SiliconGrassland.com

It’s finally official. The US government is now running the two largest mortgage backers. It’s more of a rescue than a takeover, as both institutions were forecast to go insolvent in the coming months. Collectively they back $5 trillion in mortgage debt, about half of the total mortgage debt today.

I was a little surprised when I read the news, as it was looking like Freddie and Fannie might just need a little additional liquidity to operate until the market stabilized. A full government takeover goes much further. To start with, the existing CEO’s of both companies are now removed, and finance heavyweights David Moffett (US Bancorp) and Herb Allison (TIAA-CREF) will be running the firms. Another interesting development is that the institutions charitable contributions will be reviewed.

It appears that the government wants to cut the fat and get these institutions back to doing their core function: providing stability to the mortgage market. All the special terms for acquiring financing may have caught up to the firms, and it once again shows that government favoritism for private entities doesn’t help anyone in the long run.

Watching this all flush out in the coming months will be fascinating. The losers in the end are you and I: US taxpayers. It will likely cost tens of billions before this is all behind us. This fiasco will be another line item on national budget that has an insane negative number with way too many zeros behind it.