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[Tex]

OT re Fannie/Freddie

I saw a Buffett interview, conducted in the safety of Canada, in which he said he thought banks should have to reap what they sowed and that the public wasn't his choice for funding bank bailouts. I did not hear him specifically address Fannie/Freddie, which I don't think were on the table yet.

Do we know Fan/Fred need the bailout, and that they don't just need the confidence-building environment of federal backing?

My question is who cares about these entities? If Congress wants someone to stand behind mortgages, Congress can tell the Treasury department to start a mortgage-backing agency. Oh, wait. The federal government already has a mortgage-backing agency, Government National Mortgage Association ("Ginnie Mae"). Who exactly is screwed if Fannie and Freddie die? Investors who hoped to capitalize on management's risks, I'd hope. The homeowners can't be foreclosed if they're current on payments (that's old property law), and isn't everyone else responsible for what they did trying to make money?

Public bailout of investors' speculative efforts to achieve a return isn't something I expect in any of my own investments, and it's frankly offensive to see it -- even if it's limited to preferred shareholders or debt investors -- in these two entities that could have pulled the handle and stopped the assembly line any time they liked if they really cared about the quality of the business they were doing.

This is, I assume, the idea behind Buffett's disinclination to give the nod to a bank bailout, and I see no reason Fannie and Freddie should get different treatment.

Mind you, I own shares in AGNC, so the loss of Fannie and Freddie impacts the security of my investment's investments.
http://jadedconsumer.blogspot.com/2008/09/making-money-old-fashioned-way-with.html

This doesn't mean I don't expect Congress to pretend to be looking out for homeowners while in fact bailing out institutions holding Fannie/Freddie debt instruments. And it may be that Fan/Fred debt is so widely dispersed that failures would cause big, rippling problems. Anyone got specific thoughts on it? I'm not a Fan/Fred investor so I never DD'd it.

Take care,
--Tex.