this >>>>>>>>>>>
Some investors are worried about investing in these two giants of the mortgage industry. It seems there is a fear about the U.S. government liquidating them and causing their stock to be worthless. Well lets see if there is really any need for concern. First, lets recall the government illegally made an investment to help keep these companies that were owned by private shareholders, from going under and hurting the entire world ecomony. In return, both companies gave them preferred stock and allowed a stipulation that the government could suck up all their future profits. This deal was done because the government was so afraid of a major crisis it decided to enter the mortgage business just like it had done with the insurance industry (AGI), the automobile industry (GM), and the banking industry.
This time though the government decided to take permanent ownership of Freddie ("FMCC") and Fannie ("FNMA"), and unlike the loans it had made to the other private companies, this time it took the stock of a private company. This was not only illegal but unethical as well. Lets look at the Fifth Amendment to the U.S. Constitution in what is called the Bill of Rights:
No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.
Now there are three important and applicable statements to the current situation of Freddie and Fannie in the amendment. First, the government has no right to deprive its citizens of their property with due process of law. Here there was no court case or legal affirmation that would allow the government ownership in these companies. Moreover, there was no stockholder meeting to approve such an action. In addition, the government has not allowed stockholder meetings required of public corporations under SEC laws since its takeover. Second, there is no public use which could be justify such permanent actions since the amount of money given to these companies will be repaid by the end of the year 2013 or 2014 with interest. Remember, these two companies have paid the Federal government about $132 BILLION over the past two years of the $188 billion that was given to them! Yes, a loan along with temporary ownership would have been okay (like that given to AGI and others), but not the taking of private stock, especially without shareholder approval. Third, if and I say, if the government decided for the good of the United States it needed to take control of Freddie and Fannie it must give "just" compensation. What is just? Well such a determination would have to to made on both the current and future earnings capacity of the companies. Now that both Freddie and Fannie are earning large profits that could be upwards of $50 to $100 a share on both common and preferred. Thats a tremendous amount of bananas for the government to be paying out! So its plain and simple. What the government did to Freddie and Fannie was illegal.
Now lets look at thia for another legal perspective. The last time I looked we who live in the U.S. still live in a democracy with a free trade system. So Federal government can not start taking over public companies. They do that in communist countries and dictatorships. Furthermore, it the stock is recovering than the U.S. government has exceed its authority under the constitution which states the government can't just come into peoples homes, open their safes, and help themselves to your property, like your jewelry or cash or stock certificates. When the huge second quarter earnings report for these companies comes out, it will be gigantic. Its then the fuss will become an uproar about BIG government interference. Plan on an uprising with words as posion arrows and the courts using pitch-forks.
So have "No Fear" the courts are nearer than you think. And the government if it doesn't re-privatize the public companies of Freddie and Fannie soon IS going to lose big, simply because before all this happened they didn't even own one share of these companies. But now they think they have the right to all their future profits huh?
Of course, the Republicans want to liquidate Freddie and Fannie because they are sending significant monies to the Federal government thereby aiding the increase the size of government, which they are against. The Democrats want the government to keep all the money coming from these companies so as to help with the national debt and the sequester budget cuts. But when investors see massive monies being sucked out of these companies above what was given, they will be turning red, or should I say green, because investors lost lots of money due to their decline and now they want their holdings returned to their safe.
I still ask the question who do you think is going to be originating mortgage loans in the future since most U.S. residential mortgages are sold to Freddie and Fannie? A new company like "The Federal Mortgage Company." What a joke! Another company that will operate the same as Freddie and Fannie? O boy what a solution as the government fills its caravans with the earnings of Freddie and Fannie. Wow a country of unhappy citizens.
Of course, the simple fix for Freddie and Fannie is to re-privatize them, and work out a simple repayment schedule like what was done for the other companies like AGI and GM and the banks. The government will be repaid quickly (by the end of this year or next). Does anyone think investors will take the government's continued dipping into the profits from these companies sitting down?? Doubt it. Double doubt it. Freddie Mac and Fannie Mae were models for increasing home market sales and are still great models. They allow people to buy homes. We just need to limit the amount of "variable" (sub-prime) mortgages they can buy from banks. There is no mechanism that can replace them unless you want the home sales market to to go belly-up, then another depression.
Importantly to note, if Freddie Mac and Fannie Mae are senselessly liquidated it will be the Federal government that will take those "trillions" of dollars in mortgages onto our country's balance sheet. It will force the government permanently manage them and become part of the mortgage industry. Nobody wants that. Besides, the risk of the national debt rising is considerable since more Federal spending would be required to shrink those huge mortgage portfolios.
To those in Congress, I suggest they stop talking about liquidating and start talking re-privatization. That is, unless they want another embarrassment. Gee, another scandal - extra extra read all about it - government steals monney from citizens? Sound far fetched? Ask Darrell Issa if scandal isn't his middle name.
A suggestion: Don't bet against Freddie Mac or Fannie Mae.
