The Government Finally Figured Out a Way to Make Money

When our Federal Government bailed out Fannie Mae and Freddie Mac back in 2008, the bailout was an estimated $187 billion.  Granted, it was a move that saved the two entities and provided some stability to a housing market that was sinking fast.  Personally, I’m grateful that the two were seen as “too big to fail” because it kept the mortgage lending industry in business and ultimately prevented the recession from becoming a depression.  But what has happened since is anything but fair. 
 
Over the past 8 years, Fannie and Freddie have paid back the government in the form of their profits being seized.  The amount exceeds the bailout by over $50 billion!  That’s right, Fannie and Freddie have paid the government over $237 billion since the bailout. 
The funny thing is that they are no closer to paying back the debt than they were when they got bailed out.  For us math nerds, that is about a 16% annual return on the “loan” that our government made to Fannie/Freddie.  What would your investment portfolio look like if you had similar returns over the past 8 years? 
 
In 2012, Congress changed the rules on the bailout and in effect, made it impossible for Fannie and Freddie to ever pay back the money owed.  Uncle Sam decided that the only way to “protect the American consumer” was to provide Fannie and Freddie with their own liquidity instead of allowing the two institutions to once again build up their own capitol and operate on their own as free standing companies.  They’ve just been keeping the profits that Fannie and Freddie could have been using to re-capitalize.  The one thing we can’t accuse the government of here is not knowing a good thing when they have it. 
 
It is estimated that Fannie and Freddie would have been the most profitable companies (if they were still operating as individual companies) in the world over this time period.
Please don’t take this as a bash against our government.  There is nowhere else I would rather live than here in America and I love my country.  Yesterday was one of my favorite holidays where we honor the men and women who have bled and died for us to live in this great country.  But I’m here to tell you, at least from a financial perspective, that Fannie and Freddie are now permanent fixtures as GSE’s (Government Sponsored Entities) – they will never be privately owned again.  And unfortunately, in my opinion, this is another step our government has taken in the wrong direction.  And one, like many others, that is forcing the American people to be overly dependent on their government.  I’m pretty sure it’s not what John Hancock, John Adams, Ben Franklin, and Thomas Jefferson had in mind when they signed the Declaration.