Sunday, June 20, 2010 0 comments ++[ CLICK TO COMMENT ]++

Sunday Spectacle LXXV

Fannie Mae and Freddie Mac are Delisted

The government agency in charge of Fannie Mae and Freddie Mac told them to delist their shares. I'm not really sure what this means since the market cap of their shares was still roughly $1 billion... This ends a multi-decade attempt by the government to utilize a public-private partnership structure to facilitate purchase of homes by Americans (there is still Ginnie Mae and Farmer Mac.) The structure probably doesn't make much sense given how profits accrue to private investors during the good times, while losses accrue to taxpayers during bad times. I'm not in favour of such structures and would prefer something to be privatized completely. As you could tell from the charts private investors, including Warren Buffett and several other value investors at one time, made a fortune in the 80's and 90's; but taxpayers ended up massive losses (not shown by the share price graphs) in the late 2000's.

Although Fannie Mae and Freddie Mac get a lot of blame for the subprime problems, they really weren't a player in that market and basically curbed their activities in the early 2000's. Once the current problems are long forgotten, I believe Fannie and Freddie will be remembered for putting a floor to the real estate market during the collapse in 2008-2009. Without the government "forcing" them to provide liquidity to the real estate market during that time, USA would likely have seen a far worse real estate bust with even more financial insitutions failing (basically no mortgage lender wanted to finance anyone in 2008/2009 and the GSEs were the only ones that stepped in to fund mortgages.) I think the cost borne by the taxpayers was worth it but the ultimate outcome won't be known for a few decades... It's just that these companies never should have been allowed to be owned by private individuals while the company was backed by the taxpayer.

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