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Fannie Mae is Failing Despite Bailout

November 11, 2008
Jason Green
Main
Now that Fannie Mae is owned by the U.S. government as part of the FHFA, the bailouts will probably never stop for them. Failing government programs tend to have long shelf lives.

Fannie Mae, the troubled US mortgage finance giant, has said that the $100 billion bailout it recieved from the US government may not be enough to keep it solvent.

The company issued the warning after posting a $29 billion profit loss in its third financial quarter on Monday.

…

“If current trends in the housing and financial markets continue or worsen, and we have a significant net loss in the fourth quarter of 2008, we may have a negative net worth as of December 31, 2008,” it added.

(Full article here)

So What Now for Fannie Mae?

Since Fannie Mae has been propped up as an essential backbone to this economy, there will very likely be another round of funding coming out of the federal budget. Prior to September of this year, FNMA was not backed by any sort of federal guarantee. They rose to through the ranks of financial institutions simply based on the belief that the federal government would not let them fail.

Now that Fannie Mae is on the verge of failure, the taxpayers finally “own” the company. In order to back this agency, the Congress had to raise the deficit spending ceiling to $800 billion. Now, after the additional bailouts across the sector, the deficit ceiling is well over a trillion dollars. It’s a good thing we set these “ceilings” in Congress, since every time they need more money, it’s just a simple addendum to “bump” the ceiling a little higher.

Any thoughts on where our “ceiling” will go to next?

3 Comments

3 Responses

  1. Keith Wright  •  November 11, 2008 @6:03 pm

    Ok, folks: the Treasury has made $100B available to the GSEs. It has not yet had to spend any of it. Fannie’s $29B in loss this quarter is mostly a recognition that it will not get to use any of tax write-offs because it won’t see any profits for a while, and that it needs to sock away more money to pay up as more foreclosures happen in the future (Cash in loss reserves do not get to count as assets because it is as if they are as good as already spent). Fannie is now on the verge of needing it’s first pay out from the feds, but actually hasn’t quite gotten there (I believe they are predicting to need some funds by the end of the year).

    This is a very different situation than AIG, which has already received two or three large lump sums from the Treasury.

    I’d also like to throw in that I think the stink about Fannie’s golf trip to Texas for $6k is way overblown, considering how spending just $300 per person is so astoundingly thrifty for such a trip.

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