Why 3.8 million dollars? 3.8 million dollars represents the record setting fine that Freddie Mac had to pay to the Federal Election Commission for hosting over 75 fund raising events for members of ONE house committee in an 18 month period.
This amount does not include the combined 3.5 million dollars spent by Freddie Mac and Fannie Mae in lobbying fees for the first THREE months of this year ALONE.
The issue with this spending is not only the fact that it contributes to government corruption, but that Fannie Mae was started as a government agency in the 1930’s. Fannie Mae later evolved when Freddie Mac was created and charted by the Emergency Home Finance Act of 1970. The Emergency Home Finance Act of 1970 authorized the creation of a secondary market for conventional mortgages. Fannie Mae and Freddie Mac are known as government sponsored enterprises that were created to ensure a reliable supply of mortgage credit throughout the country.
Unfortunately, alarming signs are growing as 150 out of the 7,500 banks nationwide are predicted to fail within the next 12-18 months. The survival of these banks and many more like them are relying heavily, if not solely on the success of Fannie Mae and Freddie Mac. The reason for this dependency is the 1.3 trillion dollars worth in securities issued or guaranteed by the two mortgage companies.
The US Securities and Exchange Commission announced that it will aggressively pursue rumors being spread on Wall Street that have apparently had damaging consequences to otherwise financially stable institutions. Ironically, as this announcement was being made by the SEC, the US Treasury Department in conjunction with the Federal Reserve announced talk based propaganda that would attempt to assist the under performing mortgage twins. Despite the hype, the government committed no actual funds, but was willing to offer an increased line of credit for Fannie Mae or Freddie Mac if need be.
If push comes to shove the worst case scenario for American taxpayers in this situation would be a complete government takeover of the two companies. This would mean that taxpayers would shoulder the burden of the failing companies if the US decided to takeover completely.
One suggestion may be to shoulder the burden with creditors and allow for the current shareholders to pay the price as well. It would only seem fair that the investors that poured money into these agencies’ debt would have to pay the price for financing these expansions to unsustainable levels.
In the end we will have to pay up for the governments failure to address the issue at hand. They put a band aid on a gun wound and hoped for the best. Let’s hope they bring more then that to the next IndyMac.
