Fannie Mae-No Politics (FNMA)

[LuLeVan]

"There are no similarities to how both were took over, nor any similarities if either were allowed to fail."

There were huge similarities. Without a bailout, AIG would have gone bust pretty quickly, and the TBTF banks would not have received insurance premiums from AIG for their subprime securitizations going bad. In OTC trades, insurance coverage stops when the counterparty goes bust. Paulson wanted to keep AIG solvent as long as possible, which de facto meant that AIG was held to ransom for the subprime investment mistakes made by the TBTF banks.

In the case of FnF, the strategy was to abuse the general banking and mortgage crisis to drastically reduce their footprint - to the advantage of TBTF banks, which would gain market share. The BOD was forced to make unnecessary risk provisions and DTAs. As a result, FnF had to use more and more of the government's poisoned aid (draw SPS as "concrete life jacket") to avoid receivership. Thus, FnF were also destined to "die in installments" (like AIG) - "so that they never pretend private again."