Some Eye-Opening Data On Fannie Mae

On Wednesday, I wrote this post comparing Fannie Mae and Freddie Mac to the Second Bank of the United States of the early 1800s.

Yesterday, two sources provided some absolutely eye-opening numbers on Fannie.

On CNBC, a reporter noted that the last eleven quarters resulted in, I believe, a $30B loss, which was itself equivalent to the GSE's profit of the prior 30 years. The occasion of this report was yesterday's "earnings," meaning loss announcement by Fannie, of $8B for the first quarter of 2010.

The Wall Street Journal noted, in its lead staff editorial, that Fannie and Freddie were leveraged twice as highly as Bear Stearns.

The Journal piece also stated,

"By concealing how much they (Fannie and Freddie) were gambling on risky subprime and Alt-A mortgages, these companies sent bogus signals on the size of these markets and distorted decision-making throughout the system. Their implicit government guarantee also let them sell mortgage-backed securities around the world, attracting capital to U.S. housing and thus turbocharging the mania."

No private company could sustain this behavior. It would have been bankrupt several years ago, if it looked remotely like either GSE now does.

Of course, it's also evidence of what happens when a government-underwritten entity "competes" in the economy. It drives out all private sector competitors. In the case of mortgage conduits, no private conduit could remain in the broad, mid-market space occupied by the GSEs. Only the jumbo-loan high end could support private conduits, and they dried up in the mortgage meltdown.

As it now stands, Fannie and Freddie have lost $126.9B through the end of last year, and have no limit on the amount of losses we, the taxpayers, will subsidize going forward.

It's a stunning account of horrible management being propped up, and a money-losing strategy being bankrolled with no limit.

How can any economy prosper with business models like these funded in perpetuity?