stock and termination of the conservatorships was all part of the tactical plan to hold the GSEs in conservatorship until Congress made a reform plan and bill that jibed with the White House to avoid a veto.

The GSEs are a rich source of cash for the US Treasury and US Government. The GSEs have returned more profit to the US Treasury than the entire TARP program. The US Treasury and parts of Congress do not want to lose control.

It appears with the new incoming administration, the chance for the established officials and bureaucrats on both sides of the aisle to completely dominate the GSEs is over.